The taxation of a 'profit-making scheme (2): Tax regimes step 2: Calculating the capital gain or loss (1)

The calculation of capital gains tax (CGT) is separate from the net profit calculation we talked about earlier. They're only combined in Step 3 to avoid double taxation. Here's how CGT is calculated:

1. Capital Proceeds: This is the money received from selling the property minus any selling costs.
2. Cost Base:
   • First Element: The actual amount paid for the property matters, not just the market value.
   • Second Element: This includes incidental selling costs like stamp duty and marketing fees.
   • Third Element: These are costs of owning the property, like interest on loans used to buy it or property taxes.
   Note: You can't include expenses in the second or third element if you've already deducted them. And if you've claimed a capital works write-off for a building on the property, the first element of the cost base needs adjusting.

When dealing with subdivided land, you need to allocate the original property's cost base reasonably among the subdivided lots. The ATO accepts various allocation methods, such as based on area or market value.

If you have questions, feel free to reach out to Tax Ideas Accountants & Advisers at +61 2 83181545, or book an appointment on their live calendar.