hi al,l new to the forum and i would like to say that this forum is excellent.
when selling an i.p that has a c.g.t, you get taxed on your income rate on 50% of your capital gains.
so if your on a lower tax bracket the tax saving is greater. ok i think thats right?Q. do you have to be on that lower tax bracket within that financial year to gain a better c.g tax benifit or does it have to be over a number of years leading up to the sale?
not sure how to word this next question, but here goes.
Q. what about inflation with depreciation on a i.p? is todays dollar worth less than itself in ten years? if so, if i claimed a total of $10,000 depreciation over 10 years and after that ten yrs sold and claimed a c.g. would i have to pay back that $10,000 back?
if so with inflation on the dollar what would that $10,000 dollar value actually be after that 10 yrs.im so confused
help pleaseHi JPR.
OK, settle down young grasshopper.
CGT works on the govt taking 50% of your profits for the financial year you sell the property in and then add this gain onto your earnings for that year. This then gives you a total earnings for that year which is then taxed at the marginal tax rate the total earnings falls into. SO, what does all that mean grasshopper. For an example: You have just sold your IP this financial year 2010-2011 and realised a gross profit of say $100,000. You also earned a gross income of say $70,000. Now the ATO will allow you to be taxed on 50% of your capital gain (or profit) which equals 50% of $100,000 equals $50,000 Capital Gains. Now, the ATO adds this $50,000 to your earnings of $70,000 making your gross earnings for that tax year to $120,000 which you will then be taxed at the current marginal rate of 47c in the dollar. Therefore $120,000 x 47% ($56,400) = $63,600 nett. So in effect you paid $56,000 in combines CGT and Income Tax.
As for your depreciation allowances, if your depreciation schedules are done by a Quantity Surveyor then you do not have to pay back what you have claimed in the 10 years you claimed depreciation. Check out the ATO site for more specific info or simply call a QS such as BMT Tax Depreciation in your Capital City.
I hope this has been of benefit.
CHEERS!
TCBasically the actual taxable capital gain (amount after 50% discount etc) is added to your other income for the year and then taxed accordingly.
Example: If u had wages etc of $20k and had a taxable capital gain of $50k your taxable income would be $70k for the year.
You would pay exactly the same amount of tax as someone who earnt $70k from a job etc.Its doesnt matter what you earnt in the years previous etc. It is also worth pointing out that the disposal date for CGT is contract date and not settlement date.
wow thanks heaps guys, i now walk away with an understanding of this, great help.
what about the inflation side?Inflation is not factored in with depreciation as there are very strict guidelines to be followed in making a 10 year depreciation schedule by a Quantity Surveyor. Have a look at BMT's website at http://www.bmtqs.com.au or call on 1300 728 726 for the cost of a local call from anywhere in the country. When in doubt, ask the experts!
CHEERS!
TCTC62 wrote:Hi JPR.OK, settle down young grasshopper.
CGT works on the govt taking 50% of your profits for the financial year you sell the property in and then add this gain onto your earnings for that year. This then gives you a total earnings for that year which is then taxed at the marginal tax rate the total earnings falls into. SO, what does all that mean grasshopper. For an example: You have just sold your IP this financial year 2010-2011 and realised a gross profit of say $100,000. You also earned a gross income of say $70,000. Now the ATO will allow you to be taxed on 50% of your capital gain (or profit) which equals 50% of $100,000 equals $50,000 Capital Gains. Now, the ATO adds this $50,000 to your earnings of $70,000 making your gross earnings for that tax year to $120,000 which you will then be taxed at the current marginal rate of 47c in the dollar. Therefore $120,000 x 47% ($56,400) = $63,600 nett. So in effect you paid $56,000 in combines CGT and Income Tax.
As for your depreciation allowances, if your depreciation schedules are done by a Quantity Surveyor then you do not have to pay back what you have claimed in the 10 years you claimed depreciation. Check out the ATO site for more specific info or simply call a QS such as BMT Tax Depreciation in your Capital City.
I hope this has been of benefit.
CHEERS!
TCGood explanation TC, but your tax rates are too high.
The top rate this fin year is 45%, but it doesn't kick in unto you earn more than $180,000 pa. The rate below this is only 37% for incomes over $80,000.
Medicare is on top of these too.
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
Many thanks Terry. You're absolutely right however, in my humble defence, it was late, I was tired and know that if a mistake is made there will be someone in the forum to rectify! That someone, this time, was you and it is appreciated – particularly for those wanting to learn and needing accuracy!
CHEERS!
TC
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