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You buy a beautiful property
up the coast and plan to go there every year for a holiday.
Then the bills roll in land tax, council rates, insurance, interest etc.
The property isnt available for rent and there is no immediate tax
deduction on those costs. It all gets too much, but you are happy when you
sell it at a nice profit.
Then . . . the final bill rolls in capital gains tax. |
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The good news is that you can minimise this tax. What you need to do
is to keep a record of every thing spent. Many of those expenses you
paid can be added to the cost base of the property. For example, you
bought the house 10 years ago for $150,000 and never rent it. You sell now
for $500,000. It looks like a gain of $350,000, but you were diligent and
kept all your records there was mortgage interest of $50,000, you spent
another $100,000 doing it up, and all those rates, land taxes etc came to
another $20,000. The cost base has now gone up to $320,000, and your
capital gain is reduced to $180,000 a reduction of $170,000.
The key here is to keep all your records, even if they are many
years old. Also remember that if you ever did rent the house and claimed
those expenses as deductions, those expenses claimed do not form part of the
cost base.
(article from our 2006 newsletter). |
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