Lost all docs, CGT, Residential property.

Discussion in 'Accounting & Tax' started by Love Life, 30th Dec, 2021.

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  1. Love Life

    Love Life New Member

    Joined:
    19th Dec, 2021
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    Australia
    Hi everyone.

    I have been a property investor over the years and generally acquired vacant blocks of land and built a house on them and then leased them out. I had kept some of them for almost 15 - 20 years and it was my intention to keep them for ever really to keep the rent whilst utilizing the negative gearing tax advantages.

    Issue is in the last couple of years under extraordinary circumstances which is both genuine and provable, I have lost all the records etc and now need to urgently sell a couple of the properties. I built some of these properties using owner builder permits and the builders license only of a now deceased builder mate of mine. I paid for everything myself every step of the way.

    Hence it is not easy to just go to the builder and request a copy of the receipt/invoice. I have even lost details of the various tradesmen that worked on the site.

    Without sufficient documentation to prove my cost base, How can I substantiate the build cost of each property which would be in the vicinity of almost $400k - 500k each. This would be equal to a huge tax savings. I am more then happy to spend the money & obtain 2 or 3 independent QS reports for each property from various professionals.

    Any advise would be appreciated.
     
    Goosehead likes this.
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Sydney
    You have a problem. The onus is on you to substantiate the cost. This is typically through source records and often also supported by secondary records BUT secondary records arent in themseleves substantiation evidence. example - The payments to the builder may have secondary substantiation through payment records if you paid using EFT etc. QS valuation is not a option. The ATO will reject that. Bank records can always be obtained years after accounts are closed. It wont be cheap but they can be obtained. The ATO often do this and taxpayers are shocked how accessable the data is.

    In the absence of substantiation the ATO may merely consider a reasonable (and low) value as acceptable or they may refuse that also. The onus in on YOU to show them not for them to accept your claims. Given it was a OB situation I would argue they will not allow any cost to be recognised. eg Did you BUY timber ? Did you steal it ? Did you get it as a barter for doing work ? Or just what your bank records can demonstrate if they are acceptable.

    Excuses about fires and lost records and dogs eating paperwork are the stuff of bad outcomes on appeal. Tax law is specific for the need for taxpayers to satisfy the Commissioner. In the absence of this the ATO can disallow and adjust calculations and impose penalties.
     
    Piston_Broke and Scott No Mates like this.
  3. Love Life

    Love Life New Member

    Joined:
    19th Dec, 2021
    Posts:
    4
    Location:
    Australia
    Thank you for the reply Paul.

    I have spent weeks to trying to gather all the info with no luck. I would be lucky to even substaniate even 10% of the build cost.

    - How would the ATO calculate a default assessment in this case if they don't accept my QS reports.

    - Can they just Pluck a number from the air or do they even have to prove this.

    - does the ATO have an internal QS team that they rely on for costs such as to provide very low value etc.
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    The number beyond your own records of costs that the ATO would "pluck from the air" is likley $0 . You could seek a private ruling for guidance however as the Commissioner wont disregard their own rulings and views on substantiation you may be up the creek and that request may pose a risk. Tax law has many areas where the framing of CGT laws considers that taxpayers have a obligation as the original persons incurring costs to know their costs and to retain records. Even one adminstrative concession allows this to also be safeguarded by their tax agents and advisers.

    The ATO however do encounter people affected by disasters and all sorts of issues and can be obliging. You need to weight disclosure v their potential to take a strict approach. They will have concerns you may be seeking to overstate low costs as a owner builder to include a labour factor for example.

    The ATO dont assess they way you describe. The onus is on the taxpayer to correctly calculate their taxable income. The ATO can amend any taxpayer calculation and this issue may also have no time limit as they could apply the evasion and avoidance rule which leaves that open forever. E & A doesnt need a intent to defraud to limit tax. It can include mistake or error.

    How did the QS construct their report ? They may hold suitable records of "cost" in their archive files however if the QS report was based on a walk through rather than "cost" it may always have been incorrect and a risk. Paying for retrieval and the original QS giving advice could assist.
     
    qak likes this.

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