Overview
In Simple Fund 360, managing the sale of a residential property involves four critical transactions. Each of these transactions corresponds to different stages of the sale process and should be processed in separate transactions.
Here’s a breakdown of each:
1. Property Sale Deposit:
- This transaction is triggered when the deposit for the sale of the property is received before settlement.
- This transaction also allows for the recording of any disbursements, such as legal fees or agent commissions withheld from the deposit
2. Disposal of depreciable assets:
- Dispose of depreciable assets (e.g., Fixtures and fittings) that have been recorded as separate assets in the Trial Balance at their written-down value (WDV).
- The WDV should adjust the property's cost base before recording the disposal transaction.
3. Property Sale Settlement:
- This event occurs at the settlement of the property sale when the purchaser pays the balance of the sale price.
- In addition to recording the receipt of the remaining purchase price, this transaction also allows for recording any disbursements or expenses related to the sale. These could include legal fees, agent commissions, water rates, council rates, and other related costs deducted from the sale's gross proceeds.
4. Disposal of the Property - Capital Gains Tax (CGT) Transaction:
- Capital gains tax is calculated based on the difference between the sale price and the property’s original purchase price, adjusted for any allowable expenses and adjustments. Any change in market value is automatically posted to the 24700 Changes in Market Value account.
- You do not need to manually post the CGT amount, as this is calculated and recorded by the software automatically.
Note
BGL does not provide accounting or taxation advice. The following is designed to guide Simple Fund 360 users on how to enter transactions. It is not intended to be accounting or tax advice and should not be taken as a strict guideline. Other more suitable methods may be used instead of these steps depending on the SMSF's scenarios or the outcome required.
Instructions
Example: A property has been sold for a price of $2,000,000 (covered in Step 4).
- The purchaser pays a deposit of $100,000, and the agent's commission of $40,000 is withheld.
- A Depreciable asset with a WDV of $2,500 as of the contract date
- Settlement takes place, and the disbursements include $800 in council rates, $400 in water rates and legal fees of $2600. A cash amount of $1,897,800 is received
1. Property Sale Deposit:
- Please record a journal on the date the disposal is received, with any disbursements.
- To be capitalised and not expensed, disbursements need to have 0 units entered to adjust the cost base.
- The Total Deposit is posted to a holding account, e.g. Sundry Debtors, until the Disposal Transaction can be recorded.
| Account Name | Account Code | Units | DR ($) | CR ($) |
|---|---|---|---|---|
| Bank Account | 60400/Property | 0 | $60,000 | |
| Investment Property | 72650/DepAsset | 0 | $40,000 | |
| Sundry Debtors | 68000 | $100,000 |
2. Disposal of depreciable assets
Before entering the transaction, please ensure that the depreciable asset in the Chart of Accounts, in the More Details section, has the asset subject to the CGT box unticked.
If the depreciable asset is being depreciated through the depreciation schedule, please ensure that the asset's depreciation is posted to the disposal date.
The following journal will be used to dispose of the depreciable assets and adjust the cost base of the property:
| Account Name | Account Code | Units | DR ($) | CR ($) |
|---|---|---|---|---|
| Investment Property | 77200/Property | 0 | $2,500 | |
| Depreciable Asset | 72650/DepAsset | 1 | $2,500 |
After posting, the transaction contains a 24800 Amount
If the transaction posted contains an extra line with an amount posted to 24800 account, there is a difference between the written-down value and the adjusted cost base.
To remove this amount, please follow the instructions in the following article.
Account 24800 - Changes in Market Values of Other Assets
Updating the depreciation schedule
Once the depreciable assets have been disposed of, the depreciation schedule will not automatically update the closing written-down value. To update the schedule, click the recalculate button in the top right of the depreciation schedule screen.
Additional Expenses
Any additional expenses (costs of sale) incurred in selling the property not part of the deposit or settlement amount must be added to the property's cost base before the Disposal Transaction.
Example - $5,000 in advertising expenses paid separately.
| Account Name | Account Code | Units | DR ($) | CR ($) |
|---|---|---|---|---|
| Investment Property | 77200/Property | 0 | 5,000 | |
| Bank | 60400/Bank | N/A | 5,000 |
3. Property Settlement
- Please record a journal on the date the settlement is received, with any disbursements.
- To be capitalised and not expensed, disbursements need to have 0 units entered to adjust the cost base.
- The Settlement Amount is posted to a holding account, e.g. Sundry Debtors, until the Disposal Transaction can be recorded.
| Account Name | Account Code | Units | DR ($) | CR ($) |
|---|---|---|---|---|
| Bank | 60400/Bank | N/A | $1,897,800 | |
| Council Rates | 41960/Property | N/A | $800 | |
| Water Rates | 42150/Property | N/A | $400 | |
| Legal Fees | 77200/Property | 0 | $2,600 | |
| Sundry Debtors | 68000 | N/A | $1,900,000 |
4. Disposal of property
Please make sure all cost base adjustments have been completed before this transaction.
The disposal of the property will be recorded by recording the proceeds from the sale.
| Account Name | Account Code | Units | DR ($) | CR ($) |
|---|---|---|---|---|
| Sundry Debtors | 68000 | N/A | 2,000,000 | |
| Investment Property | 77200/Property | 1 | 2,000,000 |