ATO Community

Re: CGT 50% discount - off the plan

Newbie

Views 43

Replies 3

Hi there

 

Do I enjoy the 50% discount on CGT if I sell the property first day after the settlement ? The original contract between the developer and me was exchanged in 2017 but the settlement is expected to happen at 30/04/2021? 

 

Also,does the purpose matter?

 

When I entered into the contract in 2017, the original purpose was to use the propery as main residence after settlement. But the purpose was changed after I bought other property at 1/6/2020 and the property was settled at 1/7/2020. I moved in immediately at 1/7/2020.That is why I want to sell the off the plan property immediately after settlement.

 

Do I have to wait until 1/6/2021 which is 12 month from the date of changing the purpose to get 50% CGT discount?

 

I understand this question is a bit strange. The reason why I got this concern is that I saw from ATO website that if you use a propery to produce income after you move out. The starting point of the 12 month perod is the date the propery firstly earns rental income.

 

Regards

 

1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Certified Response

ATO Community Support

Replies 2

Hi @Andy77

 

To be eligible for the discount method (50% for individuals), you must have held the asset for more than 12 months.

 

For real estate, the time of acquisition is the time you enter into a contract, not the settlement. We talk about this on our page for time of the CGT event.

 

For you, this means you've held the property since 2017.

 

The purpose would matter for the main residence exemption. For a property to be exempt from capital gains, it must be your main residence, which means you must move in as soon as practicable. Generally this is close after settlement. However, you can only have one main residence at a time (with a small window for moving), so you won't be able to use the main residence exemption on the yet-to-settle property, since the other property you've purchased is your main residence.

 

This means that the property will be liable for capital gains, but you can probably use the discount method to calculate your gain, provided you meet the other eligibility criteria. Be sure to check the eligibility thoroughly.

 

Time of the CGT event

The discount method of calculating your capital gain

3 REPLIES 3

Most helpful response

ATO Certified Response

ATO Community Support

Replies 2

Hi @Andy77

 

To be eligible for the discount method (50% for individuals), you must have held the asset for more than 12 months.

 

For real estate, the time of acquisition is the time you enter into a contract, not the settlement. We talk about this on our page for time of the CGT event.

 

For you, this means you've held the property since 2017.

 

The purpose would matter for the main residence exemption. For a property to be exempt from capital gains, it must be your main residence, which means you must move in as soon as practicable. Generally this is close after settlement. However, you can only have one main residence at a time (with a small window for moving), so you won't be able to use the main residence exemption on the yet-to-settle property, since the other property you've purchased is your main residence.

 

This means that the property will be liable for capital gains, but you can probably use the discount method to calculate your gain, provided you meet the other eligibility criteria. Be sure to check the eligibility thoroughly.

 

Time of the CGT event

The discount method of calculating your capital gain

Newbie

Replies 1

Thanks Blake.

I have one more question about the 50% discount method of calculate capital gain.

There is an example on ATO website page:

https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence... 

Example: Home becomes a rental property

Erin bought a house in July 2000 for $280,000. The house was her main residence until she moved into a new house on 1 August 2003. On 2 August 2003, she began renting out the old house. At that time, the market value of the old house was $450,000.

Erin did not want to treat the old house as her main residence under the ‘continuing main residence status after moving out’ rule as she wanted the new house to be treated as her main residence from the date she moved into it.

On 14 April 2020, Erin sold the old house for $696,000. Erin is taken to have acquired the old house for $450,000 on 2 August 2003 and calculates her taxable capital gain to be $246,000.

Because Erin is taken to have acquired the old house on 2 August 2003, and held it for more than 12 months, she can use the discount method to calculate her capital gain. As Erin has no capital losses she includes a capital gain of $123,000 ($246,000 × 50%) on her 2020 tax return.

 

My question is why the Erin is taken to have acquired the old house on 2 August 2003 rather than the date he bought the house (July 2000).  Is the starting point of the 12 month period the date the propery firstly earns rental income? 

 

Thanks.

ATO Community Support

Replies 0

Hi @Andy77,

 

We look at 'market value' from the date the property was first used to produce income. As it was originally their main residence, a partial exemption for capital gains tax will apply. The market value is factored into the cost base when working out the capital gain or loss.

 

A partial exemption means they will only be taxed for the days it was not their main residence. They can apply for the 50% discount as they held the property for longer then 12mnths, this is relevant to when they first purchased it.

 

Please use the links for further information.

 

Links -

Main residence.

Cost base.

Market value.

50% discount method.

Home first used to produce income.

 

All the best.