So lets say i sold my house next week for 300k. I brought it for 100k. That leaves me with 200k CGT. Because ive had it for more than a year i can cut that in half, so now im down to 100k for CGT. Does anyone else know any ways i can further cut that 100k down? Say i paid 20k in intrest rates can i deduct that from100k leaving me with 80k CGT? Any ideas would be super!
Capital Gains Tax
- Thread starter Nikolina
- Start date
Any costs associated with purchasing the property that were capital in nature can be deducted from the capital gain.. eg Stamp Duty, pest inspections, travel etc..
Any costs associated with getting the property ready for rent when you first bought it can be deducted.. eg repairs etc.. provided you didnt claim these as tax deductions from your income.
Any costs associated with selling the property can be deducted from the capital gain.. eg Real Estate Agent fees etc.
Any costs associated with getting the property ready for rent when you first bought it can be deducted.. eg repairs etc.. provided you didnt claim these as tax deductions from your income.
Any costs associated with selling the property can be deducted from the capital gain.. eg Real Estate Agent fees etc.
There are 6 basic things to account for with CGT for IPs, 3 when you buy (purchase price, legals on purchase, stamp duty) and 3 when you sell (sale price, legals on sale, agent's commission (which is zero for you as you say)). You also have to reduce the cost base by the claim on capital works.
There are also extraordinary events such as renovations, initial building inspections and initial inspection travel for that property.
Any costs claimed as a deduction for running the property as an income producing asset are unavailable for reducing capital gains.
Once you have accounted for all that you can, you need to look outside the capital gain regime for further deductions to offset the capital gain (eg salary sacrifice to super.)
Stamp duty has always been around as far as I know. It was certainly around in 1985 which is when capital gains was introduced.
There are also extraordinary events such as renovations, initial building inspections and initial inspection travel for that property.
Any costs claimed as a deduction for running the property as an income producing asset are unavailable for reducing capital gains.
Once you have accounted for all that you can, you need to look outside the capital gain regime for further deductions to offset the capital gain (eg salary sacrifice to super.)
Stamp duty has always been around as far as I know. It was certainly around in 1985 which is when capital gains was introduced.
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Mry means that by salary sacrificing to super, or if you are able to claim a deduction for super contributions (note rules apply), then your taxable income will be less and therefore when the capital gain is added to your taxable income it will be less than what it would have been without salary sacrificing. Provided your overall average tax rate (excluding the capital gain) is greater than 15% (remember contributions to super are taxed at 15%) then you will be better off. As someone said to me the other day ,super is the only legal tax haven in Australia. Imagine an environment where you can earn tax free income over 60. Even better than an offshore bank account. And its legal.
Im new to all of this, and is confusing the hell out of me. So please correct me if im wrong, but how is doing that going to reduce the remaining 100k i have to pay on CGT? When the remaining 100k isnt a taxable income? Its CGT? is there not a difference? Sorry if come across as being dumb, im just confused! like i said am new to all of this.
It's a common misconception Nikolina. There is technically no such thing as a capital gains tax. There are capital gains. These gains are added to your other income to form total taxable income. You then pay tax on your taxable income.
Ah...so if Nikolina´s income is 50K, and the capital gain is the 100K minus other costs mentioned to make it say 80K, then the 80K+50K = 130K. This would be her total taxable income for that year, and she now pays tax on that income.
So in that year, the lower her personal taxable income from her JOB, the lower the overall taxable income will be including the capital gain, and thus effectively paying less tax on that capital gain, ie, capital gains tax.
So, diverting some of your personal income into super that year, is one way of reducing your personal taxable income.
Also, maybe prepaying interest on loan for another IP for the following year could be another way?
If the property was purchased in a trust structure, then the 80K capital gain could be distributed to beneficiaries of the trust who are paying lower tax on their personal incomes or no tax, if they are not earning an income?
But, if all beneficiaries are already on the highest marginal tax rate, this would be of no benefit?
Is that correct?
Any other ways to decrease capital gains tax?
GSJ
So in that year, the lower her personal taxable income from her JOB, the lower the overall taxable income will be including the capital gain, and thus effectively paying less tax on that capital gain, ie, capital gains tax.
So, diverting some of your personal income into super that year, is one way of reducing your personal taxable income.
Also, maybe prepaying interest on loan for another IP for the following year could be another way?
If the property was purchased in a trust structure, then the 80K capital gain could be distributed to beneficiaries of the trust who are paying lower tax on their personal incomes or no tax, if they are not earning an income?
But, if all beneficiaries are already on the highest marginal tax rate, this would be of no benefit?
Is that correct?
Any other ways to decrease capital gains tax?
GSJ
Pretty much. Capital gains (if the asset has been held for >12 months, being 50% of the dollar gain) is added to the rest of your income and then taxed at normal rates.
Therefore, you either reduce the dollar gain (by claiming everything you can against the cost base and sale price) OR reduce your other income so that you're in a lower tax bracket. Others might be buying another IP that has tons of depreciation, prepaying interest, etc.
If you're already in the highest bracket even after reducing your other income as much as possible, there's no benefit.
Alex
Therefore, you either reduce the dollar gain (by claiming everything you can against the cost base and sale price) OR reduce your other income so that you're in a lower tax bracket. Others might be buying another IP that has tons of depreciation, prepaying interest, etc.
If you're already in the highest bracket even after reducing your other income as much as possible, there's no benefit.
Alex
So the personal tax you have to pay is reduced by putting it into your super BUT going back to my question how does this help when this will not reduce the 80k i have to pay from the IP. I want to reduce the 80K on its own! Not anything from my personal tax. When it comes to submitting your tax at the end of financial year your personal tax is calcuated separately from your capital gains.
We don't invent the tax rules, Nikolina. We just work with them. Actually your tax is calculated on 'taxable income', which is the total of your 'capital gains' and other income such as salary. It might be calculated separately on your tax return in terms of it's on different sections, but it's all added up to calculate your tax.
In short, reducing your non-capital gains taxable income reduces the tax you pay on your capital gains IF it means your total taxable income gets pushed into a lower bracket.
Sometimes, since that's what the tax rules are written for, you pay tax. Sometimes you can't reduce your tax and it is what it is. Trusts might have helped you, but sometimes, it is just what it is. You've made a great profit on this. Pay your taxes and move on. Most tax reduction plans have to be put in place before you buy (and sell).
Alex
In short, reducing your non-capital gains taxable income reduces the tax you pay on your capital gains IF it means your total taxable income gets pushed into a lower bracket.
Sometimes, since that's what the tax rules are written for, you pay tax. Sometimes you can't reduce your tax and it is what it is. Trusts might have helped you, but sometimes, it is just what it is. You've made a great profit on this. Pay your taxes and move on. Most tax reduction plans have to be put in place before you buy (and sell).
Alex
I never said you did invent tax rules. The basis of my post was a way to reduce the CGT from my IP, after deducting all costs im left with 80k! Now tell me by doing what Mry or Coastymike have said how is this going to further reduce my 80K? Answer: its not going to reduce the 80k, by doing what they have said that will reduce my personal tax income! That is not what i am asking. Please dont take this post the wrong way, im saying it how i see it.
Well if the answer is how to reduce a potential capital gain on the sale of an IP I have a simple strategy. Don't sell. There you go.
G'day Nikolina,
It seems you still have some misconceptions - let's see if this helps:-
You seem to be talking of $80k as though this is the Tax you are likely to pay. Using your earlier figures, this $80k is the Cap Gain you are assessed as making. The Tax paid on that will likely be between 41.5% and 46.5% (depending on your Taxable Income before CG is added).
Thus you will end up paying less than $40k (or less than $20k if you are selling as a Joint Tenant). Not too bad for a $200k gain is it?
Re "what else can you do to reduce it", I'd say re-read what has already been said - maybe one (or more) of these ideas CAN help you. Or take it to an Accountant where they can sit down with you to map out the best result.
CGT is one of those areas where it is good to plan it (I gather this is what you are doing - you haven't actually sold yet?) as there are some ways to legally reduce it.
GSJ's post seemed to use your figures to give you the idea on how it works. Have another good read of that post.
CGT would be one of the most commonly mis-understood areas of investing IMHO. Probably because most people aren't dealing with it week by week. So feel free to keep on asking - we'll help as/when we can,
Edited later:- A couple of other thoughts - Cap Gains can be Offset by Cap Losses - so you might want to consider selling any "dog" shares that haven't done well. Also, by selling early in the new FY, the Tax is not payable until after that FY finishes (giving you the use of that money for a year or so.
And if planning to sell, can you do that in a year where you haven't earned much as Income? It all helps,
Regards,
It seems you still have some misconceptions - let's see if this helps:-
Yes, it is. The CG is shared 50:50 between the two people involved. Thus they add HALF of the CG to each of their Tax calculations. (One might be on a Marginal Rate of 46.5%, with the other on 31.5% - so one might pay less CGT than the other).
As others have said, they are "joined at the hip" - and the amount of CGT you pay depends on what your Income for the year was.
You seem to be talking of $80k as though this is the Tax you are likely to pay. Using your earlier figures, this $80k is the Cap Gain you are assessed as making. The Tax paid on that will likely be between 41.5% and 46.5% (depending on your Taxable Income before CG is added).
Thus you will end up paying less than $40k (or less than $20k if you are selling as a Joint Tenant). Not too bad for a $200k gain is it?
Re "what else can you do to reduce it", I'd say re-read what has already been said - maybe one (or more) of these ideas CAN help you. Or take it to an Accountant where they can sit down with you to map out the best result.
CGT is one of those areas where it is good to plan it (I gather this is what you are doing - you haven't actually sold yet?) as there are some ways to legally reduce it.
GSJ's post seemed to use your figures to give you the idea on how it works. Have another good read of that post.
CGT would be one of the most commonly mis-understood areas of investing IMHO. Probably because most people aren't dealing with it week by week. So feel free to keep on asking - we'll help as/when we can,
Edited later:- A couple of other thoughts - Cap Gains can be Offset by Cap Losses - so you might want to consider selling any "dog" shares that haven't done well. Also, by selling early in the new FY, the Tax is not payable until after that FY finishes (giving you the use of that money for a year or so.
And if planning to sell, can you do that in a year where you haven't earned much as Income? It all helps,
Regards,
Nikolina,
Good news. No you don't pay the $100K to the government. Assuming you made a $200K gain and allowing for the 50% CGT Discount.
The $100K is added to your other income (let's says $50K) and your total income is now $150K. Let's assume we are talking about the 2005/06 tax year. If you earned $50K from a job they would (or should) have taken out $ 11,610 in tax.
Now with the extra $100K added to your $50K you will pay total tax of $ 56,300. However your employer would already have paid $11,610 so you will up for the extra $ 44,690. Which works out to be roughly 45%.
So that's how it all works.
Good news. No you don't pay the $100K to the government. Assuming you made a $200K gain and allowing for the 50% CGT Discount.
The $100K is added to your other income (let's says $50K) and your total income is now $150K. Let's assume we are talking about the 2005/06 tax year. If you earned $50K from a job they would (or should) have taken out $ 11,610 in tax.
Now with the extra $100K added to your $50K you will pay total tax of $ 56,300. However your employer would already have paid $11,610 so you will up for the extra $ 44,690. Which works out to be roughly 45%.
So that's how it all works.
I have no idea what you have put into e-tax but you may have earned other income which you have not paid tax on and this has increased your tax payable. Personally I think you are entering the figures incorrectly. I think we have explained it sufficiently for you.
