Thang purchased an investment property in Perth during February 2006 for $200,000. He paid stamp duty of $10,000 at that time. He had no trouble finding tenants for the property.
In August 2013 Thang required a new tenant for the property. Because of strong demand for rental housing, Thang was able to get a new tenant to pay him a lump sum ‘up front’ amount of $2,000 (in addition to the annual rental) for entering into a 12-month lease.
However, in January 2014 the tenant wanted to be released early from this lease. The tenant and Thang agreed that the lease would be terminated early in exchange for the tenant giving Thang $3,000.
On May 3, 2014 Thang entered into a contract to sell this property for $700,000; this sale was settled in June 2014.
Thang also enjoyed being a businessman. As a result, during September 2006, Thang purchased 100% of the shares in a company called Hong Pty Ltd for $2 million. Hong Pty Ltd owned and operates a pillow manufacturing factory.
In February 2014 Thang sold his shares in Hong Pty Ltd for $4 million. At this time Hong Pty Ltd’s assets were as follows:
- Pillow manufacturing plant and factory $2,500,000
- Goodwill $1,500,000
Annual turnover for the company has been consistently around $2.5m per year for a number of years.
In June 2014, Thang (who was aged 53 at the time) purchased Julian Pty Ltd, for $350,000. The assets of Julian Pty Ltd were as follows:
- a Bed and Breakfast accommodation $290,000
- a 10 % share in Investment property $60,000
At the time of the sale of Hong Pty Ltd, Thang and his spouse held the following assets (other than the shares in Hong Pty Ltd):
Car (used 50% for his business) $50,000
Property in Melbourne (Thang lives in this property) $850,000
Investment Property in Perth $700,000
Investment Property in Sydney $600,000
For all transactions in this question discuss only the Capital Gains Tax implications.
Refer to all of the relevant sections of legislation, cases and any other scholarly material when providing advice to Thang. Advise Thang on:
- Any Capital Gains Tax liabilities for him in relation to his activities;
- Specifically, make sure that your discussion includes advice on whether Thang can take advantage of the small business concessions to reduce the amount of tax payable on the sale of Hong Pty Ltd.
For the stamp paid by Thang will be classified under
Thanks to section 110-25(4) you can increase the cost base (thus decrease the capital gain) by any ownership costs. These include all that you say ie body corp rates, interest, insurance and repairs.
n amount that makes up all or part of an element of the cost base of an asset may be determined under section 230-505, if the amount is provided for acquiring a thing, and you start or cease to have a Division 230 financial arrangement as consideration for the acquisition of the thing.
Thang purchased an investment property in Perth during February 2006 for $200,000. This will be classified under Cost Base section 110.25(2) as first element. Under this provision, money paid or required to pay, in repect of acquiring the property. (b) the * market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition). Hence, $200,000 paid by Thang to acquire the property. Furthermore, stamp duty cost will come under element three of s110.25(3). According to this provision, it any incidental cost that is related to acquisition of an asset. Since, stamp duty paid is related to acquiring the property, this will be classified under Cost Base; s110.25 (3) as second element.
110-25(2) The first element is the total of:
(a) the money you paid, or are required to pay, in respect of *acquiring it; and
(b) the *market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition)