Hi There
I know there is a lot more to this question, but I’m after a basic / quick understanding.
example – I buy an investment property for 200k
I sell the property years later for 300k
I claim the 50% discount (having owned the property for over 12 months)
I factor in the $28k of stamp duty b4 or after the 50% discount….
example – 100k growth, minus stamp duty of 28k = 72k Does that mean I am taxed on 50% of the 72k ….ie:36k …yes?
at the top tax rate / whatever tax rate is determined against my wages etc
So in essence if I have made 100k of growth on the property – I should expect to pay more than 17 to 18k in tax…..or is the calculation done as 100k growth, with 50% discount = 50k minus stamp duty (28k) = taxed against 22k = likely pay tax of 10-11k
Help
In your example it is the first one that is correct. Work out the capital gain first and then apply the 50% discount. This figure = about $36k in your example is added to your other taxable income.
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
Hi Darkness,
It may help understand WHY things work out the way they do. When you read up on CGT, you may see a reference to the Cost Base. This is the total cost to you of buying the place (purchase price, stamp duty, solicitors costs, etc). So, even though you say you paid $200k, your Cost Base is $228k and may be even more, allowing for other Purchase Costs mentioned.
Thus, with a selling price of $300k, minus $228k, a profit of $72k is made (then discount it by 50% etc, etc).
Now, what Terryw can tell you (I can’t for sure) is if there were any other costs that form the Cost Base that are also legitimate to claim (e.g. RE agent fees on SELLING the property, any capital costs expended while owning the property, etc). I “think” some of these would be kosher….. Your actual profit might be even less than $72k after all.
Terry, can you provide extra thoughts please?
Benny
When calculating capital gains tax we need to know what the cost base of the asset that was sold is.
The capital gain will be the sale price less the cost base.
To work out the cost base we need to know the costs for the 5 elements described under Section 110-25 of the ITAA 1997 which are:
1. Money paid or required to be paid for the asset.
2. Incidental costs of acquiring the asset, or costs in relation to the CGT event, for example, stamp duty, legal fees, tax advice, and so on.
3. Non capital costs you incur in connection with your ownership, for example, interest, rates, land tax, repairs and insurance premiums (provided not previously claimed). Included are any expenses incurred while the property was an owner occupied property.
4. Capital expenditure you incur to increase the value of the asset, if the expenditure is reflected in the state or nature of the asset at the time of the CGT event.
5. Capital expenditure you incur to preserve or defend your title rights to the asset.
The interest mentioned in the third element means interest incurred on loans used directly to acquire or improve the asset, but wouldn’t include interest on loan increases to fund private expenses such as borrowing for a holiday or car.
Summarised from from PBR Authorisation Number: 45589
https://www.ato.gov.au/rba/content/?ffi=/misc/rba/content/45589.htmTerryw | 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
Thanks again Terry
Cheer
Terry,
2. Incidental costs of acquiring the asset, or costs in relation to the CGT event, for example, stamp duty, legal fees, tax advice, and so on.
Does 2. (above) also relate to costs of selling? From the wording “costs in relation to the CGT event” one could think selling applies…. Without the sale there would be no CGT event, right?
And thanks, hey,
Benny
Yes 2 should be just ‘incidental costs’ and would include costs on acquisition and disposal.
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
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