If it's decided that a property was sold as part of a money-making plan, the next thing to figure out is how much tax you need to pay on the sale. Here's how it works:
Step 1: The profit or loss from the sale is counted in the year the sale contract is settled. This profit or loss is the difference between the money you got from selling the property and the costs you had developing it, like land costs. These costs aren't deducted when you pay taxes on them but are counted when you calculate the profit or loss.
Step 2: The sale might also be subject to capital gains tax (CGT), which calculates the increase in property value from when you bought it, not when you started the money-making plan. This is calculated at the contract date, not the settlement date.
Step 3: Any capital gain from Step 2 gets reduced by the profit from Step 1. This is to prevent double taxation. But the capital gain might not get reduced to zero because the methods used to calculate the profit and the capital gain are different.
Keep in mind, while you might end up with a profit or loss from selling property, we'll mainly talk about how to handle profits in these notes.
If you have any questions, feel free to contact Tax Ideas Accountants & Advisers. You can also book an appointment through our live calendar.
