Hi
Just wondering if anyone knows much about the 50% capital gains tax reduction if you hold on to an asset for more than 12 months.
I have a block of land that is about to go under contract (with any luck), but I just realised we may have held it for just a little under 12 months.
I bought the block last year – 13th Feb was the date contracts were signed, settlement was 31 Mar.
My understanding is that if I can somehow stretch out the contract signing date till the 13th Feb (a little over 2 weeks away) – I will have met the 12 months required. The risk in this is that the buyer may lose interest and in general I’d think getting the contracts to him as soon as possible would be the way to go.
Is my understanding of how the 12 months is calculated for property transactions correct (contract sign to contract sign) – and if so, is there anything I could possibly do to fudge it a bit. A few days difference could mean 20% less paid in tax on the profit.
Adam
CGT is calculated on the Contract dates and not the settlement date so waiting a day or two maybe worthwhile dependant on your circumstances.
If you need to delay the execution it might be worth offering the potential buyers with some form of incentive to hold on in there.
Remember that a contract is only binding and dated when you the vendor accept the offer and the agent or solicitor signs off as Stakeholder. Why not get the contract drawn up and to the vendor and then hold off accepting the offer until the timeframe is suitable to you.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
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Thank you Richard.
When I purchased the block, is the start of the period for CGT purposes the contract date also (not just when I’m disposing of it?). It was unclear in some other documentation I was reading whether the contract date was used for CGT only during the selling part of the transaction – and that the actual settlement date might be considered the start date for the purchase leg of the transaction.
I may be able to offer the purchaser a small further discount (obviously less than our savings from the 50% CGT reduction) and see how that goes.
Adam
It is contract date (purchase) to contract date (sale). Some advise waiting another day or two for the sale date just to be absolutely certain.
CGT is only one aspect, if you have a very good price offered you may decide to accept the certainty of the sale and pay the tax. After all, if you procrastinate the purchaser may decide not to buy. A later sale may result in lower CGT but you may be worse off overall if you cannot get the same price again.
Only you can make that decision.
A friend of ours purchased 7 days before the first home owners grant came in – he missed out on the grant but decided that the deal was too good to risk as so many purchasers were waiting for the magic date and he negotiated a price he was more than happy with.
Tax is only one aspect of the deal. And you will never go broke making a profit.
Cheers
MargThat’s good advice Marg.
As usual Richard and Marg are spot on. Here’s an extract from our website that explains further how Capital Gains Tax works.
Capital Gains Tax
Capital Gains Tax (CGT) is the tax paid on any Net Capital Gain made on an asset that is sold, and is included in your Income Tax Return. CGT is not a separate tax but forms part of your income tax payable.The system has changed over the years since inception on 19th September, 1985 so we recommend you seek independent professional advice from your Accountant.
Two methods to calculate CGT
(1) Indexation
Applies to property purchased up to 21 September, 1999 where the cost base is indexed according to inflation.(2) Discount (Current Method)
A 50% discount (on assets held at least 12 months) is applied to your Net Capital Gain. This discounted amount forms part of your taxable income and is taxed at your marginal rate, up to a maximum of 48.5%One third discount applies to Superannuation Funds and there is no discount for Companies.
Keeping records
You must keep your records for 5 years from the date you sell the property.Balancing Charge
To calculate the capital gain your Accountant may need to reduce the “Cost Base†to the extent that it includes amounts you have previously claimed for Depreciation and Capital Works deductions.
If you are intending to sell a property, we strongly advise that you discuss this issue of GCT with your Accountant before you sell the property, to ensure that you are aware of the CGT implications.What date on the contract is used to assess CGT?
The date on the Contract of Sale is used for CGT purposes – regardless of when settlement occurs.AmandaBS
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