October 23, 2018 | 11:04 AM

09.05.2018How valuable are tax deductions on property really?

For assets held for less than 12 months the CGT liability is based on the excess of the sale price (net of selling expenses) over the original purchase price (including all acquisition costs). For assets held for 12 months or more the CGT liability is based on half of this excess (in the case of individuals).

The purchase price adjusted for associated capital expenses is referred to in the legislation by the technical term "cost base".

The cost base can consist of more than one component, as, for example, when capital improvements are made to an existing property. However, expenses of a revenue nature, such as rates, taxes, repairs, interest, and so on, are disregarded.

Revenue losses, including those arising from negative gearing situations, can be offset against capital gains - but not vice versa.

Capital losses can be offset against capital gains, but not against normal income. Unused capital losses can, however, always be carried forward indefinitely and can be used as offsets against capital gains in future years.

It will be obvious from the above description of the system that the precise dates of transactions can be important for capital gains tax purposes.

Because of the 12-month rule there is an advantage in selling at a profit just after the end of the first year of ownership rather than just before.

Taxpayers are required to maintain proper records to allow them to calculate their capital gains tax liability.

For capital gains tax purposes the five-year retention period for such records needs to be measured from the date of disposal of each asset concerned.


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