CGT investment

[Brenda Irwin]

I have the money put aside to pay the income tax for the 06-07 year. It is mostly all CGT and unless I buy a severely negative IP and prepay interest, I will have to pay it.

Thinking outside the square, if I invest the money into a term deposit, I can earn 6.5% on it. Have I not just created an investment which earns an income just like an IP? So, why can't I deduct the tax bill as an expense against that income?

 

[trajik]

Hi Brenda,

Unfortunately income tax is not a tax deductible expense, no matter how you look at it. Tax is just a sign that you're either making money or have a bad tax accountant.

 

[Bandita]

Hi Brenda,

Also, my understanding is that you can only offset a Capital Gain with a Capital Loss - so prepaying interest will only offset your positive income.

Cheers,
Jen

 

[Mry]

I have the money put aside to pay the income tax for the 06-07 year. It is mostly all CGT and unless I buy a severely negative IP and prepay interest, I will have to pay it.

I am a little confused on what deductions your term deposit could generate to reduce your tax bill, but I assume that you are trying to find a way to link your tax bill to the income from the term deposit to get a deduction for paying it, which would be a first for the Australian Taxation system. As trajik said, not a chance.

There are so many ways to reduce tax bills it isn't funny and are usually found with the help of your accountant. There are the simple ways which involve looking at your situation and improving things but for most people that only solves a few thousand dollars of the problem (if you are lucky) and if you are already maximising the deductions in your situation already there's not much point to it.

Which leaves you looking a larger solutions such as the -ve geared IP, super, prepaying expenses for existing IPs for the year, business stuff, etc.

JenD, you can claim normal taxation losses against capital gains, but you cannot claim capital losses against normal taxable income.

 

[Bandita]

JenD, you can claim normal taxation losses against capital gains, but you cannot claim capital losses against normal taxable income.

Thanks Mry! Learn something new everyday here!

Does that mean if you had a net taxable income loss of $15k from the previous tax year that you were carrying forward, and a CG of 15k the current year - you would pay no tax the current year (presuming no other income, expenses, etc)?

Cheers,
Jen

 

[Brenda Irwin]

I am a little confused on what deductions your term deposit could generate to reduce your tax bill, but I assume that you are trying to find a way to link your tax bill to the income from the term deposit to get a deduction for paying it, which would be a first for the Australian Taxation system. As trajik said, not a chance.

Hubby said not a chance either, but he did say he would visit me in the penitentary.

 

[Mry]

Thanks Mry! Learn something new everyday here!

Does that mean if you had a net taxable income loss of $15k from the previous tax year that you were carrying forward, and a CG of 15k the current year - you would pay no tax the current year (presuming no other income, expenses, etc)?

Correct. You have a great attitude for learning.

 

[alexlee]

Thanks Mry! Learn something new everyday here!

Does that mean if you had a net taxable income loss of $15k from the previous tax year that you were carrying forward, and a CG of 15k the current year - you would pay no tax the current year (presuming no other income, expenses, etc)?

Exactly my situation. Since I work overseas my overseas income is not taxed in Oz. I run a tax loss position in Australia, so I have a chunky amount of carried forward INCOME loss. I could sell some shares, realise CG and pay nothing.

It's unusual, of course, for most employees to have a negative income position. When I come back to work in Oz my first year's salary will almost be tax free. However, losses are not indexed so you lose to inflation.
Alex