Home' Australian Pharmacist : Australian Pharmacist December 2013 Contents Australian Pharmacist December 2013 I ©Pharmaceutical Society of Australia Ltd. 75
Property Tax Problems?
339 William Street, West Melbourne VIC 3003
Tel: (03) 9982 1000 • Fax: (03) 9329 8355
Paul Carrazzo CPA is a respected property tax writer and has appeared at
many seminars discussing property tax issues on behalf of CPA Australia.
Paul and his team at Carrazzo Consulting have a genuine air and passion
when it comes to advising on property tax.
Our services to property investors include:
• Tax structuring for developments
• Negative Gearing advice
• Tax Returns & Accounts
• Property CGT and GST advice
• Self managed super and property investing
PROPERTY TAX FILE
next eight years ('rental period'). The
house was then sold while Matt was still
in London. Matt owned his home for a
total period of 10 years.
Matt's dwelling was actually his MR
for the first two years of his ownership
period. If he chooses to apply the
'temporary absence rule', the dwelling
can also be treated as his MR for the first
six years of the rental period. This means
that Matt can apply the MR exemption
for a total period of 8 years (i.e. two years
plus six years), out of his total 10 year
If Matt chooses to apply the 'temporary
absence rule', the MR exemption will
apply to basically 8/10 of any capital gain
or capital loss on the sale of his dwelling.
Matt should also consider if the 'market
value rule' applies -- refer below.
In a 1995 tax determination, the ATO
makes it clear that the six-year 'temporary
absence rule' can apply in relation to each
period of absence, for a dwelling that is
used for income producing purposes after
a person moves out. In other words, a
person can gain access to the six-year rule
more than once for the same dwelling
(i.e. each time the dwelling becomes and
ceases to be the person's MR).
Furthermore, if there are intermittent
periods of renting a dwelling during a
single period of absence, these periods
must be aggregated when calculating
whether the six-year limitation has been
exceeded for that absence period.
The 'market value rule'
Where a person's MR (assumes originally
acquired post-CGT) is first used to
produce income after 20 August 1996
('first income year'), the person is
generally taken to have acquired the
dwelling at this time for its market value.
It is the time that the dwelling is first used
to produce income that is relevant, and
not the time the dwelling was acquired.
However, the market value rule will
only apply where both of the following
conditions are met:
a. the person would only obtain a partial
MR exemption when the dwelling is
eventually sold, because it was used for
rental purposes; and
b. the person would have obtained a
full MR exemption when the dwelling
was sold immediately before the first
The 'market value rule' commonly applies
where a taxpayer moves out of their
MR and commences to rent it out (i.e.
where the conditions outlined above
How to calculate a capital gain or capital
loss where the 'market value rule' applies.
Where this rule applies, it will affect the
way in which the person's capital gain
or capital loss is calculated when the
dwelling is sold. In particular, both of the
following will be affected:
a. The 'cost base' of the dwelling; and
b. The person's period of ownership in
relation to the dwelling.
Calculating the 'cost base'
The ATO has advised leading tax
association, the NTAA that the cost base
of the dwelling under these rules is the
• The market value at the time the
property is first used for renting (all
cost base items incurred pre renting are
therefore ignored); and
• The cost base expenditure incurred
after the dwelling was rented (e.g.
expenditure on capital improvements
to the dwelling after it was first rented).
'Ownership period' of the dwelling
When calculating the capital gain on the
sale under this rule, the ownership of the
dwelling is deemed to have commenced
at the time the dwelling is first rented,
not the original purchase date. In other
words, the use of the dwelling before the
time it was first rented is irrelevant.
Audit trap -- 50% discount and the
12 month qualifying period
In order to apply the general 50% CGT
discount to a capital gain on the sale of a
dwelling, one of the conditions that must
be met is that the asset is held for at least
12 months after it was acquired.
Thus, as the new acquisition date is from
the date it was first rented, any sale within
12 months of that time will not attract the
50% CGT discount.
You are welcome to contact me if you
wish me to clarify or expand upon any of
the matters raised in this article.
Any reader intending to apply the
information in this article to practical
circumstances should independently
verify their interpretation and the
information's applicability to their particular
circumstances with an accountant
specialising in this area.
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