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 tax.
- 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 breakdown.
- 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 certian trusts.
- 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.