Tax Tips - Capital Gains Tax

CGT is payable, in full, on the sale of your PPR if it is not in the name of an individual who lives there. So, if the property is held in the name of a company, trust or anyone else, such as your parents, you will not enjoy a CGT exemption.

SALE OF LAND

Assuming a profit on the sale of land is a capital profit, no tax should be payable on the sale because it was purchased before 20th September, 1985. For the profit to be a capital one -

* The land must have been purchased for some purpose other than to subdivide and sell, for example, farming, home or to operate a business,

* If the profit is a capital one and the property is pre CGT (Capital Gains Tax) no tax should be payable on the sale of the divided lots.

Note that buildings are considered separate assets from the land so constructing buildings on the land to sell compromises the claim that the profit is capital in nature.

DEATH

In most circumstances death will not trigger CGT (Capital Gains Tax), but the CGT clock will start ticking on pre 19th September, 1985 assets, so it is important to have these valued at the date of death. Most pre 19th September, 1985 assets will, in the hands of the executor or beneficiary, have a cost base of market value at the date of death. So when sold CGT will be payable on the difference between the market value at the time of death plus improvements, holding costs and selling costs, and the sale price.

The main residence of the deceased will not attract CGT if sold within two years of death. This applies to pre 19th September, 1985 homes even if they weren't the deceased's home at the date of death. This concession may not apply to post 1985 homes.

SWAPPING

If you are considering swapping houses to claim rental deductions make sure you live in the home before swapping. This will allow you to exempt the home from capital gains tax for up to 6 years. You can move out of your main residence and retain your exemption for CGT. Additionally, at the end of the 6 years you can move back in, then move out again and the 6 years start all over again.