Can CGT be applicable to a Pre 1985 Residential Property – Yes
Umbrella Accountants - Property Accountants Brisbane
Renovations completed after 1985 can be deemed to be a separate asset to the original property, and hence CGT will be applicable.
John & Mary purchased a residential property in 1984 for $195K to use as their primary residence. In 2000 they moved out and decided to rent out their old home while they purchased a new home elsewhere.
In 2005 John & Mary’s rental property was now fairly tired and couldn’t attract a good rental return, so they completed renovations, kitchen, bathroom, and did some remodelling to bring the property up to date. The whole renovation cost $110K.
Over the years the area had dramatically increased in value, now valued at $950K, John & Mary decided to sell, with the misguided belief the property ( being a Pre 1985 CGT property) would be exempt from CGT on sale.
Of the $950K received for the home, $300K could be attributed to the improvements made in 2005.
If the improvement exceeds the improvement thresholds or 5% of the sale proceeds, the ATO will deem the improvements to be a separate CGT asset subject to CGT.
Sale of property $950,000
Value attributed to improvements $300,000
Cost base of improvements $110,000
(paid in 2005)
Capital Gain $190,000
Less 50% discount $95,000
Net Capital Gain $95,000
- John & Mary Assumed No CGT