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Calculating your capital
gain or loss
Basic method
Description of method - Basic method of subtracting
the cost base from the capital proceeds.
When to use the method - Use when the discount method
does not apply (for example, if you have bought and sold an
asset within 12 months).
How to calculate your capital gain using the method -
Subtract the cost base (or the amount specified by the
relevant CGT event) from the capital proceeds.
Example
Property purchased and sold within 12 months
Marie-Anne bought a property for $250,000 under a
contract dated 24 June 2009. The contract provided for
the payment of a deposit of $25,000 on that date, with
the balance of $225,000 to be paid on settlement on 4
August 2009.
Marie-Anne paid stamp duty of $5,000 on 20 July 2009. On
4 August 2009, she received an account for solicitor's
fees of $2,000 which she paid as part of the settlement
process.
Marie-Anne sold the property on 16 October 2009 (the day
the contracts were exchanged) for $315,000. She incurred
costs of $1,500 in solicitor's fees and $4,000 in
agent's commission.
As she bought and sold her property within 12 months,
Marie-Anne must use the 'other' method to calculate her
capital gain.
Deposit
$25,000+
Balance
$225,000+
Stamp duty $5,000+
Solicitor's fees for purchase of property
$2,000+
Solicitor's fees for sale of property
$1,500+
Agent's commission
$4,000+
Cost base (total)
$262,500
Marie-Anne works out her capital gain as follows:
Capital proceeds
$315,000
less cost base
($262,500)
Capital gain calculated using the 'other' method
$52,500
Assuming Marie-Anne has not made any other capital
losses or capital gains in the 2009-10 income year, and
does not have any unapplied net capital losses from
earlier years, the net capital gain to be included on
her tax return is $52,500.
Discount method – use if property held
for 12 months
Description of method - Allows you to discount your
capital gain (by 50% for individuals and trusts, and 33 1/3%
for complying superannuation funds).
When to use the method - Use for an asset held for 12
months (between date of entry of Contract for purchase and
date of entry of Contract for sale)
How to calculate your capital gain using the method -
Subtract the cost base from the capital proceeds, deduct any
capital losses, then reduce by the relevant discount
percentage. Apply this to the Example, the Capital gain
calculated of $52,500 is halved to $26,250 and that amount
is included in Marie-Anne’s tax return.
Source:
http://www.ato.gov.au/individuals/content.aspx?doc=/content/36581.htm
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Commentary
The sale price that appears on the Contract for Sale
invariably represents more than the owner is to receive from
the sale of the property. Simple costs such as real estate
agents commission and conveyancing costs on the sale will
need to be deducted from the sale price that appears on the
Contract, to arrive at what the ATO describes as capital
proceeds, which is the starting point for the calculation of
a capital gain. In more complex transactions, the
deductions from the price that appears on the Contract for
Sale might include purchaser expenses that a seller agrees
to pay out of the price, and the profit ‘uplift’ between
what a seller has agreed to accept on the sale, and the
amount a buyer has agreed to pay, which represents a
transaction engineer’s profit such as is found in a Sandwich
Lease Option. The seller’s tax position is that the seller
has to include in the capital gains tax calculation, what
they receive (the capital proceeds), not the price that
appears on the Contract for Sale. This
is how the ATO puts the position – What are
capital proceeds? Whatever you receive as a result of a
CGT event is referred to as your ‘capital proceeds’. For
most CGT events, your capital proceeds are an amount of
money or the value of any property you:
- receive, or
- are entitled to receive.
Source:
http://www.ato.gov.au/individuals/content.aspx?doc=/content/36556.htm
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