Shack life – keep the right records now to avoid extra costs later
Are you keeping all the records you need for the day you sell the family shack or vacant block of land? If you’re not, then it could cost you!
When you are working out the amount of a capital gain there are several elements that make up the cost base of property:
- The purchase price
- The incidental costs associated with the purchase. These would include items like (stamp) duty, legal fees, valuation fees, surveyors’ fees, building inspection fees and agents commission in seeking out the property.
- Where a property is acquired after the 20 August 1991 you can include the costs incurred whilst owning the asset, that have not been claimed as a tax deduction previously. This is often for situations where you haven’t rented your shack out, or for vacant land. Examples of the costs that fall into this category are interest paid on moneys used to acquire the asset, the cost of maintaining and repairing the asset, building insurance, rates and land tax. We often find this particular element is not widely known and therefore records are not retained. Over the life of your ownership of a property, this could be a large addition to the cost base, thereby reducing the capital gain and associated tax liability.
As with any tax claim you need to be able to substantiate the claim. We would suggest that you keep a listing of the ownership costs and all the associated documentation with details of the property purchase costs. This could mean that the records are kept for many years for example, in the case of a family a shack, which could pass through from one generation to the next.
- Capital expenditure that enhances the asset also adds to the cost base, for example – costs to extend any buildings on the property, addition of new buildings, upgrades to the building using improved materials and initial repairs when you first acquired the property. In most cases any previous tax claims, like the capital works building write off will accordingly reduce the amount that can be added to the cost base. You will need to substantiate any claim with appropriate records which we again suggest be maintained with the property purchase details.
Talk to your WLF Advisor about what records you should be keeping when you acquire that dream shack or block of land, as it will save you tax in the long run.