Tax Tip 76: Calculating the Cost Base for CGT purposes.

$600k

 

If Bob doesn't get PPOR revalued, what is Bob's cost base when he sells it?

 

The value at the date it first produced income.

 

How would it be valued retrospectively?

 

Valuers can work out valuations at dates in the past.

 

Would it be in Bob'a interest to get a valuation at the time the property starts producing income?

 

The law says the cost base is the valuation then so if he wants to comply he will need to.

 

Would it be more beneficial (more accurate, cheaper etc) if valuation is done at the time of income producing rather than time of selling?

 

Imo, not necessarily. It's all based on comparables, so that info is available at the time it's becomes income producing or in another 10 years. It shouldn't change the cost.. My accountant is of the opinion a real estate agent can provide the valuation, which could be free. It needs to be very detailed though, not just a one liner. It should be based on at least 3 comparable sales and detailing how they compare in every aspect - location, improvements, land size etc.

 

I understand these can be claimed each financial year. So is there a choice whether to claim them per year or to lump up all the interest, rates, etc charges and treat it as cost base?

Does this count renovation?

 

If you are able to claim costs such as interest each year then it usually better to do so then for 2 reasons
a) time - deduction now is better than in x years
a) 50% cgt discount will reduce the value of the expense if claimed on sale

The only time you would not claim may be if your taxable income is less than $20k already.

4. yes includes renovation.

 

If its a renovated IP then if the depn and capital allowances have been claimed since the reno these deductions must REDUCE the costbase after it is increased for the initial cost.

 

Hi @Terry_w . Would you have the depreciation and CGT thread up?? I'm sure some would overlook depreciation claimed as part of calculating CGT

Thanks,

 

Taxpayers often get CGT calcs wrong. Some accountants do too. I have amended two tax agent prepared returns in two days for mistakes.


There is a CGT property flowchart I have seen that includes approximately 50++ different steps to determining CGT profit for property. eg : Is the property pre-CGT or post-CGT. What CGT event occurred ? What type of taxpayer - Individuals. / Resident / etc, where is the property located ?. How and when was each interest acquired ?

The flow chart also addresses how to calculate the final gain. Its often wrong when a taxpayer estimates it.

And each of the 50 steps requires a level of understanding. IMO its so complex I would never share it. Its no different to the situation of DIY eye surgery. There isnt a law that says you MUST use a eye surgeon...Just common sense to avoid serious errors.

There is also a requirement to adjust the sale proceeds used in the CGT calcs for depreciable assets

 

I don't know where my draft went now!

 

Relevant
TD 2005/47
Income tax: what do the words 'can deduct' mean in the context of those provisions in Division 110 of the Income Tax Assessment Act 1997 which reduce the cost base or reduced cost base of a CGT asset by amounts you 'have deducted or can deduct', and is there a fixed point in time when this must be determined?
Legal Database

 

Is there a guide to what constitutes a capital works depreciation? I'd imagine depreciation of the building come under capital works, but would depreciation of floor coverings and such?

 

Div 43 of ITAA 1997 comprises s43-1 through to s43-260

Div 43 addresses the construction elements and incorporates the building, structural etc. Items which are fixtures to the building are included eg kitchen, vanities, showerscreen etc Div 40 includes plant & equipment items. The Commissioner has tables under the Act (issued as rulings) which includes listed examples and statutory effective life information.

Reading through the Act will explain how Div operates and what is included. The table in s43-5 may be a good start point. s43-20 explains eligible expenditure

 

Dead link.