If you have an investment property or are looking to buy an
investment property you may have heard about Capital Gains Tax and
Land Tax. As an investor it is important to know the difference
between Capital Gains Tax and Land Tax and account for all costs
associated with both taxes. To help you assess your costs for these
taxes please read the following Q & A guide.
Q. What is a Capital Gain/Loss?
A. A capital gain or loss is the difference
between the cost of an asset and the amount you receive when you
dispose of the asset.
Q. What is Capital Gains Tax?
A. CGT is a tax that came in in 1985. It is
calculated on the gain (profit) you make upon the disposal of an
asset. The gain then forms part of your income tax. Even though it
is called Capital Gains Tax it is not considered a separate
Q. Does Capital Gains Tax apply to all my assets?
A. Generally your personal assets are exempt
from CGT, such as your own home, car, etc. however it applies to
all other assets acquired and disposed of, whether they are within
Australia or not.
Q. How is Capital Gains Tax calculated?
A. There are various methods used for
calculating your CGT. A different method can apply depending on
when you acquired the asset. There are also discounts available,
such as if you have owned the asset for over 12 months. There are
also exemptions available such as if the gain is due to a marriage
Q. What if I make a Capital loss?
A. If you make a capital loss, this amount does
not reduce your income tax, however it can be used to reduce any
other capital gain you may have made.
Q. When is Capital Gains Tax calculated?
A. This tax is calculated when your income tax
is calculated at the end of the financial year.
Q. What is Land Tax?
A. Land Tax is a tax that applies to owners of
land in NSW. It is levied on
31st December each year, at this time the Office of State Revenue
issue an assessment notice informing you of the amount you owe.
Q. Does Land Tax apply to all land owned by me?
A. Land tax applies to all land owned by you,
EXCEPT for your principal place of residence.
Q. How is Land Tax calculated?
A. There is a threshold that applies. This
threshold varies from year to year. The threshold is $482,000.00
for the 2016 year. Land tax is calculated on the total value of all
of your taxable land ABOVE the threshold. The rate of tax is then
calculated as $100.00 and 1.6% of the land value up to the value of
the premium rate threshold which is $2,947,000.00 for the 2016
year. The rate of tax is 2% after the premium rate threshold. There
are instances where the threshold doesn't apply, such as
Q. How is the land value determined?
A. The Office of State Revenue uses the Valuer
General's value from the previous year. It is important to note
that the value is based on land only, regardless of any
improvements on the land.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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ATO has released 2 draft fact sheets relating to the 2010 amendments to corporate law and tax in relation to dividends.
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