Reply: 1
From: Sim' Hampel
On 4/30/01 5:08:00 PM, John Gow wrote:
>What if we bought a property
>in my wifes name (who gets all
>of my wages for home duties
>and looking after the kids
>anyway) and sold at a profit
>more than twelve months
>latter. how is the CGT paid at
>her marginal tax rate when she
>does not have one.
Okay, first thing you have to understand is how CGT works...
CGT is not a tax as such like land tax, where you pay an amount of money just like a bill received in the mail.
CGT is more like an income levy (like the Medicare Levy), as it is added to your taxable income to be calculated.
This is how it works (someone correct me if I have the details wrong):
Say you purchase a property for $100000 (including costs etc.). You sell it more than 12 months later for $120000. You have made a $20000 capital gain.
Now, because you have held the property personally and for more than 12 months, you get to claim the 50% CGT discount. So you now have a gain of $10000 to pay tax on.
Now when you do your income tax return, there is a section that asks you whether you have made any capital gains. If so, it takes you through the calculation and you end up with a figure of $10000 (50% of the gain) being added to your taxable income.
So, if your taxable income before the CGT calculation was $60000, then after the calculation your taxable income is $60000 + $10000 = $70000 and so your income tax liability is the tax due on a $70000 income (minus claimable expenses, rebates and tax already paid through PAYG).
If you have a zero taxable income when the asset is sold, then the calculation becomes $0 + $10000 = $10000. So, your income tax liability is the tax due on a $10000 income (minus claimable expenses, rebates and tax already paid through PAYG - if any)
Obviously, someone on a $10000 income is on a lower tax rate than someone on a $70000 income, so the difference in tax paid on the $10000 gain is naturally less for the person without other income.
Of course, if you earned zero income from other sources, then incurred a $120000 capital gain (nice !), all of a sudden you are in the top tax bracket (50% of $120000 = $60000 - which is added to your taxable income).
Pays to think ahead about these things !
Hope this helps.
