• Other tax considerations

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    Capital gains tax

    You may make a capital gain or capital loss when you sell (or otherwise cease to own) a rental property that you acquired after 19 September 1985.

    In the case of the sale or other disposal of real estate, the time of the event is normally when you enter into the contract (generally the date on the contract), not when you settle. If there is no contract, the event takes place when the change of ownership occurs. The fact that a contract may be subject to a condition such as finance approval, generally does not affect this date.

    You can also make a capital gain or capital loss from certain capital improvements made after 19 September 1985 when you sell or otherwise cease to own a property you acquired before that date.

    You will make a capital gain from the sale of your rental property to the extent that the capital proceeds you receive are more than the cost base of the property. You will make a capital loss to the extent that the property’s reduced cost base exceeds those capital proceeds. If you are a co-owner of an investment property, you will make a capital gain or loss in accordance with your interest in the property (see Co-ownership of rental property).

    The cost base and reduced cost base of a property includes the amount you paid for it together with certain incidental costs associated with acquiring, holding and disposing of it (for example, legal fees, stamp duty and real estate agent’s commissions). Certain amounts that you have deducted or which you can deduct are excluded from the property’s cost base or reduced cost base. For example, see Cost base adjustments for capital works deductions.

    Your capital gain or capital loss may be disregarded if a rollover applies, for example, if your property was destroyed or compulsorily acquired or you transferred it to your former spouse under a court order following the breakdown of your marriage.

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    Depreciating assets

    If the sale of your rental property includes depreciating assets, a balancing adjustment event will happen to those assets (see What happens if you no longer hold or use a depreciating asset?).

    You should apportion your capital proceeds between the property and the depreciating assets to determine the separate tax consequences for them.

    General value shifting regime

    A loss you make on the sale of a rental property may be reduced under the value shifting rules if, at the time of sale, a continuing right to use the property was held by an associate of yours (for example, a 10-year lease granted to your associate immediately before you enter into a contract of sale). The rules can only apply if the right was originally created on non-commercial terms such that at that time, the market value of the right was greater than what you received for creating it by more than $50,000.

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    Last modified: 24 Nov 2015QC 44158