All Topics / General Property / capital gains tax

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  • Profile photo of wannabe2wannabe2
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    @wannabe2
    Join Date: 2003
    Post Count: 65

    hi guys ,could anyone please tell me how much we would have to pay in cgt on an ip in north qld if we sell after 12 months or before 12 months

    Profile photo of RodCRodC
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    @rodc
    Join Date: 2002
    Post Count: 335

    If you sell after 12 months you will pay CGT at your marginal rate on 50% of the CG. If you sell before 12 months you’ll have to pay CGT on the full amount.

    Rod.

    Profile photo of wannabe2wannabe2
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    @wannabe2
    Join Date: 2003
    Post Count: 65

    thanks for the reply,but how much is the cgt rate?ie if the property is bought for 162000 and sold immediately for 182000 then how much profit is left after cgt[:)]

    Profile photo of becandlukebecandluke
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    @becandluke
    Join Date: 2003
    Post Count: 4

    Wannabe,
    I was recently asking similar questions about CGT and this is my understanding:
    Your profit of $20000 would be reduced by your buying and selling costs firstly. This may be about 5% in and 3% out (just guessing). This will leave about $6500 ($13500 in costs). This would then be added to your regualr income. If this is done within 12 months of purchase then the total will be added to your income and you will pay tax at your marginal tax rate. If the extra $6500 pushes you up a bracket then you pay at that rate. If its done after 12 months of purchase then you add half of the CG, ie $3250 to your regular income. Hope this helps and isn’t too confusing. And if I’m barking up the wrong tree then someone please correct me.

    Luke

    Profile photo of ChrisHallChrisHall
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    @chrishall
    Join Date: 2003
    Post Count: 21

    CGT is a complex code, but I’ll share the bit I know (limited todate!!)… Capital gains tax is linked with income tax, so I don’t think there is a figure that somebody can give you that will be accurate unless you show all your earnings in that financial year. The capital gains will be treated as income on top of your other income and will therefore put you in a different tax bracket.

    For example…If you earn $32,000 a year in a job and make a capital gain of $20,000 this would put you in the $52,000/year income bracket – moved you from the 31% bracket to the 43% bracket. Therefore you would be taxed about $8,400 on the $20,000 capital gain (don’t quote me on this one).

    That’s a basic idea but not accurate!!

    Chris (:

    Profile photo of RodCRodC
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    @rodc
    Join Date: 2002
    Post Count: 335

    It’s just what Luke said. So for his example if you’re in the top tax bracket (48.5%) you’ll pay 48.5% of $6500 if sold in under 12 months or 48.5% of $3750 if sold after 12 months.

    Rod.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Guys

    Please note that you need to hold the IP for 12 months and 1 day and not 12 months to benefit from the halving of CGT.

    I have seen client’s come a cropper for the sake of 24 hours. Let me assure you that the ATO will not miscalculate the time the asset has been held if they audit you.

    Cheers Richard
    [email protected]
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    Profile photo of sunshinesunshine
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    @sunshine
    Join Date: 2003
    Post Count: 63

    Hi. Cant seem to find it right now, but I thought I had read that the 12 months for CGT was taken from the day of exchange of contracts, not settlement. Is this correct??? It makes quite a difference if you have a long settlement if this is the case.

    Sunshine[:I]

    ooops, just found it in the tax guide. “Under CGT provisions, if you buy a property, a sale will normally arise at the time of making the contract and not at the time of settlement”.

    Profile photo of qsilverqsilver
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    @qsilver
    Join Date: 2003
    Post Count: 7

    I know this reply is a little late but if it helps good. Agreeing with everyone so far yes you have to have the property for 12 months and a day with the dates calculated from the day you sign the agreement regardless of settlement dates to be entitled to the 50% deduction. Also you are able to claim on every cent you put towards the property ie. rates, bills, interest payments, improvements, as well as the purchasing and selling costs. This can dramtically reduce the profit that gets added to you income and hopefully save you some tax.

    I hope this helps.

    chris

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
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    Sunshine

    You are bang on it is from the date of the Contract.

    Cheers Richard
    [email protected]
    http://www.fhog.com.au

    There is no such thing as a problem.
    Just a solution waiting to be found

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of mikeejmikeej
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    @mikeej
    Join Date: 2003
    Post Count: 25

    This question is slightly off the topic but,
    If I subdivide a large block and build two houses, can I put all of the proceeds from selling one into paying off the initial cost of buying the land and building the houses, without paying any kind of tax. I am assuming there will still be some of the loan principle left, so I haven’t actually made a profit. I would then rent out the other property with no intention of selling.

    Profile photo of westanwestan
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    @westan
    Join Date: 2002
    Post Count: 1,950

    mikeej

    no sorry i don’t think you can do that. the cost of the houses would be direct to each house. and i’d assume that the land would be proportional to each house? some accountants might like to confirm.
    i just wanted to add to the discussion the advantage of a family trust to the first senario and the disavantage of a company. firstly with a company you don’t get the 50% discount on CGT and pay company tax rates. However with the family trust you get the 50% discount plus the benifit of choosing which benificary to give the profit to. so if you want you can distribute the money to the lowest tax payers. you can give proportions to avoid moving up the next tax bracket. i know someone who will have a 300k CG this financial year. he will only need to pay about 45k tax. this is acheived because he will get the 50% discount (150K tax free) and because he will distribute 100k to three low income adults. they will declare 50K tax each at a 30% tax rate therefore less than 15k each (15 times 3 =45K tax)
    regards westan

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    mikeej

    Westan is pretty much right.

    If you subdivide the front house off the cost base placed on the value of the land on the back 2 blocks will be proportionate to the land area of each bock.

    I.e if land value = $100K and total land size is 1000 sq M. Front house – 500 Sq M and back 2 blocks are 250 Sq each then $25K will be your cost base on the rear blocks.

    When you have completed building the 2 new houses GST will be paid on the margin between the Sale price and the $25,000. Along the way you wil have course claimed your GST credits from the construction.

    As the front house is second hand you will not be liable for GST however will not be able to claim the GST credits for any expenditure made on the front house.

    When it comes to IT or CGT depends whether the ATO classify this as a living for you the summary Westan gave is good enough.

    There is of course nothing to stop you building the 2 rear houses and moving into one of them and then selling it down the track and classifying it as a PPOR. If you did this you would probably build 2 slightly differently and direct the costs to the property you were going to live in.

    Cheers Richard
    [email protected]
    http://www.fhog.com.au

    There is no such thing as a problem.
    Just a solution waiting to be found

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Newbie2Newbie2
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    @newbie2
    Join Date: 2003
    Post Count: 1

    I’ve just joined this forum, so greetings to everyone.

    I’m slowly starting to understand how capital gains tax is calculated. The ATO website is of very little help, let me tell you.

    I understand that to get the 50% discount, you have to have held the property for 12 months & 1 day from date of contract. So I assume this means 12 months & 1 day of ownership (not necessarily investment)?

    For example, I have a property that I have owned for over 2 years, but it has only been an investment property for the last 7 months. I assume this means if I was to sell, I would receive the 50% discount because I’ve owned the property for more than 12 months, is that correct??

    Newbie[8D]

    I don’t want to wait for retirement to have the time to enjoy life.

    Profile photo of melbearmelbear
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    @melbear
    Join Date: 2003
    Post Count: 2,429

    HI Newbie

    I am guessing that you lived in this property prior to it becoming an investment?

    If so, and you have not moved into another home that you are also buying, you could probably still sell it and be CGT exempt.

    Even if you have moved into another home, you could still be CGT exempt, but your home that you are in now would not be for the 7 months that the earlier house was still classed as your PPOR.

    But to answer your question, it is on length of ownership, not how long it has been an investment.

    I would definitely check with your team as to how to structure it best if you intend to sell.

    Cheers
    Mel

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