Cgt Help??

Hi Guys.

I am about to start my second renovation... i have all intention of selling this project on completion. (8 weeks) I was going to start a company and buy the property though that..

My impression was that instead of paying CGT on the Profit, i would just pay the 30% company tax.

Is this correct? for instance.

total profit $200,000 minus 67,000 holding cost and expenses + renos..

= $133,000 nett proft.... am i just taxed 30% on this figure.. or does cgt apply then i pay a further 30% on the amoutn after cgt?



i know i could make it my main residence so im exempt that way... was just hoping there was an easier way...
 
I thought the taxable figure ($133000 in your case or $66500 if property held more than 12 mths) was included in your annual tax return (i.e. added to your Taxable income) and you would then be taxed at whatever rate applies in your Tax return...end of liability.

Interested to hear if my understanding is correct.
 
If you operate through a company, you would pay 30% regardless of whether it is classified as CGT income or revenue income. This is because companies don't getthe 50% CGT discount.
 
uhuh... Sorry,I was thinking personal, but cnewport does say Company, my error.

dan c, am I otherwise right in my understanding ? In effect CGT is really IT applied to the profit at my (for example) personal rate applicable in my annual return ?.
 
That's right, CGT is applied instead of tax on revenue income, and is applie dat your marginal rate. You may get a 50% discount if you hold the asset for 12 months.

If you are in the 'business of developing property', this income would most likely be revenue income, rather than a capital gain, so no discount would apply.
 
Cheers...

Really enjoy this sight. Not a big Real estate Investor (1 IP), but read everything here daily. It is great to read all the experiences and ups and downs of those more experienced and good enough to share with the likes of me.
 
In effect CGT is really IT applied to the profit at my (for example) personal rate applicable in my annual return ?.

Just a caution here. I often read "taxed at your marginal rate" on here and some people take it to mean the rate that they're paying now - i.e. You are earning 80k so marginal rate = 38%. Once you add the profit - in this case $133,500, your income will be $213,500. So you will be paying 48.5% tax.
Just wanted to point this out. It's v. easy to be paying the top rate once you add your profits. You only need to earn 180k including sale profits to hit the top marginal rate.
 
Just to add to what Ms. Jade said... yes the capital gain gets added to your taxable income, and then you pay tax as follows if you're an individual:

Tax rates 2009-10
Taxable income Tax on this income
$1 – $6,000 Nil
$6,001 – $35,000 15c for each $1 over $6,000
$35,001 – $80,000 $4,350 plus 30c for each $1 over $35,000
$80,001 – $180,000 $17,850 plus 38c for each $1 over $80,000
$180,001 and over $55,850 plus 45c for each $1 over $180,000

Plus 1.5% medicare levy.

However, if it's through a company then obviously it's just the company flat rate of 30%. And no point trying to call it capital gain because no discount through a company. But if you're in the business of renovating and selling or plan to sell within 12 months anyhow, makes no difference. The total gain will be treated as income.
 
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