Capital Gains Tax
Capital Gains Tax (CGT) is one of the easiest taxes to deal with because it can be managed. Capital Gains Tax is the tax levied on profits made from the sale of real estate and other assets. Capital Gains Tax is levied at your marginal rate of tax in the financial year that you made the capital gain. For example, if you were to sell a property in March 2006 and make a profit of say, $10,000, your Capital Gains Tax would be assessed in the June 2006 income tax year. Your Capital Gains Tax liability would be calculated at the rate you were being taxed at during that year.
Reducing Your Capital Gains Tax Liability (Self Employed)
Say you are self employed and want to reduce your Capital Gains Tax liability? We have the formula for you:
- Organise your financial situation so that you don’t need to draw an income during a financial year in which you expect to make a major capital gain
- Sell your property (or other assets) during the year in which you have no income
As your marginal tax rate for the financial year that you sold your property is 0, you can use the tax free threshold as a claim against the Capital Gains Tax from the property. This way you can ensure the lowest tax rate will be used when calculating your Capital Gains Tax Liability
If the property is jointly owned, then the Capital Gains Tax can be split between each of the owners. If each owner was to follow the above formula then multiple tax free thresholds can be used to offset the Capital Gains Tax Liability.
Reducing Your Capital Gains Tax Liability (Employee)
Say you are an employee and want to reduce your Capital Gains Tax liability? We have the formula for you:
- Choose to take a year of leave without pay or
- Choose to reduce your wage and salary income for a year
But How Do You Live? Use the capital gains made from selling the property as your source of income.
By reducing your salary and wages income or taking a year’s leave without pay, your marginal tax rate for the year is reduced and so is your Capital Gains Tax Liability.
Plan Ahead
Your Capital Gains Tax Liability can be significantly reduced with effective planning. If you are considering selling a property ensure that you have planned it for the most optimal time financially. For example, if you are considering selling a property towards the end of the financial years it’s much smarter to defer the sale into the new financial year.
As always, seek professional advice which takes your situation into account, before deciding on a particular course of action.
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