Hi
I thought, that if you purchased and sold an asset BEFORE 12 months it was subject to 50% and if you sold AFTER 12 months it was subject to your tax income bracket.
I purchased a large corner property 5 months ago and now want to subdivide and sell off the back block and then sell the remaining house as well.
The tax office told me that if I did this BEFORE 12 months they will take 100% and i’ll be left with nothing.
I know its a messy subject and no one can give me a black and white answer but can anyone confirm this is correct or let me know a why around this?
Thanks
Let me see if I can clear this up for you.
If you purchase and sell an investment property within a twelve month time frame, you will have to pay tax on the total capital gain at your marginal tax rate.
In other words, if you earn $50k from earned income (job) and then you make another $50k from capital gain, your total taxable income is $100k which will be at the marginal tax rate.
If you hold the property longer than twelve months, there is a 50% discount on the capital gain.
So again you earn $50k from your job and another $50k from a property held for longer than 12 mths. In this case you would add the earned $50k and 50% of the $50k profit from the IP. This total is $75k and this would be taxed at your marginal tax rate.
Hope this helps
CATA
Asset Protection Specialist
[email protected]Thats not how the tax man explain it to me :> I was in SHOCK!
You have made it very clear and thank you so much for your help!
I am new to this forum and its the best one ive used. Everyone is helpful and excited by discussions… I think im getting addicted :>
I really have to learn more about Taxes thats for sure.
Is there anyway you can limit Capital Gains taxes.
For eg. my large corner block.
If I subdivide and sell the back part as empty land and then use that money to put on the remaining mortgage for the existing property which I still own….. will this limit the amount?
Hope im making sense.
Hello Queengucci
The simple answer is no.
If you want to learn about CGT then the ATO has comprehensive information on this subject on their site plus simple examples .
Happy reading [grad]
ElkaHi QG,
Phoning the ATO for advise is fraught with danger – do it twice nd you could well get two different answers, especially in areas more complex.
CGT, with subdivisions included, does become a little more complex. I suggest you search the ATO website. There is a CGT guide available for download which does include, as a fully worked example, a subdivision scenario.
You can minimise CGT by incurring CG in a no or low income year. Of course there are ways that you an legally reduce your taxable income which then flows on to reduce your subsequent CG.
Derek
[email protected]
The Investors Club http://www.monopoly.tic.com.au
0409 882 958
Skype – derekjones2113There is an option to consider that can wipe CGT. You would need to create the investment in a SMSF , you also need to be 60+ as of July 1st next year there is no CGT or income tax appicable(55+ you can extract $130K tax free). Check with an accountant , mine has already briefed myself on this topic. This may not apply to yourself but could be an option if your parents made the investment. There are few criterias , therfore the structure is very important. Worth considering for no tax! Always confirm any details with a professional.
Thanks for your help guys!
Oh no! I have seen the CGT Guide from the ATO.
It looks scary, ok, ok…….i’ll stop being lazy and start reading!
Hello Tony
Can you expand on what your accountant suggested for you re investment s within a SMSF please.
The problem is that any investment within a SMSF must be fully paid for. i.e no mortgage or leveraging if it’s shares.
I asked my accountant if he thought it would be a good idea to increase the mortgage of an IP property I own in my name and use that money plus some cash to buy an investment property in a SMSF.
He rightly pointed out that the money borrowed would then not be tax deductible so was this a win situation?
Did you get any comments/suggestions from your accountant that would solve this? Or any good ideas?
Thanks for your help [smiling]
Elka
There is a structure used by some investors where by the SMSF has a percentage ownership (the deposit) and the remainder is in the name of the investor (or entity).
For the sake of the example :a $300K investment property ;
20% deposit + costs of say 6% = $78K, this would be the contribution from the SMSF.
The remaing 80% would be borrowings in the investors name
Please remember the legislation for SMSF is about to change again reflective of the last federal budget.
Hello Elkam,
I am not sure on the point of borrowings to invest in the SMSF itself. A SMSF cannot borrow money , so it makes sense.
cheers
Hello Tony
Thank you for that. I will call my accountant again as this may be the way to go.
Maybe there is even some way (unit trust as partner to SMSF?) that as your equity grows the SMSF can buy “you” out slowly to increase the tax free and CGT free portion.
Thanks again [smiling]
ElkaI believe that a SMSF can invest in units from a hybrid trust and the rest of the money comming from yourself.
However I am not lisenced in this area, so do your own research.
CATA
Asset Protection Specialist
[email protected]Another option that is very effective for CGT is to purchase using an NZ trust , the trustee must also be an NZ enitity. There aren’t the same Foreign Investment restrictions and there is no CGT. But with most creative strategies there are pitfalls, company tax in NZ is 36% on profit. It is simple to setup for an Aussie.
If you are investing in Australia, and living in Aus, be very careful with the use of offshore structures. The ATO frowns on this and if you get audited, well good luck.
The only reason for the use of offshore structures is for tax avoidence.
CATA
Asset Protection Specialist
[email protected]Hello Cata and Tony
I’m really confused here.
I live overseas (20 years now) and own IP’s in Australia. My accountant tells me I am liable for CGT if I sell a property. I mentioned this on another thread here and someone said that this was not necessarily so.
When I asked how can you avoid paying CGT they said that as a non resident you can accumulate losses and use these to offset CGs. I didn’t know that so it was a good tip. However, I don’t make losses so is there another way?
Tony why do you think that a trust with company trustee set up in NZ but owning property in Australia would not be liable for Aust. CGT.
I thought all assets having connection with Aust. are subject to Aust. CGT. Am I wrong? [confused2]
Originally posted by elkam:When I asked how can you avoid paying CGT they said that as a non resident you can accumulate losses and use these to offset CGs.
This can be done as a resident. When using a discretionary trust losses are stuck in the trust untill the trust makes a profit eg CG or in your own name with a amendment.
I am no accountant, but I believe the CGT will be paid, and if you arein a country with a double tax agreement with Aus then you may be able to do it in your tax return in the country you are in.
Get an accountant that has expirence in this area. It may cost you more in fees but it could also save you more in tax.
Hope it helps
CATA
Asset Protection Specialist
[email protected]Hello elkam ,
yes you can accrue losses against CGT . Many of my clients are based overseas . The depreciation and other losses can be offset against the CGT.
Also using the NZ trust with a company trustee , this gives the ability to just transfer the shares of the company when you sell the property and the new purchaser takes over the sale there is no stamp duty , this benefits both parties. Therefore the purchaser is simply buying shares in a company.
You need great accounants and more importantly fantastic solicitors.
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