CGT AND PROPERTY Presented by: Australian Taxation Office SEGMENTAUDIENCEDATE BAR...
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Transcript of CGT AND PROPERTY Presented by: Australian Taxation Office SEGMENTAUDIENCEDATE BAR...
CGT AND PROPERTY www.ato.gov.au
Presented by:Australian Taxation Office
SEGMENT AUDIENCE DATE
BAR ASSOCIATION SEPTEMBER 2005INDIVIDUALS
Capital gains tax (CGT) and property
CGT AND PROPERTY www.ato.gov.au
Objective
The aim of today's session is to provide you with an
overview of capital gains tax (CGT) and property
The intention is to provide you with general information,
and you should seek professional advice in relation to
your specific circumstances
CGT AND PROPERTY www.ato.gov.au
Outline of session
Fundamentals of CGT
Main residence exemption
Marriage breakdown
Deceased estates
Compliance focus 2005-06
CGT AND PROPERTY www.ato.gov.au
Fundamentals of CGT
CGT AND PROPERTY www.ato.gov.au
What is capital gains tax?
Tax paid on capital gains you make during the income
year
Forms part of your income tax
Declared in your income tax return
Taxed at marginal tax rate
CGT AND PROPERTY www.ato.gov.au
What is capital gains tax?
Capital gains or losses arise when certain types of
transactions or events occur
This is known as a capital gains tax (CGT) event
CGT events commonly involve a CGT asset
CGT AND PROPERTY www.ato.gov.au
Examples of CGT events
You sell an investment property
Your investment property is destroyed by fire
You give someone a right to reside in a house
You grant an option to a person to purchase your land
within 12 months for a set price
CGT AND PROPERTY www.ato.gov.au
Examples of CGT assets
Land and buildings
Shares, options, etc
Depreciating assets
Paintings, sculptures, etc
Jewellery, books, antiques
Boats, furniture etc
Leases
Goodwill
Licences
Contractual rights.
CGT AND PROPERTY www.ato.gov.au
What is capital gains tax?
Capital gains tax can still apply even if:
you did not buy the CGT asset
you disposed of the CGT asset without selling it.
CGT AND PROPERTY www.ato.gov.au
Main residence exemption
CGT AND PROPERTY www.ato.gov.au
Main residence exemption
Capital gains tax generally does not apply to the sale of
your main residence
To be exempt:
- the dwelling must have been your home
- the dwelling must not be used to produce income
- the land must be 2 hectares or less.
No exemption for land sold separately from the dwelling
CGT AND PROPERTY www.ato.gov.au
Example – main residence
Frank purchased his house in 1999
He used the house as his main residence
The house and land are situated on less than 2 hectares
He sold the house in 2005
The capital gain can be ignored under the main residence
exemption
CGT AND PROPERTY www.ato.gov.au
Part exemption
Home not your main residence during the whole time it
was owned
Part of the home was used to produce assessable
income
Special rules apply which may still allow full exemption
CGT AND PROPERTY www.ato.gov.au
Example – part exemption
Thomas acquired a home in July 1997 and used it as his
main residence
He rented out one bedroom which is 20% of home
Thomas and the tenant also used the living room,
kitchen, bathroom and laundry which is 30% of the home
Sold home in June 2005 and made $120,000 capital gain
$42,000 capital gain is not exempt
CGT AND PROPERTY www.ato.gov.au
Moving from one main residence to another
Purchase a new home before selling the old home
Both homes treated as main residence if:
- the old residence was your main residence for at least 3
months in the12 months before selling it
- you did not use your old home to produce income in the 12
months it was not your main residence
- your new home becomes your main residence.
CGT AND PROPERTY www.ato.gov.au
Example – moving from one main residence to another
Jill and Norman bought a house on 1 January 2005
They moved into the home immediately
They sold the old home on 15 April 2005
Both homes are treated as their main residence from 1
January to 15 April 2005
CGT AND PROPERTY www.ato.gov.au
Continuing main residence status
You can choose to treat a home as your main residence
after it ceased being your main residence
The period of time it can be treated as your main
residence is:
- unlimited if your home is not used to produce income
- for a maximum of 6 years if your home is used to produce
income.
CGT AND PROPERTY www.ato.gov.au
Example – continuing main residence status
Lisa bought a house in 1992 and moved in
She moved out in 1995
She rented out the house for 3 years
Left the house vacant for 2 years
Rented out again for next 3 years
Sold the house
CGT AND PROPERTY www.ato.gov.au
Constructing, renovating or repairing a home
If you build, renovate or repair your home, you can treat
the land as your main residence for up to 4 years before
the home becomes main residence
Must move into the home as soon as practicable
Must continue to use the home as your main residence
for at least 3 months
CGT AND PROPERTY www.ato.gov.au
Having a different home from your spouse or child
If you and a dependent child have different homes for a
period, you must choose one home as your main
residence for both of you for the period
If you and your spouse have different homes for a period:
- you must choose one home as your main residence for
both of you for the period, or
- nominate different homes as main residence for the period.
CGT AND PROPERTY www.ato.gov.au
Major improvements to pre-CGT assets
Major capital improvements made to a dwelling bought
before 20 September 1985 may be taxable
Capital gain relates only to the improvements and not the
entire property
CGT AND PROPERTY www.ato.gov.au
Example - major improvements to pre-CGT assets
Martin bought a home in 1984
Undertook major capital improvements worth $100,000
(indexed cost base is $112,200) on 1 December 1993
Sold home for $500,000 on 1 December 2004
$120,000 of the proceeds attributed to improvements
Is cost base of improvements > 5% of $500,000?
Is cost base of improvements > threshold of $106,882?
CGT AND PROPERTY www.ato.gov.au
Inherited main residence – full exemption
Any dwelling deceased acquired before 20 September 1985,
or a dwelling acquired by the deceased on or after 20
September 1985 that was their main residence just before
they died and was not being used for income producing
purposes at that time if:
sold within 2 years of death, or
occupied by spouse or someone with a right to occupy
under the deceased’s will.
CGT AND PROPERTY www.ato.gov.au
Example – inherited main residence
Rodrigo bought a house in April 1990 and lived in it
Rodrigo passed away in January 2004
Petro (Rodrigo’s son) inherited the house
Petro rented out the house
Sold the house in March 2005
Capital gain can be ignored
CGT AND PROPERTY www.ato.gov.au
Marriage breakdown
CGT AND PROPERTY www.ato.gov.au
Marriage breakdown
Conditions for marriage breakdown rollover
Consequences of rollover
If there is no court approval
CGT AND PROPERTY www.ato.gov.au
Deceased estates
CGT AND PROPERTY www.ato.gov.au
Deceased estates
Capital gain or loss on death is disregarded for assets
which pass to the beneficiary or legal personal
representative
Choosing the indexation or discount method
Joint tenants
Unapplied net capital losses
CGT AND PROPERTY www.ato.gov.au
Compliance focus for 2005-06
CGT AND PROPERTY www.ato.gov.au
Compliance program for 2005-06
Capital gains tax continues to be a priority
Non-compliance still a concern
Refining data matching capabilities
Letters to be sent to certain taxpayers
Will continue to help and educate
Review and audit program continues
CGT AND PROPERTY www.ato.gov.au
Compliance program for 2005-06
Data matching residential property and share sales
Undisclosed capital gains
Claims for CGT discount and CGT SB concessions
Reviewing SB retirement exemption claims
Reviewing significant capital losses
CGT AND PROPERTY www.ato.gov.au
Compliance problems
Incomplete records of cost base and capital loss calculations
Using unsubstantiated capital losses to offset a capital gain
Asset valuations - not using market values
Complete omission of a gain or CGT event
Not meeting thresholds for small business CGT concessions
Pre-CGT status
CGT AND PROPERTY www.ato.gov.au
Tips for capital gains tax
Report net capital losses carried forward from earlier
income years
Keep comprehensive records
Know which costs are deductible and which are included
in the cost base
Report capital gains and losses from inherited assets
Declare your share of capital gains on jointly-owned
assets
CGT AND PROPERTY www.ato.gov.au
Tips for capital gains tax
Deduct any capital losses before applying a discount
Calculate a capital gain or loss when giving away
property
Use the contract date not the settlement date for
acquisition and disposal
Overseas investment
Capital gain from non-assessable distribution
CGT AND PROPERTY www.ato.gov.au
Summary
Capital gains tax is tax paid on capital gains you include
on your income tax return
Capital gains arise when a CGT event happens
There are three methods to work out your capital gain
Keep good records
CGT AND PROPERTY www.ato.gov.au
Where to get help
CGT AND PROPERTY www.ato.gov.au
CGT AND PROPERTY www.ato.gov.au
For more information
www.ato.gov.au Website
13 28 61 Personal tax enquiries
13 28 60 Order a fax
1300 720 092 Publications distribution service
CGT AND PROPERTY www.ato.gov.au
Questions
CGT AND PROPERTY www.ato.gov.au
Our commitment to you
The information in this presentation is current at November, 2005.
If you feel this information does not fully cover your circumstances,
please seek help from the Tax Office or a professional adviser.
Since we regularly revise our information to take account of any changes
to the law, you should make sure this information is still current before
relying on it. The easiest way to do this is by checking with us.