Capital Gains Tax

[Les]

G'day Nikolina,

I've never used e-tax - but just wondering..... Does it ask you to enter your Capital Gain (or assessed Capital Gain)?

I'm wondering if you are still using $200k as "your Capital Gain". Where you should be using (perhaps) $100k or even $80k after other reductions have been added to the Cost Base.

Without knowing the actual figures you've supplied to e-tax, I can't be sure what's going on.

And, I'm not sure whether you realise or not, but there have already been two Accountants providing answers in this thread. I don't think they will be putting you crook. Coastymike is one of them (the bloke with the "good news").

Regards,

 

[Nikolina]

My understanding was that the 80k would not further be calculated according to which bracket i fit into. Obviously if Coastymike is an accountant then he must be right. To be honest i can't remember what i typed in when using the e-tax, it was an "quick" thing i did just to see what outcome i would get.

Well that's great news, sure beats having to give up 80k in totall, soo thanks to everyone who contributed to my posts.

 

[Nikolina]

G'day Nikolina,

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. Regards,

I have taken it to an accountant, thats where i got my figures from!
Should be sold by the end of this week. So my next question is can anyone recommend a good accountant in the sydney area?

 

[Pushka]

To reduce CGT you need to offset it against a loss, you could buy something, sell it for a loss and reduce your overall gains. Seriously, the people on this forum are really helpful so their information is worth listening to.

They have suggested you reduce your overall income by salary sacrificing, although with a CG of $100k that will still mean you are in the top tax bracket. So the only other way to reduce it is to make a CG loss! Something you wouldnt to set out to do!
Or not sell in the first place, as coastymike suggested!

CGT is lousy, especially if you have to pay it on an IP for which you have derived no income at all, like a beach house for personal use only! Why should the Govt get a percentage of any 'profit' you make when you sell it, when its purpose was not to produce an income and you never claimed any tax relief while you had it!

 

[Nikolina]

Im not holding anyone responsible, i thought otherwise, i spoke my mind isnt that what this forum is all about? How else would i learn? As for salary sacrificing, that wouldn't be an option for me, im not too keen on that idea. I need all of my salary!

 

[Les]

G'day Nikolina,

Only one I can think of in Sydney is Nick - http://www.somersoft.com/forums/member.php?u=998 - and he's one of the best, so will give you good advice. Apologies to any other Syd Accts. that I may be inadvertently over-looking.

Regards,

 

[Mry]

Its a bit hard to advise you what to do Nikolina since we don't know what you want to do. If you were near retirement, salary sacrificing for super mught be a great idea. If you wanted to pay off non-deductible loans, you'd be best off paying the tax and paying down the loans. If you wanted to buy a new IP, you could purchase it ASAP and prepay the interest on the loan on the property for 12 months to offset the gain this year as much as possible.

Once you have sold the house, the capital gain is set in stone and cannot be avoided. You will need to consider further actions (which will require financial commitments) to reduce the gain. Nothing else will do.

Speak to your accountant about your options.

 

[Nikolina]

G'day Nikolina,

Only one I can think of in Sydney is Nick - http://www.somersoft.com/forums/member.php?u=998 - and he's one of the best, so will give you good advice. Apologies to any other Syd Accts. that I may be inadvertently over-looking.

Regards,

Thanks for that and thanks for all your posts they have all been an interesting read! so thankyou once again!

 

[Nikolina]

Its a bit hard to advise you what to do Nikolina since we don't know what you want to do. If you were near retirement, salary sacrificing for super mught be a great idea. If you wanted to pay off non-deductible loans, you'd be best off paying the tax and paying down the loans. If you wanted to buy a new IP, you could purchase it ASAP and prepay the interest on the loan on the property for 12 months to offset the gain this year as much as possible.

Once you have sold the house, the capital gain is set in stone and cannot be avoided. You will need to consider further actions (which will require financial commitments) to reduce the gain. Nothing else will do.

Speak to your accountant about your options.

Near retirement? God no im only 20yo.
I have no loans to pay off.
And yes i do want to buy another IP.
What would your advice be to someone so young in this position?

 

[Mry]

Near retirement? God no im only 20yo.
I have no loans to pay off.
And yes i do want to buy another IP.
What would your advice be to someone so young in this position?

Decide what you want to with your investing ie goals and work out what you how you want to get there. I sat down and made my 10 stage plan and an currently performing stage 4. Once you know what you want to do, you don't need to ask these questions.

Just don't sell IPs to go on holidays. I hate it when people sell their sole IP so they can go on holidays. What a waste of working capital.

 

[alexlee]

Near retirement? God no im only 20yo.
I have no loans to pay off.
And yes i do want to buy another IP.
What would your advice be to someone so young in this position?

My advice: don't sell. Especially if you plan to buy another IP. Just refinance and keep buying. Especially at your age. Why did you sell, anyway?
Alex

 

[JIT]

Ah...and if you are selling more than one property, then it could be better to do it in different years.

GSJ

 

[alexlee]

There are a couple of directions to approach tax planning (tax experts please correct me if I'm wrong), including:

1) entity (use a trust being the most common, since you can distribute to family, etc to minimise tax)

2) actual CG (include ALL costs into your cost base, and deduct everything you can from the proceeds of the sale)

3) timing (sell in a year where you have as little other income as possible)

4) reduce other income (as has been mentioned, increase super contributions, buy another IP that has tons of depreciation, etc)

Much of this is done when you buy or at least before you sell. It's far more difficult to find ways to minimise CG and CGT after you've already sold.
Alex

 

[Nikolina]

Does anyone know a website where i can get a blank copy of "contract for the sale of land- 2005 edition"? a writable version, which i dont have to pay for?

 

[geoffw]

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!

Nikolina

I'm not sure from your post, and the replies, if you have the figures correct.

You will have $200,000 Capital Gain.

You've held it for more that a year- so you will have $100,000 taxable gain- which as you've mentioned, may be able to be reduced by expenses to $80,000.

But you don't pay $80,000 "CGT" (Capital Gains Tax). $80,000 is added to your taxable income from the year, and you will pay (depending on your income) a maximum of $40,000- and quite possibly less.

Gain $200,000, pay $40,000 tax. That's HEAPS better than what you're doing in your job. $160,000 profit. Enjoy it- and don't worry about that $40K tax. It's just another cost of doing business.

Especially as you will not have to pay it for some time yet.

BTW, for that amount of profit, and for those figures- don't try to save a few measly dollars with a free "contract of sale". Get proper paid legal advice.

 

[Nikolina]

Yea i was kinda confused before but it all makes sense now, so thanks to all who posted. As for the "contract of sale" ive already got one drawn up, its not that im trying to save a few measly dollars, my attitude is if i can do it myself then why not? i just wanted to get a blank copy for my own purposes, used to have a copy saved to a disk file but it somehow got misplaced.