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Please forgive this newbie CGT question :)

Discussion in 'Accounting & Tax' started by Strat Man, 16th Nov, 2015.

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  1. Strat Man

    Strat Man New Member

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    Hi all,
    I'm new to all this and have a question about CGT for a property that was once my home.

    Scenario-
    Bought our house 23 years ago for 150K and lived in it with the family for 16 years, it was our home lots of great memories.
    It had a big backyard so subdivided the block and built another house at rear 9 years ago and moved into that and nominated the new house as our primary residence.
    Have rented original house on and off over the past 9 years. Have made various improvements to it both in the 16 years we lived in it and since we have been renting it.
    It is estimated to be worth about $650K now. All in joint names and we both work.

    I was wondering what the CGT might be? and how would it be calculated.
    Appreciate any feedback
     
  2. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi Strat Man

    It will depend on what the "value of the front dwelling & its land" was considered to be at certain points in time compared to what its value is considered to be now.
     
  3. Xenia

    Xenia Adelaide Property Manager Business Member

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    Hi Stan
    I believe that capital gains tax is apportioned for the time it had been used as a rental
     
  4. wogitalia

    wogitalia Well-Known Member

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    On a very quick reading this is a pretty complex one.

    The original cost base for the whole property is allocated on a "reasonable basis" (generally just area but if one half is particularly more valuable land you might need a different system) to determine the cost base of the two properties. So that 150k will be apportioned, lets say 50/50 for simplicity, so 75k per property.

    Based on what you have said it is likely that the "first used to produce income" rule will kick in and that the cost base for CGT purposes will be the market value at the date it was first rented. So it's likely that is going to be your cost base, so you will need to determine that for further calculations. There could be a couple of reasons this rule doesn't automatically apply in which case you would apportion the main residence exemption time against total holding time, I'd say it seems likely the rule would apply but can't be certain without more information.

    After that you've owned it for more than 12 months so would get the 50% discount on any gain.

    As always, I'd seriously recommend talking to your accountant with all the relevant information. He will know your specific circumstances better and can ask the relevant questions to know exactly what the deal is this one is a potentially tricky calculation.
     
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  5. Strat Man

    Strat Man New Member

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    thanks so much for the replies,
    I shall check with the accountant.
    We did try to sell it briefly about 8 years ago and at that time the valuation was around 630k so it has not moved too much higher in the last few years. So that was the valuation around when we vacated and moved into the rear property. We still have all the sale info and valuation from that attempt if that helps?
     
  6. wogitalia

    wogitalia Well-Known Member

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    Certainly wont help. It's basically whether that rule applies or not as to whether that is used or if you apportion the original cost base and go from there.

    Based on the above, it's probably beneficial if the rule does apply in your case.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I would think as Wogialia mentioned. Could claim the main residence exemption and then the value at the date it is rented out will determine the cost base. The one you are living in now will not be free of CGT though and this would be worked out on a percentage basis of days lived in v days rented. The cost base for this would be be the portion of the land and all other costs not otherwise claimed.
     
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  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A typical CGT issue requiring specific tax advice to avoid overpayment due to error. Its not simple but not overly complex either. The complexity lies in the issue that BOTH cost bases need to be determined not just one of them.

    1. s118-192 applies - Value of front former home at date first earned income will be relevant as a start point. The on/off nature of that property not a real issue since only the rear can be a main residence (exempt). Of course some costs will reduce the CGT...Also any QS deductions claimed may affect cost base too. As will selling costs etc.
    2. Need to review main residence election issues. Likely none available for front.
    3. Need to split cost base of front / rear based on reasonable basis (valuation split?) Use of area alone will be unreasonable. (Just because front is based on s118-192 doesn't mean rear is !!).
    4. Cost base adjustments to both lots

    I would think a valuer's opinion will be needed. Not a substantial cost.
     
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  9. Strat Man

    Strat Man New Member

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    thanks for you responses, apologies if I did not make it clear,

    We only contemplating selling the orginal house that we purchased 23 years ago and the figures mentioned apply to that. We shall continue to live in the newer home that we built and moved into 8 years ago. It is our PPOR. Both are separate titles no body corp or common property. etc
    Not sure if that changes things for CGT?
     
    Last edited: 17th Nov, 2015