Hi Is there a basic arithmetic formula to calculate estimates of CGT if we sell an IP? I know the process, what I don't know is the tax % to multiply it by. I do: Sale price minus p/price Divide by 2 to get what we are taxed on Then...what to multiply it by to get a cash figure?
It's very much more convoluted than that. Did you live in the IP during any time that you owned it, if so how long, and at what period of your ownership? Do you have a PPOR atm? Have you ever? Have you claimed a CGT event before? Recently? Have you done any capital works to the property since you bought it? Reno/improvements/landscaping/remove trees etc Did you modify the block at all during your ownership? Plenty of questions and more that you need to take to your accountant for them to work it out for you Also, whatever your CGT figure comes to, that gets added onto your taxable income for that financial year. Say you earn 100k salary (25k tax payable), and the house cost you 300k, sold it for 500k, CGT is 100k (200k profit minus 50% exemption). Taxable income for that year becomes 200k (63.5k tax payable). Leaving you with a tax bill for that year of 38.5k. Regards, Arc
I'm no qualified accountant so what I'm expressing to you is only my understanding. @Terry_w knows more about this and has alot of tax tips throughout this forum. But the tax bill is 38.5k because your 25k tax from your salary is withheld by your employer and given to the ATO for you. Regards, Arc
An extremely rough guide. Sale price minus buying price, allow for costs on both. If you are in the top tax scale, and IP owned for more than 12 months, CGT will be close to 25% of the gain. Marg
I use taxcalc.com.au for quick and dirty numbers on the fly It also has the marginal tax rates their for you
I encourage all clients to have estimates checked by a tax adviser skilled in property related issues. I typically find client calculations vastly over or under estimate CGT and they make incorrect assumptions based on this. Just last week I received such a call and the person was anxious about the tax estimate and allowing sufficient $$ from the settlement (this week). I was able to confirm the CGT would be $0. eg Did you EVER reside in the property at any time ? This one question can trigger a variety of issues and outcomes incl full tax exemption, pro-rata exemption and even changes to the costbase sometimes. It may also allow some private expenses to reduce the profit so a reduce profit is then pro-rata into two time periods - One being a taxable period. The other important fact to ascertain concerns the taxpayers and their partner. Sometimes people thing of their former home as "their" CGT problem when it isnt the case. A non-owner partner / spouse / defacto can also be affected by CGT and a choice needs to be known and understood. In many cases it can be tax free BUT affects the other person. Last year I reckon I amended three new clients returns for errors in CGT that they made when they did it themselves. In each case they then paid less tax. One was a significant refund.
Thanks all for your comments. Reading the responses I realised the real issue is not the IPs, it's the fact that we've always had a fat buffer and since buying the PPOR we don't. We feel better with a buffer against unexpected expenses (R&M etc). So: the real question is: how do we get a buffer asap (~20k). Options: - sell an ip to reduce debt as discussed ; and if we don't, what other options (beyond our steady regular but small saving ), to get 20k - get an equity loan of 20k against an ip and it would sit in the ip offset for a few years until we'd built up our savings - (in 2yrs we'd use it to pay council permits to develop one of our IPs to become a duplex but in meantime it'd provide an immediate buffer.) Has anyone done that-- take equity loan that can also function as a buffer? PS. IPs are doing better than I thought: LVRs are 62% and 73% - thanks to Sydney boom ripple (these IPs are well-located Wollongong houses in gentrifying increasingly desirable suburbs, one with dual occ oppty).
The equity loan in a offset may be a solution and it wont affect tax. Bank tax refunds for two years to replace it
