pre-1985 assets - Real Estate

If a PPOR residence was purchased pre-1985 & a few years later another dwelling was built on the same title of land which has always been leased out since day 1, if the property was sold (both dwellings since it's one title) would the PPOR exemption & also the pre-1985 assets exemption kick in for the whole sale price or how this be treated?

 

What year was the second property built?
Marg

 

Perhaps half exempt if half the property is ppor?

Might depend on size, cost, timing

 

Section 108-55 of the ITAA 1997 treats a building or structure constructed on land acquired before 20 September 1985 as a separate CGT asset if the construction contract was entered into on or after 20 September 1985 (post-CGT), or if there is no contract, construction started post-CGT. There are no threshold conditions that apply to section 108-55 of the ITAA 1997.

Because the capital proceeds from the sale of the property will be in relation to a pre-CGT and post-CGT asset, you will need to apportion the capital proceeds between the separate assets.

Subsection 116-40(2) of ITAA 1997 applies the apportionment rules to CGT events where only part of the payment relates to an assessable CGT event.

Only the capital gain or capital loss attributable to the sale of the post-CGT dwelling needs to be considered for CGT purposes. An apportionment of the sale price will need to be made to determine the part of the gain that is reasonably attributable to the sale of the post-CGT dwelling.

While the legislation does not give any guidelines on how this apportionment is to be made, there are two Taxation Determinations, TD 9 and TD 98/24

- TD 9 states that each taxpayer should take whatever steps are appropriate to determine the valuation of a particular asset and be able to justify the estimate.

- TD 98/24 states that the apportionment should be based upon market values of the separate assets at the time of the contract if there is no agreed apportionment in the contract.

 

2nd dwelling would've been built around 1990 or 1992.

 

Thanks Mike. Would there need to be a formal valuation done by a qualified valuer of the property in 1990 or 1992 before the 2nd dwelling was constructed so a CGT value can be worked out for the new 2nd dwelling & what if there was no valuation done at that time? I'm assuming that CGT would be worked out from the date of construction of the 2nd dwelling until the date the whole property is sold & since the 2nd dwelling is very similar in size to the 1st dwelling, you would apportion 50% of the final property sale price to the CGT calculation?

Example:

$100k initial property purchase for PPOR (pre-1985)
$200k valuation at year 1990 (pre-build of 2nd dwelling)
$100k construction cost for 2nd dwelling (year 1990)
$800k final sale price (year 2017)

Therefore $800k gets divided into two so $400k is the final value price of the 2nd dwelling. Then you minus $300k (being $200k valuation at year 1990 + $100k construction cost). Therefore only $100k is liable for CGT taxation calculation (in which an additional 50% discount would be applied for holding the asset over 12 months).

Does this sound correct?

 

This does not sound too complicated to me, it is mainly a matter of what the newer building is worth and what you will get for it at sale time IMO (and I am not a tax expert) , but seeing land appreciates and buildings depreciate, I can't see how your going to be paying much or if anything.

Your accountant should tell you.