• Sale of a rental property

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    The following example shows how you would calculate your capital gain on the sale of your rental property.

    The sample worksheet shows how you would complete the Capital gain or capital loss worksheet for this example.

    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 2004, 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 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, get the publication Rental properties (see the inside back cover). For information about how capital works deductions affect the CGT cost base, 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

    Capital expenditure (initial repairs)

    $2,500

    Capital expenditure (major structural repairs)

    $30,000

    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

     

    $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 x 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
    Last modified: 04 Mar 2016QC 27527