Cost Base on 2nd Property

funnysht on 19/04/2023 - 16:08

Hi All
Was hoping some help
I live in an apartment which is my owner occupied

I'm considering buying a 2nd apartment for my parents..so it'll be free for them

I don't want to do like dodgy tax things
But I know my first property is CGT free

But I cannot claim a 2nd home as CGT. But
If I do eventually sell the property…any improvements e.g ac installation or kitchen renovations be added to the 'cost base' so when I work out my CGT ..I pay less tax.

Thanks!!

Tdlr. To reduce CGT on a 2ndproperty that is not rented out- can renovations etc be added to the cost base (as you would normally do with an investment property)

Financial

Comments

  • MS Paint on 19/04/2023 - 16:10
    +4

    Before I answer - how did you resolve the loose nut?

  • filmer on 19/04/2023 - 16:22

    If your parents aren't paying rent this really muddies the water, especially if you are taking out a mortgage for it. This is not an ozbargain appropriate question.

  • beari on 19/04/2023 - 17:00
    +1

    Yes - any capital items will be factored in to the cost base when the property is ultimately sold.

    Holding costs such as interest and insurance will also be included.

    Incurring extra costs simply to reduce CGT is a poor idea however as you are only taxed on profit, less the 50% discount, at your marginal tax rate. Assuming you are in the top bracket you are spending $1 to save $0.49c on tax. Likewise as you receive the 50% discount you're losing 50% of the deduction, so you are really spending $1 to save $0.24c on tax. You should have a compelling reason to make those improvements.

    You should also seek formal advice.

    • funnysht on 19/04/2023 - 17:10

      Oh more like I wanted to install an ac for my parents $1.5k …so was thinking adding that to cost base

      Do you mean like home loan interest gets added to the cost base?..

      • beari on 19/04/2023 - 17:17

        Yes if it is under mortgage interest will be included.

        This is ultimately a capital investment and all associated costs are included in determining whether you have made a profit for tax purposes.

        • deme on 19/04/2023 - 19:29

          No it won't as the people involved are not at arms length and OP is not intending to earn income.

          • beari on 20/04/2023 - 09:23

            @deme: Intention to earn income/non-arms length is largely irrelevant in this circumstance.

            If OP intended to rent it to them under market value then there would be other factors to take into consideration. Likewise if OP were to transfer the title to them under market value then non-arms length provisions would kick in as well.

            This is no different to buying a property and leaving it vacant and then selling. This is simply a realisation of a capital asset and without the MRE there will simply be a taxable gain or loss on the sale.

            • deme on 20/04/2023 - 11:35

              @beari:

              This is no different to buying a property and leaving it vacant and then selling

              Not when it comes to negative gearing.

              Yes if it is under mortgage interest will be included.

              No this is false.

              • beari on 20/04/2023 - 12:05

                @deme: This has nothing to do with negative gearing.

                The OP only asked about CGT.

                If the OP is not renting the property to their parents then holding costs (yes this includes interest) will be included in the cost base.

                If OP is intending to rent the property then if it is under market value then yes negative gearing is not available but interest is very much deductible up to the income earned. Any excess will be capitalised and once again included in the cost base.

  • deme on 19/04/2023 - 17:53
    +2

    This seems so convoluted you should seek expert advice as the parties are not dealing at arms length.

    The difference between seeking advice now vs later could be hundreds of thousands.

  • JIMB0 on 19/04/2023 - 20:46

    Can it go in your parents name?

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