Simple CGT question..

Hi All

I currently own an investment property which I’m looking to sell which will allow me to buy elsewhere.

The property is owned by myself only and I have owned it for 6 years, therefore only 50% of the profits are taxed (I’m told).

I am trying to get an idea of how my tax will be affected with the profits made by the sale..

As per the attached table (using round figures), currently I have a taxable income of about $110,000 and currently pay about $28,000 tax per year as I’m in tax bracket $87,001 – $180,000 ($19,822 plus 37c for each $1 over $87,00).

If I were to sell my investment property and make $200,000 profit, 50% of the profits would be taxable, i.e. $100,000. If the $100,000 is added to my taxable income of $110,000, my taxable income increases to $210,000 and I get pushed into tax bracket $180,001 and over ($54,232 plus 45c for each $1 over $180,000) and I pay about $68,000 in tax.

The difference in the tax between the two scenarios is $40,000, which would be the additional tax I would need to pay if I sold the property.

Paying $40,000 in additional tax on a $200,000 is about 20%

Does this logic sound about right?

Cheers,
Robbie

 

Without thinking about it too hard, that does sound about right. Were you worried about any particular aspect of that?

 

I dont trust your profit figure but the calc is right.

 

Hi All,

Thanks for the speedy replies..

@Trainee - The profit figure is a rough estimate and doesn't take into consideration any other expenses. The profit could be more or it could be less. What dont you trust about it?

I just wanted to make sure that i'm familiar CGT and how much I would be giving to the ATO if I sold. I guess, in this example, i would be giving the ATO an additional $40k, but receiving $160k.

Obviously if I decided to sell I would speak to my accountant and try get actuals based on expected profits etc.

Cheers,
Robbie

 

Trainee might be worried that plant and equipment hasnt been allocated between the purchase price and sale price which will possibly increase the capital gain.

Also division 43 capital allowance adjustments to the cost base will increase it as well.

 

What is plant, equipment and division 43 capital allowance adjustments? And.. how much would these affect tax payable in my example?

Also, no need for worry here guys, just wanted to get a rough idea of things. Also keep in mind i havnt taken into consideration any expenses which reduces "profits"

 

From your depreciation schedule you should be able to ascertain the original cost of p&e on acquisiton and the written down value at date of disposal. That should assist in the allocation.

Likewise whatever division 43 capital works you have claimed need to be reduced from the cost base.

Could be substantial over 6 yeara but dont the age of the property. Anyway your depreciation schedule will give you the relevant information.

 

Ever lived in it ?
Ever lived overseas ?

These issues may also impact CGT on real estate

 

Nope, never lived in it or lived overseas.

 

How does living overseas affect it? I was away for about 6 months, is this going to cause me issues in the future?

 

1. Temp absence of 6 mths wont likely affect tax residency
2. Non residents otherwise may lose the CGT discount from May 2012 (subject to T&C) but
3. Residing in a property prior to change of residency may still satisfy the main residence rules and be exempt for at least 6 years and not result in lost CGT discount.

 

Would it be worthwhile me engaging in an account who specializes in CGT? The accountant I have been using up until now was simply submitting basic tax returns for me. She also hasn't responded to the questions I had regarding CGT (I have had a better responsive from this post) .

 

Thats a worry. Why have an accountant who doesnt reply ?

 

Im not the accountant but to be fair to them the post was made on saturday and its now monday. If you asked them the question on friday or over the weekend and they havent responded yet thats quite reasonable.

If however you asked a week ago and havent received any response then yes worth looking elsewhere.

 

The post was made on Friday, however my accountant was asked the same question 7 days ago, but due to no reply, I posted on the forum.

 

Thats a fair point a few days maybe. We are all busy people. I hear about some who never get replies and I dont understand that.

7 days isnt great. Advice that is fresh and timely is normally expected.