Originally Posted by
elZorro
I guess the property situation will be a complex beast: on one side there is a trading situation which may have been in loss for a period, giving a tax rebate of about 30%, offsetting other income tax due. On the capital side, there would have been a capital gain over time, so presumably what has now paid itself off with income and inflation, is still not quite able to meet the cost of a particular replacement building.
What is not clear is how profitable the first commercial building was over the period of ownership, therefore what the criteria are for the new building. In any case, a $100,000 shortfall for a commercial building might cost just 7% interest, or $7,000 a year. There would be no immediate need to pay out the capital shortfall, and in any case most of the capital needed for the building is already there.
Assuming that the renovation on the first commercial property is all carried out by the next owner, and that you have decided it is not as good an investment idea as a replacement commercial property lease, and the latter is preferable to simply holding the cash proceeds in a bank account, then I think the situation is clear. The sale of the building is really the sale of a business, you might buy another business to replace its income, but at this point in time the first business will have made a capital gain.
Ensuring investors keep rolling their funds into new projects is not a big issue. Farms and businesses are being sold all the time, that money has to go somewhere. The investor still gets to keep most of the gains with a CGT.