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CGT on Investment Property (which was transferred)

Discussion in 'Accounting, Tax & Legal' started by archangelsupreme, 27th Jun, 2010.

  1. archangelsupreme

    archangelsupreme Well-Known Member

    Joined:
    7th Sep, 2007
    Posts:
    206
    Location:
    Australia
    Can someone confirm that i'm thinking this through correctly...

    My parents transferred a property to me (under mutual love and affection) and I didn't have to pay anything besides the stamp duty. Let's say the stamp duty was based off a value of $500k.

    It's deemed as an investment property and i have let it out since.

    When I sell the house, how do i work out the capital gain? I would assume that it's the gain between the selling price (once i sell) and the price that the State Revenue Office derives the stamp duty. Is this right?

    At the time of transfer, i had several real estate agents value the property, ranging from say $500k to $600k (i of course took the lowest one for stamp duty purposes). When i sell the house, do i have to use the $500k valuation or can i choose the $600k as the cost base...etc.

    Hope that makes sense?
     
  2. funkandjunk

    funkandjunk Member

    Joined:
    28th Jun, 2010
    Posts:
    16
    Location:
    Sydney
    Market Value Substitution Rule

    Hi,

    Anytime, you are not dealing on arm's length basis, the tax system forces you to conduct transaction on market value terms. This is referred to as "market value substitution rule".

    CGT terms explained

    Therefore, your initial cost base would be the market value at acquisition.

    I am not sure though how you establish market value if you don't have specific records but given that a value was used for stamp duty, although not advantageous to you, I would imagine that value should be used for this purpose.

    How would you justify one value to be used with one Government agency when that is favourable to you, yet inflating the value when dealing with another government agency !!

    Regards

    Funky