Query on capital gains – please see the website below:
From this ato website – edited:
Example: capital gains on the sale of a co-owned rental property
Karl and Louisa bought a residential rental property in November 2016 for $750,000.
They incur costs of $30,000. After purchase they add a fence for $6,000.
They claimed $5,000 in decline in value deductions and $35,000 in capital works deductions.
In June 2023, they entered into a contract to sell the property, and in November 2023 it was sold for $900,000. Their costs of sale were $10,000.
A + B + C + D − E - F = Cost base
Where:
- A is the purchase price
- B is the costs of the purchase
- C is the cost of property improvements
- D is the costs of sale
- E is the capital works deductions
- F is the total amount of decline in value deductions claimed over the period of ownership of the rental property
My question
relates to taking F into the equation – since decline in value deductions e.g. carpet or blinds - are not capital works.
In earlier years, decline in value deductions never entered this equation. The effect is to pay extra tax paid on decline in value items – which only receive small deductions from tax, as only a portion is ever deducted each year. The value of items when a property is sold would be at second-hand values and very reduced.
On a large number of other websites decline in value is not taken into consideration with cgt.
I can see no reason why F should be included and would like an explanation. (Don’t think most people will be using this equation.)
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