CGT calculation duration

Discussion in 'Accounting & Tax' started by SydneyInvestor, 2nd May, 2017.

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  1. SydneyInvestor

    SydneyInvestor Well-Known Member

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    Hi All, have a quick question please if someone can help on this.
    My friend bought a land (signed contract for the land) on 3rd Mar 2016 and nominated it on my name in May 2016 as he didnt want to continue with that sale.
    The land was settled in Oct 2016 and I sold t further on 8th Mar 2017 on say $20k profit.
    Now , would the CGT would be calculated on $20k or $10k.
    I thought one year is considered from the date of sign of contract but my accountant is saying that one year is considered from the settlement date.
    Can someone please help on this.

    Thanks
     
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Did you merely acquire it so he didnt lose the full deposit and your intention was to merely quit the land as soon as possible ? Or did you buy it to help him out knowing you could make a small profit and help him out ?

    Why did you become involved ? Is your friend intended to get a small share of any money. Has he already got the deposit back ? How did that work ?
    Your reply will affect my next post

    There is far more to this simple question than first realised. My initial view is that NEITHER answer is correct
     
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  3. SydneyInvestor

    SydneyInvestor Well-Known Member

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    Thanks @[email protected] , Your second point is right. As he could not execute the full settlement himself so I thought of helping him and also making some profit as suggested by him. I will give him back his original deposit now and will mutually decide on something as a profit. But does it really matter as loan, land and everything was on my name after nomination and CGT will also be added to my income only.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    Interesting question that I have never thought about before.

    If you were nominated I would think the relevant date would be the date that he entered the contract.
     
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  5. Rob G

    Rob G Well-Known Member

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    Settlement is unlikely to be the relevant date because disposal occurred under a contract.

    You may need legal advice concerning the precise terms of the contract.

    You may have acquired the asset under an assigned contract. See section 109-5 ITAA97.

    If this is the case then the date is when you agreed to be nominated, i.e. in May 2016 because you became a party to the contract.

    Alternatively, you need advice concerning whether a "nominee" later added is still the same contract for CGT timing. If it is then March 3 may be the relevant date.

    The legislation only makes reference to "the contract" under which the disposal occurs.

    I suspect the Commissioner would use a look-through approach and consider your ownership interest acquired under the contract as opposed to the initial contract.

    Could get messy.
     
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  6. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I dont think the date of the contract matters. The sale settlement date will be relevant for a profit making issue as its not a CGT event affected by the specific rules applying to the type of CGT event.

    Why ? Based on (limited) information it seems the arrangement was an intention to assist the friend and a profit making intention was a determining factor in assisting. When a isolated profit making intention occurs the MT 2006/1 suggests that an ABN is required. And GST will apply to a taxable supply of land as it is not input taxed residential premises and is an isolated profit making transaction with a value that exceeds the $75K threshold.

    GST of 1 x 11th will apply unless the margin scheme is used in the sale contract (already ?) and both parties are registered AND the land is eligible for the MS. I suspect that was overlooked so GST is 1/11th. The GST will reduce the profit. That could hurt the profit. It normally does. The Commissioner carefully reviews land sales for the GST issue and detection risks are fairly high. Likely to be treated as evasion and penalties applied.

    The profit isnt arising from a CGT asset and is ordinary income. Depending on the arrangement you may actually be agent for a partnership. But the ATO probably would ignore that anyway for simplicity
     
    Last edited: 2nd May, 2017
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  7. SydneyInvestor

    SydneyInvestor Well-Known Member

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    Thanks all!!
    @[email protected] , sorry but it was too technical for me to understand :)
    What mainly I understood was that the CGT will be implied on full profit but not on 50%. Please correct me if I am wrong, thanks! :)
     
  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    1. GST of 1/11th x sale price may be a debt the ATO will want to collect
    2. Yes not a CGT issue at all but a ordinary income issue - Much same as not having a 50% discount. But the GST may reduce the profit

    Worth getting tax advice.
     
  9. Rob G

    Rob G Well-Known Member

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    Buy and sell vacant land.

    Were you purchasing to sell at a profit (i.e. flip) ?

    Different system of assessment for businesses or profit making schemes of a commercial nature.
     
  10. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    See OP's post at 12:06
     
  11. SydneyInvestor

    SydneyInvestor Well-Known Member

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    Thats what I tried to do...but seems my tax accountant is not that expert in such kind of transactions....Can I get some external help or advice for this scenario......any contact or references pls.....thanks!
     
  12. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Call me. Happy to chat. Perhaps a solicitor may help if you got poor advice ?
     
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  13. SydneyInvestor

    SydneyInvestor Well-Known Member

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