CGT question on Investment Property.

Discussion in 'Accounting & Tax' started by hooperscomputers, 10th Nov, 2009.

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  1. hooperscomputers

    hooperscomputers Member

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    I have a question regarding capital gains tax.

    I have an investment property that I am looking at selling at the begining of the next financial year and will possibly make a capital gain of approx $160,000. I have held it for approx 13 years so will get the 50% discount therefore approx $80,000 will go onto my taxable income.

    My income for next financial year will be about just under $80,000 so the highest tax bracket i will be in is 30%

    My question is will the $80,000 in capital gains be taxed at 30% or will I be pushed into the next tax bracket of 37%?

    Also, with this capital gain on top of my income, total approx $160,000 including the capital gain I may be liable for medicare levy surchage due to taxable income over approx $150,000 family rate with 2 dependants, is this correct?
    I might as well get private health insurance next year otherwise.

    Any info anyone could provide would be greatly appreciated.

    Thanks
     
    hooperscomputers, 10th Nov, 2009
    #1
  2. hooperscomputers

    hooperscomputers Member

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    another question

    Another question to reduse my CGT liability, if I purchase another investment property in the same year that i sell my current investment property, will the stamp duty, loan cost etc on the purchase of the new investment propertybe used as a deduction on my taxable income for that year? and in so doing reduce the amout of CGT i will have tro pay for that year?

    Thanks
     
    hooperscomputers, 10th Nov, 2009
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  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    As of 1 July 2009, you'll move into the 38% tax bracket for a taxable income of between $80K and $180K ... plus the 1.5% medicare levy (so 39.5% effective tax rate).

    I'm pretty sure you'll have to pay the medicare levy surcharge as well - from what I've read, it all seems to be calculated based on taxable income, which includes capital gains. I could be wrong there - I'm just going from what I've read on the ATO website.
     
    Simon Hampel, 10th Nov, 2009
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  4. Simon Hampel

    Simon Hampel Founder Staff Member

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    Purchase costs are not deductible and will be added to the cost base of the property to calculate CGT when you sell it.

    Loan costs can be depreciated over 5 years, so you will get a bit of benefit from that.

    It is negative gearing which is likely to cause the most benefit. Anything which reduces your taxable income will effectively reduce the amount of tax you pay overall.

    Don't just go an negatively gear for the sake of minimising tax - make sure your investment is sound even without the negative gearing benefits.
     
    Simon Hampel, 10th Nov, 2009
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  5. hooperscomputers

    hooperscomputers Member

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    Other information I have read

    I have read other info on other sites that state

    "A windfall capital gain will not push you into an unduly high tax bracket. The reason for this is that a concessional rate is applied to capital gains. In most cases, the rate applied will be the top rate applicable to your other income. "

    This gives me the idea that the property will be taxed at my hightest tax bracket before the capital gain is applied.

    Is this correct?

    Has anyone else been in my situation with CGT?

    Thanks
     
    hooperscomputers, 11th Nov, 2009
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  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    Nope.

    Introduction to capital gains tax

    Your net capital gain is simply added to your taxable income and so you pay tax based on the normal income tax rates as if you had earned it from salary and wages.

    Perhaps if you can post a link to the other websites, we can see the context in which that was written and explain what it really means?
     
    Simon Hampel, 11th Nov, 2009
    #6
  7. hooperscomputers

    hooperscomputers Member

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    hooperscomputers, 11th Nov, 2009
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  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    It looks like that page was written in 1994 ... that method for calculating the tax rate on a capital gain is no longer correct.
     
    Simon Hampel, 11th Nov, 2009
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  9. jrc

    jrc Well-Known Member

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    Actually you do have an option to index, but you can only apply indexation on the purchase price up to Sep 1999. But if you apply indexation then you don't get the 50% discount. It''s an either or choice.

    Normally you will be better off to use the 50% discount method.
     
    jrc, 12th Nov, 2009
    #9