CGT when you sell, if you are retired

what happens if you sell an IP when you are retired and therefore have no taxable income ? Let's say you owned it 30 years and it was an IP the whole time. What CGT do you pay?

Ta

 

CGT is calculated on your marginal tax rate at the time of sale. Therefore if you need to sell and by so doing, trigger a CGT event, it is best to sell in a year when your marginal tax rate is at its lowest.

 

Capital Gains Tax didn’t come in until 20/09/85

 

There are lots of CGT calculators on the web if you want the details.

Basically you have to add 50% of the capital gain to your Taxable Income.

The rate of tax will then depend on what tax bracket your Taxable Income is in.

The highest bracket get up around 50% - so the highest you CGT will be is around 25% of the Capital Gain. If you organize things well you can get it down to much less than that.

 

You would pay tax as per normal. E.g. if your property made a $500,000 capital gain your taxable income would be $250k after the 50% discount and you would pay tax on this $250k just like it was a wage.

 

If you have no other income you will have the advantage of the tax free threshold and the sliding tax rate scale. This is a good time to realise a capital gain.

 

One strategy is to sell the main residence tax free and then move into an investment property.

If you stay there till death this property could also be cgt free

 

Also worth noting when the property was purchased. If it's ~30 years ago that you purchased it then you're right in the window of two particular things to note. The first being if it was bought before September 20 1985, in which case it is a pre CGT asset and there will be no capital gains tax payable on disposal (there can be differences here if you've undertaken substantial renovations or built a new property on it among a few other things). The second thing to note is that you might actually have held it long enough that the indexation method is preferable to the discount method and thus should either look into how to calculate this yourself or seek an accountants advice on it.

Otherwise it's been covered thoroughly that you will pay it at your marginal rate which will depend on the size of the capital gain.

As @Terry_w has covered there are also a lot of alternative options that can be used to defer or avoid paying the tax.