Documents Required When Selling IP to Calculate CGT

Hello All

I've only ever focused on keeping records for tax at the end of each finacial year.

Let's say I sell an IP after owning it for 10 years, what figures will the accountant want
to calculate / minimise GST (assume property is owned in my name only) ?

Eg. Apart from the obvious what I bought the property for and what I sold the property for,
do I need to keep records of how much depreciation I claimed each year etc ?

Thanks

 

Outlined here Matt
Tax Tip 76: Calculating the Cost Base for CGT purposes.

 

BMT explain how it all works here Capital Gains Tax (CGT) and Building Depreciation | BMT
Your accountant will be able to calculate for you and work out your tax position accordingly.

 

Perfect, Thanks so much @Terry_w & @Jacque

 

Property + Land Purchase Price
Land - Purchase Price
Building Construction
Inherited assets - Either market value on date of death or original cost

Acquisition Costs - Do not include any costs for which a tax deduction has (or will) be claimed
Legals fees to acquire
Buyers Agent
Broker (not loan broker)
Auction fee charged to buyer
Valuer / Surveyor
Transfer of Title - legals
Stamp Duty less FHOG
Search fees on acquistion
Bank title fees
Mortgage discharge fees charged to buyer

Costs of Ownership - For which a tax deduction has never been claimed
Interest
Rates
Land Tax
Repairs & Maintenance
Initial repairs & later capital improvements :
Insurance (Building only)
Fencing
Landscaping and horticulture

Costs to Preserve Ownership
Rezoning
DA Fees
Survey boundary
Council fees
Subdiv costs prior to subdiv sale
NRAS fees

And for most owners who have claimed QS deductions the QS reports are needed as cost base adjustments will be required. These adjustments do not always apply but are common. Any deductions for depreciation / cap allowances generally are clawed back as a cost base adjustment (downwards) and can add up.

 

Can someone please explain what happens to the final figure of the cgt. Does it get added to your personal income for the year then all taxed at once as I don't understand how they came up with the following.

going by the example link of bmt that @Jacque posted, there was a figure of 45k. They then taxed 45k at 37% and came to 16650 that's payable.

Why 37%?
Did this 45k get added to someone's yearly wages which assumes it will be taxed at 37% as they would be in that threshold?

If hypothetically, a person does not work for a year at all, and produces no income, and still sells the home with 45k cgt, how is this 45k assessed, would they still pay 16650 in tax?

 

Yes the capital gain, after expenses and discounts etc, is added to your other income for the year and you then pay tax on it at your marginal rate.

 

So would that mean, ignoring other costs, if i purchased a property for $500k and claimed $50k depreciation against income over the years, that the purchase price will be considered to be $450K when it comes time to calculate CGT?

 

If by depreciation you mean plant and equipment (the moveable stuff) depreciation, then no, those claims do not reduce your cost base.

However, if you have claimed "capital works" (if you got a quantity surveyor report then chances are you probably have claimed capital works), then the sum of the capital works claim in the past does reduce your cost base.

So in your example of $500k cost plus - if the $50k is plant and equipment depreciation then your cost base remains at $500k. If $50k was all capital works claimed in past years, then your cost base is reduced to $450k.

Check your tax return, the "capital works" deduction should have been disclosed as a separate item in the supplementary pages if you claimed any.

 

Thanks for the clarification. One more question - this one regarding how carried forward capital losses factor against capital gains. If my gain after selling a property qualifies for the 50% CGT concession, is the loss applied to the pre-50% discount figure or applied to the after concession figure?

 

It will favour the goverment of course. Losses applied first and then the 50% discount applied if there is any gain left.

 

And it can also be affected by any periods of non-residency. But there may be issues with pro-rata exemption if you have ever lived in the property too.

I generally find most client fear a CGT calculation but when its done they have a clear knowledge of the potential tax impact and its often lower than they think. The exception is clients who DIY their own basic calcs can be struck with surprises through not considering :
- Improvements
- Acquisition costs
- Cost base adjustments for cap allowances and depreciation claimed etc
- Selling costs
and some made fundamental errors especially where a property was once their home and then it commences to become a IP. A totally different CGT rule may apply which can be either good or bad.