My wife and I are 63 and retired three years ago. In October 2007 we sold a rental property in Sydney. We were joint tenants. We put the proceeds into our own SMSF.
Specifically the cost base of the property was $165,000 (purchase price at $160,000 plus $5000 for solicitor fees and stamp duties). The net proceeds was $645,000 after deducting $20,000 for solicitor and agent fees from the sale price of $665,000.
The capital gain was therefore $480,000.
The property was bought in 1987 and each person’s share of the capital gains at 50% is $120,000 after the 50% discount for "over 12 month ownership".
I understand that the cost base need not be reduced by the capital works deductions made over the years since the property was acquired before 1997.
Together with other investment income our personal taxable income for 2007/08 is about $50,000 each after claiming a $100,000 deductible contribution to the SMSF.
Please would you advise what else I can do or claim to be able to reduce CGT liabilities.
We have another property (outside the SMSF) which is not rented out. Sometimes it is available to visiting friends for occupation rent free. Can we claim deductions for council rates and capital works deductions?
Sounds like your normal taxable income would be $30,000 each so you have an extra $20,000 each that will be in the 31.5% tax bracket. It is worth borrowing deductions from next year to bring yourselves down the $30,000. Next year the threshold will be $34,000 and if you are over that you can just make a further contribution to super. Payments of expenses in advance will borrow deductions from next year. For example interest payments or expenses relating to rental properties. Make sure you don’t pay anymore than 12 months in advance and you had best check with your accountant first to consider all your personal circumstances.
Another possible way of reducing the gain is by triggering a capital loss. If you have some shares that you are considering selling because they are not doing well, it would be a shame to delay until next year and then have no capital gain to offset the loss against. Is it possible you already have some old capital losses that you could offset?
You are correct you do not have to add the special building write off back to your cost base because you purchased the property before 13th May, 1997. I assume from your CGT calculation that you have not incurred any other capital costs associated with the property.
To claim the expenses on the other property they would have to be a cost of earning income so sorry you can’t. If you purchased this property after 20th August, 1991 you can increase your cost base by these costs and absolutely anything else associated with the property (ie light globes, cleaning materials, plants etc) Is this property a post 19th September 1985 property? If so it probably has a sleeping CGT nightmare waiting to happen. If your own home is pre 19th September, 1985 consider covering this other one with your main residence exemption instead. You only have to move in and set up home then move out and you main residence exemption can cover the property indefinitely because it is not earning income.