With the shift in tax brackets announced in the recent budget, anyone considering disposing of their investment property within the immediate future would be wise to defer signing their contract of sale post 30/06/2005
For example,
Any person who has a taxable income of $60,000 would normally have a marginal tax rate of 43.5%. From 01/07/2005, this will change to 31.5% for the 05/06 financial year. That is, a CGT saving of 12.0% !!!!
Excellent Idea Antonio!
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Wouldn’t it only apply to the portion below the 60k cap though?
So if I earn 55k and have a CG of 50k – only 5k of it is taxed at the lower rate?
Not in my books, Anubis. The CGT is calculated on your taxable income- if it’s 55k,then you fall into the lower threshhold. CGT is not adding taxable income to CG. It’s based upon the initial taxable income- ie wages. The CG is separate.
kay henry
Does that mean if you earn 50k you pay the standard tax rate for that then if you sell a house in same year and capital gain is 50k what do you pay, does the extra make your income 100k or if seperate what CG do you pay on the 50K?
Surely you don’t pay capital gain tax and also add profit to income and pay on that too?
What happens if your only income is capital gain on selling places?
Oh dear,
The amount of misinformation masquerading as fact being spread around here is staggering!!Antonio is correct in that if you defer the sale of a property till after June 30 you will effectively end up paying less tax ( assumeing that you have sold for a profit and are liable for CGT)
Misty is also on the right track in that if you sell a property and make a CG of 50k, then that 50k is added to your income (eg..50k income) for that year, and you will pay tax on the total of 100k at your ‘marginal rate’.
The point being that you have to calculate the CG first, ( ie…deduct any capital cost and expenses and apply the 50% CGT concession if applicable to arrive at the actual CG) before you can add this CG to your normal income.
If you are already in the highest tax bracket, then sure….you are paying CGT on all the capital gain at the top tax rate.
If you are in a lower tax bracket, then the capital gain may push you into the highest tax bracket for a portion of the capital gain, thus you pay tax accordingly ( ie…some of the capital gain is paid at the highest tax rate)
Capital Gains Tax has no specific rate…it simply highlights the fact that you have made a capital profit and are liable for taxation on that profit at your marginal tax rate.
How would I know ? I have just sold two places last week and one fell over two days ago, and as Antonio suggested, I am now seriously having to think about delaying the sale of the second place till after June 30 to take advantage the tax saving.
Hope this helps.
kp
Hope this helps.
Ive been thinking… if you sold a property and were subject to CGT wouldn’t it be smart (and if you had held it for the required 12 months to get the CGT discount) to sell say in July of any one year so when you’re doing your tax through an accountant/tax agent you then have the benefit of that money – even though a portion belongs to the ATO – for approx. 21-22 months???
If true then your PPOR mortgage could borrow it for a little while or if you are into a little bit of risk then you could invest over that time or a combo of both…
If you sold in june of any given year your taxable income could increase rather sharpley whilst missing some of the benefits that I already mentioned???
am I right or am I right or am I mad…
KP,
Oh dear,
The amount of misinformation masquerading as fact being spread around here is staggering!!I have just done a little research in regards to CGT and believe that the capital gain is not added to your gross income.
Therefore it is not lifting you up into the next tax bracket it is only taxed with your marginal tax bracket you are in. So if your salary is $50,000 you are in the 30% bracket, that means your gain is taxed with 30% and if you were holding the property for more than 12 month you get only taxed on half of your gain.
Remember that I’m not an accountant and have not sold any of my properties yet but try this calculators they may help to understand:
http://www.cch.com.au/cgi-bin/cgt00isapi.dll/
http://www.yourmortgage.com.au/calculators/capital_gains_tax/jsandso
When I am unsure of something, I kind of like going straight to the source…
Robert Bou-Hamdan
Mortgage AdviserHi Robert,
your link does not seem to work, for me anyway.
Try this one http://www.ato.gov.au/individuals/content.asp?doc=/content/12333.htm
and scroll down to “Tax on capital gains”
jsandso
Originally posted by jsandso:I have just done a little research in regards to CGT and believe that the capital gain is not added to your gross income.
Therefore it is not lifting you up into the next tax bracket it is only taxed with your marginal tax bracket you are in. So if your salary is $50,000 you are in the 30% bracket, that means your gain is taxed with 30% and if you were holding the property for more than 12 month you get only taxed on half of your gain.
Remember that I’m not an accountant and have not sold any of my properties yet but try this calculators they may help to understand:
jsandso
jsando,
Please dont take offence, but there is only one line in your post that is actually correct, and that is I’m not an accountant
If you’re not sure of something, then it may be better NOT to post rather than to confuse the situation further with misinformation people might take as advice.
kp is indeed correct. Capital gains (minus the 12 mth concession, minus costs added to the cost base) are indeed ADDED TO YOUR GROSS INCOME.
Using your rationale, someone on a salary of $6,000 per annum (who pays No Tax as they are under the Tax Free Threshold) can sell a property with a capital gain of $1 million dollars and pay no tax at all, because their marginal rate is Zero. Is this what you maintain is the current state of affairs under our current tax system?
As always, please seek professional advice when triggering any sort of tax situation in which you find yourself out of your depth [jealous]
Jay.
Thank you Jay…
I have resorted to being a lurker, but I couldn’t help but reply to this post.jsandso, the very link and example you quoted gives those details and the fact that the capital gain once treated appropriately, is added to your taxable income.
taz, you are also correct…it is better to sell in July as you do not have to declare the gain till you lodge the tax return at the end of that financial year ( ie…12 months or more in the future) hence you will have acces to the taxmans money to use in the meantime, which is great if you can plan the sale for July, and also if you can use the money for some useful gain till it has to be remitted to the taxman.
kp
I can also confirm that the CG “is” added to your taxable income, which in most cases (well if you invested wisely) will put you into a higher tax bracket. Damn it.. Whats this I hear about only paying 30% CGT regardless of your taxable income..anyone point me to a forum re: this??
You must be logged in to reply to this topic. If you don't have an account, you can register here.
