Capital Gains Tax in Australia

[Keely]

Hi there,

I am wondering if anyone would be able to help me! With all of the knowledge on this blog; I am currently doing a university assignment on the implications of capital gains tax in NZ, I am using Australia as a comparison.

Can anyone provide any assistance, details or stats on what affect CGT had on property investing in Australia when it was introduced? Did this deter investors from investing in property?

Also any other interesting points on CGT.

I would much appreciate any details anyone could offer!

Thanks

[Dean@Massiveaction]

One of the interesting things about CGT in OZ is that bigger players and developers have a raft of ways to avoid it by "swapping entities" and some "black art" strategies so it has encouraged tax evasion.

For property traders it primarily has meant that all contracts must be 12 months and 1 day apart as this halves the CGT rate, making it a lower tax environment than paying income tax in NZ.

So it really only has any impact on "amateur" investors and combined with stamp duty the primary result I have seen is ongoing upward pressure on house prices.

[Keely]

Thanks for that information Dean. Interesting point about the 12 months and 1 day, I had not thought of it in that way for traders.

[Dean@Massiveaction]

Drops your "tax" from 50% to 25%.
WE pay between 30 and 39% here depending on your structuring

[Explorer II]

I remember calling up the tax office about it some time ago. Cant remember how much it was, but it wasnt "that high"

I think people would look more at the return on investment than the tax they have to pay.

BTW, the way to avoid it is by living in it for 1 year. Then you dont have to pay anything.

[wunwinglo]

might also be interesting to consider on going land tax, etc., (for the different states and capital brackets also)

[tpr2]

Drops your "tax" from 50% to 25%.
WE pay between 30 and 39% here depending on your structuring

Not quite accurate Dean but near enough for the example.

Australia has a tiered tax structure and when you sell an asset the capital gain is added to that years income tax.

You are then taxed at your marginal tax rate.

So if you are earning over 180,000 per annum then you would be on the highest marginal tax rate and you would pay 45cents in the dollar for anything above $180k

Sell a property for a capital gain and that gain is now taxed at that marginal rate.

Hold it for 1 year and 1 day and only half is taxed at your marginal rate.

[tpr2]

I remember calling up the tax office about it some time ago. Cant remember how much it was, but it wasnt "that high"

I think people would look more at the return on investment than the tax they have to pay.

BTW, the way to avoid it is by living in it for 1 year. Then you dont have to pay anything.

Thats inaccurate as well.

If you purchase the property as your PPOR you can live in it for 6 months and sell it without paying capital gains tax.

If you rent it out then move into with the plan to say it was your PPOR the ATO will get you to have a valuation done based on the date you moved in. You will pay capital gains tax based on the difference between purchase price and the value when you moved in.

The ATO are not stupid, they are over worked and so don't get a chance to get on to a lot of the various ways people try and avoid paying their taxes however just because someone "got away" with it does not mean that it is a legitimate way to avoid paying CGT