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Example: Sale of a rental property

Brett purchased a rental property on 1 July 1997. The price he paid was $150,000 of which $6,000 was attributable to depreciating assets. He also paid $20,000 in total for stamp duty and solicitors fees.

He rented out the property after spending $2,500 on initial repairs.

In the next few years, Brett incurred the following expenses on the property:

Interest on money borrowed	$10,000
Rates and land tax	$8,000
Deductible (non-capital) repairs	$15,000
Total	$33,000

When Brett decided to sell the property, a real estate agent advised him that if he spent around $30,000 on major structural repairs, the property would be valued at around $500,000. He had the repairs done and put the property on the market.

On 1 April 2003, he sold the property for $500,000 (of which $4,000 was attributable to depreciating assets).

Brett's real estate agents fees and solicitors fees for the sale of the property totalled $12,500.

Brett could not claim any capital works (special building write-off) deductions as construction of the property began before 22 August 1979 and, as a result, the repairs he made did not qualify. (For information about capital works that qualify for a deduction, see Rental properties and for information about capital works deductions see Cost base adjustments for capital works deductions.)

This is Brett's only capital gain for the year-and he has no capital losses to offset from this year or previous years. Brett works out his cost base as follows:

Purchase price of property (not including depreciating assets)	$144,000
plus Stamp duty and solicitors fees on purchase of the property	$20,000
plus Capital expenditure (initial repairs)	$2,500
plus Capital expenditure (major structural repairs)	$30,000
plus Real estate agents fees and solicitors fees on sale of the property	$12,500
Cost base unindexed	$209,000
Brett deducts his cost base from his capital proceeds (sale price): Proceeds from selling the house (not including depreciating assets)	$496,000
Less Cost base unindexed	$209,000
Total	$287,000

He decides the discount method will give him the best result, so he uses this method to calculate his capital gain:

$287,000 × 50% = $143,500 Brett shows $143,500 at A item 17 on his tax return (or item 9 if he uses the tax return for retirees).

Brett shows $287,000 at H Total current year capital gains at item 17 on his tax return (or at item 9 if he uses the tax return for retirees). Brett must also make balancing adjustment calculations in relation to his depreciating assets. Because he used the property 100% for taxable purposes he will not make a capital gain or capital loss from the depreciating assets.

End of example