Tax Tip 209: How to Save CGT on Investment Property Part II – Planning ahead

Capital gains as opposed to ordinary income.

 

Capital account refers to the acquisition of assets intended to produce a gain or loss on eventual sale. This is compared to revenue account which is the receipt of ordinary income eg rent. An investment can include both tax elements eg rental property rents are on revenue account while any profit on sale is on capital account.

A person who develops with intention to resell will normally never hold a asset on capital account and all gain and loss is isolated profit making on revenue account. This is a different classification of income to business profits where the property may be trading stock and also on revenue account. (eg Mirvac) This prevents access to CGT discounts and is a fundamental element of common law and statutory tax law. Many mistakenly think if they rent it for a month or two and sell while tenanted the asset is then a CGT asset. Incorrect.

Tax advice on tax implications for all developing and constructing activities is always recommended for this reason and also GST.