Understanding GST and CGT calculations

Discussion in 'Accounting & Tax' started by Keentolearn77, 13th Sep, 2018.

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  1. Keentolearn77

    Keentolearn77 Well-Known Member

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    Having previously discussed with my accountant and trying to find examples online

    Would the below example calculations be roughly accurate on how GST and CGT would be calculated - in laymans understanding.

    Scenario

    Property owned for over 5 years as a consistently rented out IP
    With demolition & New 4 x subdivision townhouse development proposed to be undertaken on property.

    Original Property purchase 740k
    subdivided into 4 = 185k cost base each

    construction costs of 1 x townie say $450k - if claiming GST credits - would one in short get $45k from the taxman......??

    sale of 1 townie for say 850k

    850k minus 185k cost base ....... Margin being 665k - 1/11th of this being 60k payable to taxman for GST....?

    OR is it basically if I claimed and received $45 gst credits - that I just have to pay the $45k claimed ..... back after the sale.....??


    With regards to GST

    $185k cost base
    $450k construction costs = total $635

    Sell for $850k less agents fee say $15k
    profit on sale $835k - $635k = 200k capital gain

    Thus taxed against $200k at say 37 cents in the dollar = owe taxman $74k

    Is that the basic principal....??

    Cheers
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Depends

    Are you selling under the margin scheme? If so then generally GST only payable on the margin.

    Where GST applies CGT generally doesn't, and vice versa.
     
  3. Keentolearn77

    Keentolearn77 Well-Known Member

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    I have to say I'm ignorant / unsure of the differences/ which is the better way to go....

    Is the margin scheme where I would pay 1/11th GST, without claiming the the GST credits beforehand....? Is this the theory behind then not having to generally pay the CGT....
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Second opinion time. Margin scheme AND Gst on costs may both occur.
     
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  5. Keentolearn77

    Keentolearn77 Well-Known Member

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    Copy the tax system - clear as mud
     
  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    After uni, post grad study and 25+ years experience its still somewhat complex.

    Lesson I can share is to rely on quality advisers for technical issues. They will ensure its all correct and explain it to you. Self diagnosis is like DIY dentistry or DIY surgery.

    Our developer toolkit is a useful primer so you can then understand the key concepts which may all need to be considered as they apply to each taxpayers situation
     

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  7. Mike A

    Mike A Well-Known Member

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    Im nowhere near 25+ years yet
     
  8. Keentolearn77

    Keentolearn77 Well-Known Member

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    I'll be seeking my accountants advice, do u have a take on the below that I recall reading in another forum post 1-2 years ago somewhere...

    "Get a land valuation by registered valuer at time of demolition – that is based on the best use of the land
    Land valuation will close an exposure to ordinary profit from the land development & allow most and perhaps all of the profit to be applied to the CGT for creating trading stock. This will assist to protect the 50% CGT discount "
    Not sure if this is applicable for me - being the owner for past 5 years in my own name, looking to retain 3 townhouses, and possibly selling 1 of the 4.
     
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Recent ATO views may not share such a generous view. Nor GST and how to address this.

    Its not as simple as it reads
     
  10. Mike A

    Mike A Well-Known Member

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    Time of demolition may not be the point at which it became trading stock.

    Definition of trading stock doesnt include profit from an isolated transaction so cgt event k7 may not even be applicable.
     
    Last edited: 15th Sep, 2018
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