Tax Issues and Conveyancing
Written by Gabriella Ferraro, Catherine Micallef and Nagisa Takaki
“Risk comes from not knowing what you are doing”
– Warren Buffett
Purchasing or selling property can be a difficult process. Before packing boxes and preparing for the big move, there are taxes to consider!
Some tax implications may impact your decision to buy or sell. It is recommended that you obtain independent advice from your financial planner or accountant in relation to tax implications which may impact your decision when buying or selling.
What YOU can do
1. Keep up with any changes to the law by looking at the Federal and State budgets.
2. Consider FHOG and other schemes – do you qualify?
3. Make a financial plan – will you utilise the benefits of using the property as your PPR or leverage the property against your taxes and make it an investment property?
Taxes to consider
Goods and Services Tax (GST)
Legislation: New Tax System (Goods and Services Tax) Act 1999 (Cth)
Commencement: 1 July 2000
Function: 10 per cent value added tax payable on most goods and services.
Registered businesses collect GST and those in the chain of supply are entitled to claim a credit for any GST paid. The end consumer is not entitled to claim a credit.
Question: is the vendor company/business registered for GST?
This can be quite a complicated consideration and depend on a number of factors, early advice should be obtained as property sales contracts should include:
If the contract price includes GST or not
If the margin scheme applies, and if so, the margin rate.
It may also be necessary to include a clause that limits the liability of the supplier or purchaser if the GST treatment included in the contract is later found to be wrong.
NOTE: The sale of residential properties does not attract GST unless new, substantially renovated or vacant land.
Capital Gains Tax (CGT)
When you sell capital assets, like real estate, cryptocurrency or shares, you can either make a capital gain or loss. This refers to the amount you receive by selling it, minus the amount you paid to acquire and maintain the asset.
Legislation: Income Tax Assessment Act 1997 (Cth)
Commencement: 20 September 1985
Purpose: to collect tax on any net gain on disposal of a CGT assessment.
CGT is payable as part of your income tax
Exemptions: pre-CGT assets, personal use assets, such as your principal place of residence, or roll-overs
You can learn more about CGT through the ATO website.
Land Transfer Duty (previously known as Stamp Duty)
Legislation: Duty Act 2000 (Vic)
Purpose: Duty payable to the Victorian Government on various transactions including land transfer, declaration of trust and certain leases
The amount of duty depends on the value of your property, how you use it, if you are a foreign purchaser, and if you are eligible for any exemptions or concessions.
Exemptions: include transfer from trustee to beneficiary, deceased estates, transfer between a spouse or partner.
Legislation: Land Tax Act 2005 (Vic)
You pay land tax if the total taxable value of all the Victorian land you own, individually or jointly, as at 31 December, is equal to or exceeds $250,000 ($25,000 for trusts). Exempt land (like your principal place of residence PPR) is not included in this total. The rate of land tax you pay depends on the total taxable value of all your taxable land.
Exemptions: Principal place of residence, primary production land or retirement villages
Deduction: Generally, land tax can be claimed as an expense for a rental property for the period the property was rented or available for rent.
Our best recommendation is that clients seek accounting and financial advice BEFORE entering into any contracts to purchase or sell property.