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FAQs - Capital Gains Tax

I am a non-resident of Australia for taxation reasons and I have owned property in Melbourne since 2000. I am contemplating selling the property. What are the Capital Gains implications of that?

As a non-resident you are no longer eligible for the 50% CGT discount on any capital gain derived after 7:30pm 8 May 2012. This means that the capital gain of the property is split into two components. The capital gain derived before 7:30pm 8 May 2012 and the capital gain derived after 7:30pm 8 May 2012.

A valuation will need to be obtained as at 7:30pm 8 May 2012, as any capital gain derived for that time is still eligible for the CGT discount, and any capital gain derived after that time is not eligible for the CGT discount.

Last Updated on Friday, 04 October 2013 01:59
 

I am about to sell my business, am I eligible to use any of the small business CGT concessions?

The basic conditions that must be satisfied by a taxpayer to be eligible for CGT small business relief are:

One or more of the following applies:

  1. the taxpayer satisfies the maximum net asset value test

    1. A taxpayer satisfies the maximum net asset value test if, just before the time of the CGT event, the net value of the CGT assets of the taxpayer, its connected entities, its affiliates and the entities connected with those affiliates is not more than $6m

  2. the taxpayer is a “small business entity” for the income year

    • An entity is a “small business entity” if it:
      • carries on a business, and
      • satisfies the $2m aggregated turnover test.

  3. the asset is an interest in an asset of a partnership which is a small business entity for the income year, and the taxpayer is a partner in that partnership, or

  4. the special conditions for passively held assets are satisfied in relation to the CGT asset in the income year (see below)

    • Where a CGT event occurs in relation to a passively held CGT asset, the taxpayer may satisfy the basic condition (3) and access the benefit of the $2m aggregated turnover test where it satisfies one of two alternative special conditions.

    • The first alternative condition requires all of the following to be satisfied:

      • an affiliate of, or an entity connected with, the taxpayer is a small business entity for the income year
      • the taxpayer does not carry on a business in the income year (other than in partnership)
      • if the taxpayer carries on a business in a partnership — the CGT asset is not an interest in an asset of the partnership
      • the small business entity carries on the business, at a time during the income year, in relation to the CGT asset that results in the asset being an active asset.
        • The second alternative condition, as provided in s 152-10(1B), applies to partners in a partnership and requires all of the following to be satisfied:
      • the taxpayer is a partner in a partnership in the income year
      • the partnership is a small business entity for the income year
      • the taxpayer does not carry on a business in the income year (other than in partnership)
      • the CGT asset is not an interest in an asset of the partnership
      • the business the taxpayer carries on as a partner in a partnership, at a time during the income year, is the business carried on in relation to the CGT asset that results in the asset being an active asset.

    • For applying the CGT concessions to such passively held assets there are special rules for determining entities that are affiliates of, or connected with, the taxpayer and for calculating the $2m aggregated turnover

 

Last Updated on Friday, 04 October 2013 01:54
 

I hold 1,000 BHP shares and I am planning on selling 200 of them. How do I determine which shares of my BHP holdings I have to sell and what their cost base will be?

In the past the commissioner accepted the “first-in first-out” as a reasonable basis of identification. For CGT purposes, the ATO will also accept the taxpayer's selection of the identity of shares disposed of (TD 33).

There are two ways of determining the cost base of share, average cost and actually cost.

Average cost can only be used if all of the following criteria are met:

  1. they are in the same company; and
  2. they are acquired on the same day; and
  3. they confer identical rights and impose identical obligations.

As average cost is a very limited way of valuing shares most often actually cost is used.

The taxpayer will need to keep adequate records of the following to satisfy any Tax Office scrutiny at a later date when using actually cost:

  1. The purchase date of each parcel the shares; and
  2. The cost of the relevant parcel of shares.
Last Updated on Friday, 04 October 2013 01:53
 

I purchased a Rental Property in the mid 1990’s and I am planning on selling it. What components make up its cost base?

There are five elements to the cost base as listed below:

First element: acquisition cost

The first element is the total of:

  • the money paid, or required to be paid, in respect of acquiring the CGT asset, and
  • the market value of any other property given, or required to be given, in respect of acquiring the CGT asset.


Second element: incidental costs

The second element consists of various specified incidental costs incurred by the taxpayer. There are a number of incidental costs that may be incurred. These are:

  • remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser, including costs incurred after the time of a CGT event, e.g. solicitor’s fees and agent’s commission in relation to the sale of real estate that are incurred after the exchange of contracts. Remuneration paid to a legal adviser as a result of an action for damages brought by the purchaser in connection with the consideration for the sale of an asset may be included. Remuneration paid for tax advice is not included unless it is provided by a recognised tax adviser and incurred after 30 June 1989
  • costs of the transfer
  • stamp duty or other similar duty
  • in relation to the acquisition of a CGT asset, the costs of advertising to find a seller and, in relation to a CGT event, the costs of advertising to find a buyer
  • costs relating to the making of any valuation or apportionment
  • marketing expenses
  • search fees relating to a CGT asset
  • the cost of a conveyancing kit (or a similar cost)
  • borrowing expenses (such as loan application fees and mortgage discharge fees)
  • certain expenses incurred by the head company of a consolidated group or MEC group
  • termination and other similar fees incurred as a direct result of a CGT asset ending.

 

Third element: ownership costs

The third element is the costs of owning an asset (but only if the asset was acquired after 20 August 1991). However, there is no third element for collectables or personal use assets.

Costs of owning an asset consist of any expenditure incurred by a taxpayer to the extent to which it is incurred in connection with the continuing ownership of the asset.

These costs include:

  • interest on money borrowed to acquire an asset
  • costs of maintaining, repairing and insuring an asset
  • rates and land tax
  • interest on money borrowed to refinance the money borrowed to acquire an asset
  • interest on any money borrowed to finance capital expenditure incurred to increase an asset’s value.


Fourth element: enhancement costs

The fourth element is capital expenditure incurred to increase or preserve the value of the CGT asset. The fourth element includes:

  • capital expenditure that relates to installing or moving the asset. However, it does not apply to capital expenditure incurred in relation to goodwill.


Fifth element: title costs

The fifth element is capital expenditure incurred to establish, preserve or defend the taxpayer’s title to the asset. An amount of damages paid by a taxpayer to a potential purchaser upon the acceptance of the termination of contract to sell the asset following repudiation of the contract by the taxpayer may be included in the fifth element of the cost base of that asset.

Last Updated on Friday, 04 October 2013 01:51
 

 

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