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How is capital gains tax worked out on a holiday house (never rented) when sold?

Discussion in 'Accounting & Tax' started by wylie, 7th Aug, 2015.

  1. wylie

    wylie Moderator Staff Member

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    A family member has had two completely different answers from two different people (one was their accountant) on a question they need answers for. The second answer was from someone else who should know, but I cannot recall if it was the ATO or maybe their solicitor.

    They bought a holiday unit in 1996, used it for weekends and holidays. It has never been rented.

    They sold their house in Brisbane and moved into the holiday unit a year ago (2014).

    They bought a house nearby six months ago and it is being renovated and they will move into it in December 2015 and list the holiday house (which they will have lived in for say 18 months).

    What is the capital gains tax situation on the profit they make on the holiday unit?

    Assuming they do pay capital gains tax, can they add BC fees, rates, money spent upgrading things in the holiday unit to the cost base? What about interest on the loan used to purchase it?

    They are retired and I think the income they get comes from shares.
     
  2. jrc

    jrc Well-Known Member

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  3. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    If you sell the holiday home, you cannot claim the full main residence exemption because the property was not your main residence for the period from the purchase date. However, you will be eligible for a partial exemption for the period you moved into it to the contract date (sale).

    The formula for calculating the amount of capital gain which is taxable after you apply the partial main residence exemption is:

    capital gain x non main residence days
    total days in ownership period

    As you couldn't claim things such as interest, council rates, body corporate fees (etc) as the property wasn't available for rent then they can be added to the third element of the cost base.
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Could this property classify as the main residence :) Its the main residence exemption. Not the only residence exemption.
     
  5. wylie

    wylie Moderator Staff Member

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  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Wylie - Third element cost base items are ownership etc costs incurred for which a tax deduction has never been claimed. ie when it wasnt a IP !! The hidden tax deduction that doubles its value. Thats rights twice the value. Unless the cap gain is 100% exempt then is taxable to a degree.

    Better that tax advice is left to those qualified and registered.Its illegal to provide general or specific tax advice if you arent a tax agent. Moderator or not. Fines are huge.

    What does it take to be a moderator of tax information ??Simon ?
     
    Last edited: 7th Aug, 2015
  7. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    I dont think we need moderators with specific skill sets. Its just people sharing opinions not providing advice. If they were providing specific tax advice then maybe an issue but if just asking what if ? I think this ? Broker told me this ? I dont consider this to be the provision of tax advise.
     
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  8. wylie

    wylie Moderator Staff Member

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    Thanks Paul and all. Don't want to get anyone into trouble. I am fairly sure their accountant told them anything spent on it could be added to the cost base. Someone else contradicted that.

    I shall suggest they listen to their accountant but also suggest they call the ATO though my mother used to call both Brisbane offices of the ATO and get two very different answers.
     
  9. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Yes its unfortunate the ato call centre frequently gives different answers. In fact i was told just recently that children under 18 receiving distributions from a testamentary trust were taxed at 15%. Thats the ato themselves. Then got a return call to say that advise was wrong which i knew it was. Private binding rulings will generally provide the answer one needs but you dont want to get one of those every time you have a question.
     
  10. wylie

    wylie Moderator Staff Member

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    I am asking a question. I am not offering advice.
     
  11. geoffw

    geoffw Moderator Staff Member

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    Paul

    I'm not sure where you see the advice being given.

    Wylie asked a question in the opening post. Three people offered responses, one was from the ATO. She said that she would send the link from ATO to those people. I can't see that that is advice.

    If the problem is that Wylie, like myself, is a moderator of the "Accounting and tax" board- we all are moderators of all boards. Our job is not to review content for accuracy or to provide advice- it is only to ensure that posts are kept within rules.