As property prices continue to grow across every capital city in Australia, I think we’re all wondering…when will the growth stop when it comes to capital cities’ house prices?
Growth in the last month by capital cities was as follows:
Overall, capital city house prices throughout Australia went up 2.3% in May (9.4% annually). Even in cities such as Hobart, which was once regarded as very affordable, has now become much more expensive.
As property markets are buoyant, many of our clients who have owned properties for a long period of time are taking the opportunity to sell them. However, there are capital gains in many situations, so here are a few things that you’ll need to be aware of if you’re thinking of selling a property:
When you are in the market selling a property, whether its residential or commercial, that the capital gain is levied when the contract exchanges. That is, upon exchange of contract, that any capital gain is rationalized. This is relevant if you’re, for example, exchanging contracts in May or June of a given year. It may be better to hold off exchanging any contracts until July each year and this will mean you will have 12 additional months to pay any capital gains tax applicable.
The depreciation you claim over the life of the property reduces the cost base off the property for capital gains tax when the property is sold. For example, if you purchased a property at $400,000 but over 10 years claimed $100,000 depreciation, then the cost base of your property would only actually be $300,000. This means that an additional net capital gain will apply.
If you’re entitled to receive a 50% discount of the gain, this will still mean that you will be paying tax on $15,000 more than what you had initially thought.
In the case of a holiday house or if your property has not been rented out for some time, it’s very important that you still keep a record of the costs included during this time. These can be added to the capital costs of the property when calculating a capital gain. In our previous example, where the cost base of the property was reduced to $300,000, if interest of $30,000 over the life of the ownership of the property was not claimed, then this could be added to the cost base, increasing this base to $330,000.
Therefore, before undertaking to sell other property, please ensure that you work with your relevant WSC Group client manager so that we can estimate any capital gains taxable before it is sold.
In light of all these points, tax time is just around the corner. We’re aiming to send out the 2021 tax return checklists to all clients no later than the 25 June and this will allow you to complete your tax in early July. In addition, if you need to complete a tax variation and haven’t sent your tax variation checklist back to us, please try to do so this week so we can have the variation processed by the end of June.
For our business clients who need any final tax planning advice, we are aiming to have this all completed by the 17 June to enable superannuation contributions and any final purchase of assets.
Happy Financial New Year and see you at tax time!