Hello,
My first posting is a question rather than a contribution but we all have to start somewhere.Is a capital gain realised on disposal of an IP held over 12 months taxed at you marginal rate before or after the CG is added to other income?
I think I know the answer but wishful thinking is preventing me from believing it.
Thanks
LukeHi Bec and Luke,
Can’t sleep, so figured I’d say g’day. You have me thinking, so yes, you have contributed thank you. I’m hoping that there may be a difference between gains tax and income tax, but this is what I understand to be true.
As I understand to date, yep at your marginal rate if on the top marginal rate. Income is income as a sole trader, therefore whether before or after wage income, makes no difference. But, if your marginal rate is say only 30% and the gain causes bracket creep, the applicable tax will apply to that part of a gain which falls within the next tax level and so forth.
This is why people talk of trusts and companies in an attempt to reduce both tax and liability. However, from what I have learnt here, I know that we can not avoid the latter. Also, a company may pay a lower tax rate than a wage earner on the highest tax level. However, a company pays that rate on every dollar of income. A wage earner enjoys the tax free threshold first, before he/she starts to pay tax.
You can of course off-set a capital gain by taking a loss simultaneously. Say your shares have realised a loss and your IP has realised a gain. You can off-set one against the other. Timing of the sales is important.
Depending on your circumstance, your IP may also have losses added back for other obligations.
CG used to be indexed to inflation. The ATO has simplified that. You now pay tax on simply 50% of your gain.
The best answer for your circumstance of course should be found on the ATO website.
I hope this is of help to you, and I stand corrected in the hope that the tax laws may have changed.
Kind regards, Phil
Hi Bec and Luke,
There is a good little guide called ‘Taxation pocket guide for Australian investors’ by Jimmy Prince which retails for around $19.99. You can find everything on the ATO site of course but I found this book great for a quick reference, clear and easy and full of tips.Capital gains will be liable at 100% of gain on property held shorter than 12 months and at 50% on property held longer than 12 months and depends on:
the amount of capital gain you make on disposal
your marginal rate of tax plus medicare levy
the period of time you have owned the property.
A tip here is that the disposal of property is taken from the time of signing the contract and not the time of settlement – something to watch out for.
Cheers, sunshineHi Luckyphil and sunshine,
Thanks for the quick replies. I guessed that that the gains would be taxed at whichever rate you ended up in after adding income plus gains. Like I said wishful thinking otherwise.At least I can say that the more tax I’m paying, the more profit I have made, unless I’m missing something.
Thanks again.
LukeHey Luke
I had the same wishful thinking as you!
I am working to reduce my gain that I have realised this year by doing as much tax minimisation as possible – like prepaying interest, claiming max depreciation etc. etc. It also helps that I (when I eventually do my tax return) have a massive negative income from last financial year that will help to limit this year’s income.
Cheers
MelThanks Luke,
your post has definately been a productive one so far, coz i sometimes forget the fact that capital gains are only taxed on 50% of the gain if you hold for more than 1 year
Regards
Fudge111[
][^][8D]Well thanks for that information.
I didn’t know that if you sell a property that you have owned shorter than 12 months you pay 100% CGT and if you own it for more than 12 months you pay 50%. Have I got that right?
Guess I will have to hold on to my properties a bit longer until I sell them. That would make a huge difference.
Thanks All.Yes Pebbles, definitely try to hold for 12 months. If you sell for less than that it’s not acutally CGT, it just gets straight out added to your income. Ouch![
]Cheers
Mel
][^][8D]
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