important to know the difference between a Property Trader and a Property
Investor as there may be CGT and GST implications.
A Property Trader is a person who tries to gain
income through purchasing property by flipping it quickly, when the property
has received significant capital gains or after renovations.
An investor buys into a property with the
intention of producing long term capital growth or rental yield. Investors typically hold onto the property for longer than
Traders looking to renovate before reselling
generally have to register for GST if the renovations are substantial. They
must report the net profit or loss in their income tax return.
In the case of "flipping” properties, the purchased
properties are regarded as trading stock. The costs of buying and renovating
form part of the cost of the trading stock until they are sold.
CGT does not apply to assets held as trading stock
(even if you have lived in them). The CGT discount, small business concessions
and main residence exemption don’t apply to any income from the sale of the
The main distinction between trading and investing
in properties is the intention, which is used to determine the nature of the transaction.
If you can prove that you have purchased the property, with the intention of holding the property for income, selling it
shortly thereafter because of a good offer, doesn’t necessarily redefine the
transaction into one of trade.
Here at RealRenta, our
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The right property
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Wednesday, 17 June 2020