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Capital Gains tax and marginal tax rates

Discussion in 'Accounting & Tax' started by Seb C, 27th Mar, 2016.

  1. Seb C

    Seb C Member

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    Hi guys,

    This is probably a very basic question: if you have a CGT event and are also earning PAYG from a job, are the two amounts just added together and you pay whatever marginal rates that takes you up to?
    (Everything on the net just says you pay "at your marginal rate" but I'm not sure if that's just the rate I normally pay from my job)

    For example:
    • I have a taxable income from my job of $44,000 p/a.
    • I sell some land that gives me a net capital gain of $50,000.
    • So my total taxable income is $94k?
    And therefore I'd pay $22,727 in tax?, calculated as follows.
    • 19c in the dollar between $18,201 and $37k
    • 32.5c in the $ between 37k and 80k
    • 37c in the $ between 80k and 94k.
    Sorry if that's a really silly question.

    Seb.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes that is basically how it works.
    Don't forget the cost base includes various expenses and then the gain may be eligible for the 50% CGT discount.
     
  3. Ed Barton

    Ed Barton Well-Known Member

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  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Some key issues
    - You can reduce a CGT gain by a loss (or a prior year CGT loss). The net gain is then subject to the 50% discount
    - A CGT gain may be split across more than one taxpayer (ie Hubby Wife)

    Medicare levy and all surcharges and levies etc apply to the enhanced income. This could affect Family Tax Benefits etc too.

    If the gain is large a strategy of prepaying loan interest might assist but it comes with some traps. Terry posted this thread : Tax Tip 104: Interest in Advance and Tax Issues
     
    Terry_w likes this.
  5. Mumbai

    Mumbai Well-Known Member

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    Piggy backing the thread with a silly question myself. If I sell my PPOR where it is doesn't attract CGT, does that profit (assuming there is) count as the income earned that financial year?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    no
     
  7. Rockstar

    Rockstar Well-Known Member

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    Hi Terry, Can you please clarify the following and explain what can be claimed as the cost base.

    Hubby and wife purchase a vacant block as an investment.
    Sold after 12 mths and realise a capital gain of $x

    50% discount will apply?
    What costs can be added to the cost base?

    eg:
    Land purchase in joint names hubby and wife - 340k
    SD approx - 11k
    1 yr Interest holding costs - 17k
    Legal expenses (purchase and sale) - 3k
    Council Rates - 1.5k
    Mowing - 0.5k
    Agent commission - 15k
    TOTAL - 388k

    Sale price - 450k

    Capital Gain 450k - 388k = 62k
    X 50% = 31k

    15.5k added to hubby's income and taxed at marginal rate
    15.5k added to wife's income and taxed at marginal rate

    Ta, RS
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Rockstar likes this.
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Hubby and wife buying land on a speculative basis probably doesnt even meet CGT laws. Likley to be ordinary income. I would seek tax advice. In the world of tax law CGT is new law. Long before CGTtax law taxed profit making intentions.
     
  10. Rockstar

    Rockstar Well-Known Member

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    What if we purchased the land to build an IP on but circumstances changed for us and we had to sell?
     
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Tax advice that considers the facts would be required. There are some taxpayers who change intention and the ATO holds them to the original intention. Matters like finance applications, DAs and other proposed actions can influence this issue.
     
  12. Rockstar

    Rockstar Well-Known Member

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    Thanks Paul,
    Our original intention was to hold as investment. It was not to speculate. In this case can we claim the 50% discount if we need to sell after 12 mths?