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Capital Gains...can you explain it to me?


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#1 Swarles Barkley

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Posted 06 May 2010 - 08:31 PM

We are looking at selling some land, and we were told that we would need to speak to our accountant about CGT first to see what the best way to go is. Which would be great if our accountant didn't retire 18 months ago!

So I hunting for a local company to give us some advice, but I don't want to go in blind. Can someone explain how it all works?

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#2 afterglow

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Posted 06 May 2010 - 08:44 PM

Basically you pay capital gains tax at your marginal tax rate on the profit you make from the sale of an investment. So if you bought it for $50,000, sell it for $100,000, then you have made a capital gain of $50,000, and you would be charged tax at the same rate as your income for that financial year.

If you have owned it for more than 12 months, you only pay tax on 50% of the profit at your marginal tax rate.

If you make a loss, you can use it to decrease any capital gain you have made in that financial year or if you haven't had a gain in that fin yr, you can carry it forward to another financial year when you do make a gain and use it then. I can't remember how long you can carry it forward for.

Does that make sense?

ETA: If you and B own it together, the gain is split between you and you each pay tax on your share of the gain at your respective tax rates.

#3 Swarles Barkley

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Posted 06 May 2010 - 08:56 PM

Thanks Annie. That helps heaps. With 'own together, is it mortgage own', or 'title own'? Both of our names are on the mortgage, but only Bri's is on the title.

Ok, how do we go if we brought the land with our house, and are looking at subdividing it, but only selling part of it? We are wanting to keep our house and a small portion of the land, but sell off the majority of it. This is our only property if that matters.
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#4 afterglow

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Posted 06 May 2010 - 09:16 PM

QUOTE(Swarles Barkley @ May 6 2010, 08:56 PM) View Post

Thanks Annie. That helps heaps. With 'own together, is it mortgage own', or 'title own'? Both of our names are on the mortgage, but only Bri's is on the title.

Ok, how do we go if we brought the land with our house, and are looking at subdividing it, but only selling part of it? We are wanting to keep our house and a small portion of the land, but sell off the majority of it. This is our only property if that matters.

It would be title own, April. So it would all be a capital gain in B's name.

With subdividing, you would pay CGT on the gain made when you sell the property. You take the value of the land at the time you bought it, divide it into the amount of lots you're separating it into, take out the value of the part you are keeping, and use that amount, plus that same proportion of the legal costs at the time of purchase, and the legal costs at the time of subdivision and sale, as your cost base. You take the cost base off the amount you sell it for, and that is your cpaital gain. If you have owned it for more than 12 moths then the 50% rule applies.

Check this link out, it explains it way better than I do:

click here

#5 Swarles Barkley

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Posted 07 May 2010 - 10:52 AM

Thanks Annie, you're a champ biggrin.gif
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