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  • Sale of a rental property

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

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    Example 54 shows how you would calculate your capital gain on the sale of your rental property.

    The sample worksheet (PDF, 101KB)This link will download a file shows how you would complete the Capital gain or capital loss worksheet for this example.

    Example 54: Sale of a rental property

    Brett purchased a residential 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 pest and building inspections, stamp duty and solicitor’s fees.

    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

    Brett cannot include the expenses of $33,000 in the cost base, as he was able to claim a deduction for them.

    When Brett decided to sell the property, a real estate agent advised him that if he spent around $30,000 on major structural improvements, the property would be valued at around $500,000. The major structural improvements were completed on 1 October 2017 at a cost of $30,000.

    On 1 February 2018, he sold the property for $500,000 (of which $4,000 was attributable to depreciating assets).

    Brett could not claim any capital works deductions for the original construction costs, as construction of the property began before 18 July 1985. However, he could claim a capital works deduction of $255 ($30,000 × 2.5% × 124 ÷ 365) for the major structural improvements.

    For information about capital works that qualify for a deduction, see Rental properties 2018 (NAT 1729). 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 income year or previous years.

    Brett works out his cost base as follows:

    purchase price of property (not including depreciating assets)

    $144,000

    plus

    pest and building inspections, stamp duty and solicitor's fees on purchase of the property

     

    $20,000

    capital expenditure (major structural improvements) $30,000 less capital works deduction ($255)

    $29,745

    real estate agent’s fees and solicitor’s fees on sale of the property

    $12,500

    Cost base unindexed

    $206,245

    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

     

    $206,245

    Equals

    $289,755

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

    $289,755 × 50% = $144,877

    Brett writes $144,877 at A item 18 on his tax return (supplementary section).

    Brett writes $289,755 at H Total current year capital gains item 18 on his tax return (supplementary section). Brett must also make balancing adjustment calculations for 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: 22 Jun 2018QC 55220