Market Value or Percentage of Time - CGT - Which is it ?

Discussion in 'Accounting & Tax' started by Mike A, 2nd Mar, 2020.

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  1. Mike A

    Mike A Accountant Business Member

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    Market value or percentage of time. Which is it ?

    Many people get confused when this question is raised and they sell a property and have to pay capital gains tax.

    Bob owns a property that he purchased and moved into straight away making it his main residence. In 2018 he moves out and turns it into an investment property. So is capital gains apportioned or is the cost base (for laypeople it's like a reset purchase price) the market value when first rented.

    In this case Bob resets his cost base to market value of the property when first rented and capital gains is worked out on the difference between the sales price less the reset cost base.

    But what happens if Bob purchases a property, makes it an investment property from day one and then moves in 3 years later and makes it his main residence.

    In this case capital gains is calculated as percentage of the time it wasn't his main residence. BUT he doesn't get to reset the cost base to market value when he moved in.

    Yes Bob it is very confusing I know.

    #realestate #property #capitalgainstax
     
    craigc likes this.
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    In many cases a prorata is applicable and this may be based on time and/or area (yes both). In other instances this is not allowed. And in some cases a costbase must be ignored as special rules apply. And there are instances where a 100% exemption is halved (often based on time too) or even lost. As well as instances when a CGT discount may be allowed for some of the gain based on valuation or even time or even both !!

    Its very easy to overpay and underpay CGT. I rarely ever see a client self assess the correct CGT profit and recommend advice that confirms the self assessed position and calculation and all the options (elections) that may be available. There are countless variables to this in some cases and an experienced tax adviser can address the solution easily. Many taxpayers either mistakenly over simplify and get it wrong or dwell on the complexities when to an experienced tax adviser the solutions may be straight forward as we see this a bit.
     
  3. craigc

    craigc Well-Known Member

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    And if that’s not confusing enough, Bob may also be able use a 6 year absence rule on top of the above to reduce/adjust further any CGT depending on his circumstances.
    #CGT good luck!