Calculation of CGT

Q&A Tax

Question :

Mark and Tina own their main residence as well as a beach house. The beach house was purchased in 2007. They have spent
three years, from 2012 to 2015 living in their beach house and rented out their main residence. In 2016, they decided to sell
the beach house as the property prices have increased substantially. They never rented out the beach house.

The figures for the beach house:
1. Capital proceeds from sale of the beach house: $1,300,000
2. Purchase price for the beach house: $500,000
3. Incidental costs incurred in acquiring the beach house: $30,000
4. Interest on loans to acquire the beach house: $20,000
5. Council rates and taxes: $5,000
6. Insurance premiums: $9,000
7. Repairs and maintenance: $15,000
8. Construction cost for garage and car port: $40,000

What is the CGT Consequence for the sale of the beach house?

 

Answer :

Although Mark and Tina rented out their main residence and lived in the beach house for three years. The main residence still
qualifies as their main residence (up to six years). Thus, their beach house cannot qualify as their main residence while their
original home remains their main residence

Calculation of Capital gain:
Capital Proceeds $1,300,000

Cost base:
Purchase price (s110-25(2) ITAA 97) $ 500,000
Incidental costs (s110-25(3)) $ 30,000
Ownership costs (s110-25(4)) $ 49,000 (20,000+5,000+9,000+15,000)
Capital expenditure (s110-25(5)) $ 40,000
Total Cost base $ 619,000
Capital Gain $ 681,000
50% CGT Discount $ 340,500
Net capital gain addition to assessable income $ 340,500

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