**Reply:** 1.2

**From:** Terry Avery

You have to do two sets of calculations, one for the old indexed system and

one for the new and you can choose which one you use (the one with the lower

tax to be paid).

Some examples:

For the new CGT regime, as you outlined: take the purchase price, add the

purchase costs and sale costs to get the base price and subtract that from

the sale price to determine capital gain. Then calculate the tax as follows:

Taxable income $39,000

capital gain $50,000 of which 50% is exempt = $25,000

taxable income $64,000

tax payable $17,460

Taxable income $49,000

capital gain $50,000 of which 50% is exempt = $25,000

taxable income $74,000

tax payable $22,160

The other option you have is to calculate the purchase price plus purchase

costs, index that amount for inflation (as explained in the ATO booklet on

CGT I suggest that you use the following as a guide but you MUST follow the

instructions in the ATO guides as the examples I have given are to give the

gist of the method).

Subtract that from the sale price then take away the sale costs to determine

the capital gain.

You then have to average the capital gain by dividing by 5 and add to your

annual income.

Next you calculate the tax you pay on your increased annual income, subtract

the amount you would have paid in tax without the capital gain and multiply

that by 5 to get the amount of CGT.

You average the capital gain because you might move into a higher tax

bracket by just adding the CGT amount to your annual income. By dividing by

5 and calculating the tax you might not be moved into that higher bracket

and thus pay a higher tax rate.

For example: (please note I have not indexed the capital gain so the capital

gain will be lower and so will the tax but as these figures show the

averaging provisions meant a lower CGT was paid).

Annual taxable income $39,000

Capital gain $50,000 divided by 5 is $10,000

Taxable income + capital gain is $49,000

Tax payable falls in the 30% tax rate so CGT on $10,000 is $3,000 times 5 =

$15,000 in CGT or a tax rate of 30% of $50,000.

If your taxable income was $49,000 then the tax payable would be:

$1,000 x 30% = $300

$9,000 x 43% = $3,870

total CGT $4,170 times 5 = $20,850 or an effective tax rate of 41.7% (this

rate varies depending on tax bracket and taxable income before calculating

the CGT)