Hi, Can someone please clear up Capital Gains Tax for me. How much capital gains tax do you pay on an investment property if you sell within 12 months and never lived in it, and how much do you sell after 12months if you never lived in it. And is capital gains tax any different on units then on houses? Also, do they take into account the stamp duty you paid and real estate agent commission before deciding how much profit you made? Or do they just work it out by the difference between what you bought it for and what you sell it for?
Thanks, if anyone knows any of these answers it would be greatly appreciated.Hi Pumpkin,
Capital Gains Tax is calculated at the full 100% rate should you sell your IP BEFORE the 12 month anniversary (as per contract of sale date) of having purchased it (regardless of whether it is a unit/house/shares/boat etc). If you sell after owning it 12 months and one day, the CGT will be halfed (50%) of all your profit proceeds from the sale. All your expenses incurred on the property are deductible, ie. stamp duty when you purchased it, commissions paid upon sale, advertising for sale purposes etc etc etc.
Hope that helps,
Jo
Jo
Don’t want to nit pick but the relevant date for CGT calculation is not the date of ownership (i.e possession or settlement date) but actually the unconditional Contract date.
Have had many clients come unstuck with this one.
Cheers Richard
richard at fhog.com.au
http://www.fhog.com.auThere is no such thing as a problem.
Just a solution waiting to be foundRichard Taylor | Australia's leading private lender
Rob, I’m not sure why the problem?
For a contract I have signed to buy, I’m more than happy for the start date to be then – it means that your 12 months kicks in immediately, and there’s absolutely no problem in having to pay any money or anything to anyone……
It’s the fact that when you sign the contract to sell that I think would bring people unstuck. Especially if you sell on a long settlement. This could mean you owned for say, 2 years before settlement of your sale, but really in the eyes of the ATO you only owned for 10 months – that’s when you’re in trouble.
With my recent OTP purchases, I’m really glad that ‘ownership’ kicked in on signing of contract. That meant that the contract I signed in 02 enabled me to sell PRIOR to completion, and therefore have back to back settlements, but I effectively owned it for greater than 12 months, and had CGT halved……..[biggrin]
Cheers
MelBut Rob, why does it matter?
You have signed a contract. You are not paying any interest as you haven’t yet drawn the loan. It’s not costing a brass razoo, and you certainly don’t have to pay any tax. So what’s the issue?
Cheers
MelHang on Rob. When signing a contract to buy – you are not liable for any CGT. This is my point. CGT is payable when you sell. So it can be to your benefit for the ‘ownership’ to start from signing a contract to buy!!
Cheers
MelOriginally posted by Qlds007:Jo
Don’t want to nit pick but the relevant date for CGT calculation is not the date of ownership (i.e possession or settlement date) but actually the unconditional Contract date.
Oops sorry…..I didn’t realise that I hadn’t made it clear enough, I have gone back in and edited it accordingly. Thanks for picking me up on it Richard.
Cheers,
Jo
Thanks for your reply Jo, but I am still confused. When you say that you get taxed 100% within 12 months, what is that percentage, surely not your whole profit? And after the round a bout 12 month mark, it is only 50% of what it is within 12 months is that right? And you say that they deduct stamp duty, real estate agent commission etc before working out your profit for you to be taxed on is that right?
Sorry, just haven’t had to consider this before so want to make sure I have it right.
ThanksHi Pumpkin,
Okay here’s an example:
Property cost: 239000
Stamp Duty: 10000 (in Victoria)
Legals (approx) 2000
Total Cost Base: 251000
Capital Improvements
(ie new kitchen/bathroom
etc etc) 30000So far, the property has cost you 251K + 30K = 281K, then you sell it for 381K (profit of 100K) HOWEVER you deduct the cost of agent commission (eg. 2% = 7260 + eg. 2740 advertising = 10K) so you are taxed on 90K (10K deducted from 100K, then halved (50%) if sold after one year), a figure of approx. 45K which needs to be added to other taxable income, say you earnt 30K in salary/wages, you would be taxed on 75K (as per tax scale).
Hope that is a bit clearer.
Cheers,
Jo
pumpkin
if you buy for $200 000 and sell it under 12 months from the date of contract, for say $300 000 – then you will pay cgt on the full $100 000 (100%)of capital gains. If you held the property for more than 12 months, and the same purchase and sale figures apply, then you only pay cgt on $50 000 (which is then 50%).
How it works out with your personal income, well, i’ll leave that to you, the basic structure is above.
cheers
brahms
If you don’t ask, the answer is no!!
Originally posted by pumpkin:When you say that you get taxed 100% within 12 months, what is that percentage, surely not your whole profit?
Don’t confuse taxable income with the amount of tax to pay. The 100% and 50% figures are talking about taxable income. How much tax you would then pay would depend on your marginal tax rate.
GP
Thanks Jo, brahms and GP! I now understand exactly what you are all saying, heaps clearer! So, if there are two people who own a property, can you then divide the profit between the two, and split the CGT? If you purchase in tenants in common, can you specify percentage owned, so that if one earns more than the other (in different tax brackets) then the one earning less gets the majority of the profits (for tax purposes only) to reduce the tax. Would that work?
Originally posted by pumpkin:If you purchase in tenants in common, can you specify percentage owned, so that if one earns more than the other (in different tax brackets) then the one earning less gets the majority of the profits (for tax purposes only) to reduce the tax.
I’m not an accountant, but my understanding is that income and capital gain have to be apportioned as per the ownership percentages specified on the title.
GP
The 12 months starts from the signing of the contract not the contract becoming unconditional. The only condition that will delay the start of the 12 months is a condition precedent. As the name says this is a pre condition of the contract coming into existance such as the property not yet existing. A simple subject to finance clause is a condition subsequent and does not delay the start date.
Reference TD 94/D92 and Case 9451 (1194) 28 ATR
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