When is CGT payable?

From: GoAnna !

If I sell a property in say September this year will my CGT only be payable when my tax is calculated at the end of that financial year. Would i therefore have in effect a little more than a year to pay?

Is there a basic formula to work out approximately how much CGT might be payable? The property was bought in 1989.

Many thanks

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Reply: 1
From: Dale Gatherum-Goss


Yes, if you sell the property in September this year, you will be able to keep your money until about December 2002.

It is wise then to invest the estimated tax in a T/D for 12 months to ensure that it's there when you need it.

As for the gain, yes, a simple rule of thumb is to deduct the purchase price (including costs of purchase) and deduct from the sale price including costs of sale.

This will give you a gain.

Then, allow 1/2 of the gain as tax exempt and then allow 1/2 again as the tax.

That is, 1/4 of the gain is your worst case tax position providing that you have kept the asset for more than 12 months.

I have simplified the rules to make them easy enough to understand. Let me know if you would like more detail.


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Reply: 1.1
From: GoAnna !

Thanks for that. Is CPI or inflation taken into account at all? I have owned this property for more than 11 years so does this get factored in?

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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)
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Reply: 1.2.1
From: GoAnna !

Thanks for such detailed replies. I will check the ATO site and do my calculations!

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From: Gee Cee Cee

Great post Mr T.

This is what I have found to be pretty much the scenario.

Mind you the accountant's computer just spits out figure a) then figure b)

Gee Cee
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