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Tax Q&A: Your Tax Questions On CGT Rules Answered

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Restarting a CGT-free period

 

Q: If I have exercised my exemption under the six-year rule and am now returning to stay in my unit, what is the minimum period I have to stay in my unit before I can once again rent it out under the six-year rule? This is my only principal place of residence. Your reply would be benefi cial to others in a similar situation.

 

A: Provided that you move back into your unit prior to the end of the six-year period of using your unit for income-producing purposes and then occupy your unit for a reasonable period (there is no minimum period in the Tax Act; however, it is always on a case-by case basis and must satisfy the reasonable period and intent test); and provided you can show evidence that you have in fact physically moved into and occupied your unit (for example, evidence of water/council rates, utilities, electoral roll records, etc, would generally suffice), then you will preserve your CGT-free exemption on your unit if you ever sell it in the future.

 

There is no defined minimum period in the legislation; however, as a general guide, in addition to what is a reasonable period, I would suggest a minimum of six months plus genuine intent should be OK.

 

– Angelo Panagopoulos

Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-on-cgt-rules-answered-210376.aspx

To Download a PDF copy click below:
Tax-QandA-Feb-2016

Tax Q&A: What Will The New CGT Impacts Be?

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​​​​​​​Tax Q&A: What Will The New CGT Impacts Be?

Q: My wife and I purchased a property in Melbourne in December 2010 as our PPOR, but due to a change in circumstances we left Australia in June 2011 to live overseas again. We have rented the property since then. It was the only property we considered our principal place of residence in Australia.

We understand that if we sell the property before June 2017 it would allow us to invoke the capital gains tax exemption, as six years have passed without us buying another PPOR. Is this correct?

Alternatively, if we retain the property for two years beyond June 2017 (to June 2019), what will the CGT impact be? Will we pay CGT on the gain since December 2010, or only on the gain since June 2017 (assuming we get a valuation in June 2017)?

Cheers, Andrew

A: As a general rule, a dwelling is no longer your main residence once you stop living in it. However, you can choose to continue treating a dwelling as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.

“Because you would have held the property for more than 12 months you would be eligible for the 50% CGT discount”

Generally, you can treat the dwelling as your main residence for up to six years if it is used to produce income, and/or indefinitely if it is not used to produce income.

That said, for the above CGT exemptions to apply, you cannot treat any other dwelling as your main residence for that period (this also means that you cannot own property overseas as your main residence), and the property must not be owned/held in a company or trust structure as it must be owned/held in personal individual name(s).

You also cannot make this choice for a period before your dwelling first becomes your main residence.

Therefore, based on your situation, if you were to sell the property before June 2017 (please also note that for CGT purposes the sale is applicable from contract date and not settlement date), then you would be eligible to apply the CGT main residence the CGT main residence exemption based on the six-year rule up to June 2017, and then for the period June 2017 to June 2019 you will be assessed for CGT.

Because you would have held the property for more than 12 months you would be eligible for the CGT 50% discount concession. You would also be required to obtain a valuation of the property as at June 2017.

For example, if the property is valued at $1m in June 2017 and sold for $1.6m in June 2019, then the capital gain for this period is $600,000, and applying the CGT 50% discount you would be assessed for capital gains tax on $300,000 of this amount. Income tax would be applied at your marginal income tax rates.

Need to know
• You can only treat one dwelling as your main residence at any given time.
• Generally, you can treat the dwelling as your main residence for up to six years after moving out and renting it.
• To use the six-year rule the property must not be owned/held in a company or trust.

– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-what-will-the-new-cgt-impacts-be-242854.aspx

 

​​​​​​​Tax Q&A: Your Tax Questions On Selling A Property And More

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​​​​​​​Tax Q&A: Your Tax Questions On Selling A Property And More

Q: Can you help me with the tax laws in the following scenario, regarding passing on real estate assets and tax liabilities?

Person A purchased real estate (land + house) in 1981 and used it as an investment property.
Person A died in 1998, leaving the investment property in her will to her sister, Person B, who continued using it as an investment property.
Person B died in 2015, leaving the investment property in her will to her son, Person C, who continued using it as an investment property.
Person C had the property valued upon Person B’s death.
Person C then sold the property in 2016, 12 months after acquiring ownership of it.

How is capital gains tax viewed or calculated in this scenario?
A: Generally, an inheritance of assets such as property and shares is capital gains tax (CGT) free in the hands of the recipient upon probate.

In your particular situation, since the property has passed hands between various beneficiaries I will take it one step at a time.

Person A acquired the investment property prior to 20 September 1985, and this therefore is a pre-CGT asset.

When Person B inherited the property in 1998, the capital cost base, for tax purposes, was adjusted to the market value of the property upon Person B inheriting the property in 1998.
From 1998, this property ceased to be a pre-CGT asset.

When Person C inherited the property in 2015, he also inherited the capital cost base of the property from 1998. As Person C also used the property as an investment property, the valuation that was done in 2015 is irrelevant for tax purposes.

When Person C sold the property in 2016, the capital gain on the property would
have been the difference between the sale price in 2016 and the market value when Person B inherited the property in 1998.

As the property was held for more than 12 months (18 years in fact, for tax purposes, even though it was held in the family for 35 years), Person C will be entitled to the CGT 50% general discount concession (assuming he is an Australian resident for tax purposes and the property is not held in a company).

CGT is then payable on the remaining 50% at Person C’s marginal income tax rates.

For example, if the property was worth $300,000 in 1998 and the sales price in 2016 was $900,000, then this would mean a capital gain of $600,000.

After applying the CGT 50% discount concession, the taxable capital gain would be $300,000, which falls into the top marginal income tax rate of 49% (including the Medicare levy and Temporary Budget Repair levy for taxable incomes above $180,000 for the 2016/17 tax year). Therefore the CGT would be close to $115,000, based on current ATO income tax thresholds.

– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-on-selling-a-property-and-more-235870.aspx

 

Tax Q&A: Your Tax Questions On PPOR And CGT

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Tax Q&A: Your Tax Questions On PPOR And CGT, Answered
Q: I have a question about my investment property and bank loans.

I have been living in my principal place of residence, a unit, for the last 14 years. Last year I started to look for a house and found one that I wanted to make my future place of residence.

I took out an investment loan to buy the house and was intending to rent it out for a few years until I was ready to move in, but after settlement and having seen the house empty, I changed my mind and moved into the house straight away.

I then decided to sell the unit. After selling the unit, I had enough money to pay for the house outright. However, I was advised not to pay it off and to leave the money in an off set account, so it is sitting in the off set account linked to the house I now live in.

My question is: if I use this money that is in the off set linked to the house to buy an investment property, will the ATO view this as me using the money to buy an investment property, and will I get full tax advantages (ie negative gearing) when using this money?
A: At present, you have your cash deposited in your bank account that is also linked to an offset account. This arrangement is perfectly fine and it also allows you to pay less interest on your home loan. You may call this an investment loan; however, it is not an investment loan, and as long as you are not claiming any of the interest expense on the loan as an income tax deduction, this is all perfectly fine.

If you now wish to use your cash to purchase an investment property, the benefit and impact of the offset account will be minimised, due to the lower amount of cash that you would now have in your bank account. This would also mean that the interest expense on your existing mortgage/home loan would increase as well.

Where income tax deductibility on your current mortgage/home loan is concerned, you will not be eligible to claim the interest expense on the loan as an income tax deduction because the purpose of the current mortgage/loan was to fund your new principal place of residence.

Even though your original intention was to purchase the property as an investment property, the fact remains that this was not an investment property, therefore there was a change of intention. This means the current loan is not tax deductible.

The income tax deductibility of the interest expense on a mortgage/home loan all comes down to the original purpose of the loan, irrespective of what security you offer the lender in order to secure the loan.

If you obtain a loan to purchase an income-producing asset (such as property, shares, a business, etc), then the interest on the loan is tax deductible. This loan may be secured, for example, by your principal place of residence. But it all comes down to the purpose of the loan.

If you use your money from your offset account to purchase an investment property, you will not be obtaining a loan and therefore no tax deductibility on loan interest will exist. If you obtain a loan to purchase your investment property, then the interest on that loan may be tax deductible.
– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-on-ppor-and-cgt-answered-233869.aspx

 

Tax Q&A: Your Tax Questions On Capital Gains And More

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Tax Q&A: Your Tax Questions On Capital Gains And More
Q: I am a foreigner and I purchased a two-bedroom apartment in 2007 as a residence for my children, who are pursuing their tertiary education in Sydney. The apartment has never been used to produce income or been available or advertised for rent. The apartment is still being financed by a mortgage loan.
I am planning on selling it as my four children are graduating, and would like to know if I am eligible for any of the CGT exemptions or concessions? Also, if I am not eligible for any CGT exemption or concession, would the interest on the mortgage payment be deductible against the CGT?

 

A: From a property/real estate perspective, the 50% capital gains tax discount was previously available to any individual who had a taxable capital gain on the disposal of a property that had been held for more than 12 months, irrespective of their tax residency status. This meant that only 50% of the capital gain was included in their assessable income.
However, in the 2013 Federal Budget, the government announced that the 50% CGT discount would no longer be available to non-residents effective 7.30pm (AEST) on 8 May 2012. The CGT discount would remain available for capital gains accrued prior to this date if a market valuation of the property as at 8 May 2012 was obtained.
Therefore, as you acquired your property before 8 May 2012, your options are as follows:
• If an independent market value of the property as at 8 May 2012 is obtained, a CGT discount of up to 50% will be available, depending on whether the gain accrued up to 8 May 2012 is higher or lower than the overall capital gain. If the capital gain accrued up to 8 May 2012 is more than the overall capital gain (which means the property has declined in value after 8 May 2012), the full 50% CGT discount can be applied to the overall capital gain.
If the overall capital gain is more than the capital gain up to 8 May 2012 (which means the property has increased in value after 8 May 2012), then the full 50% CGT discount will only apply to the capital gain up to 8 May 2012. Any increase in value of the property related to the period after 8 May 2012 will not be subject to any discount if you remain as a non-resident during this period.
• Non-residents who do not obtain a market valuation of the property will not be eligible for any CGT discount on any capital gain before 9 May 2012. Therefore you will be taxed on the full capital gain upon disposal of the property if you remain a non-resident of Australia for income tax purposes throughout the ownership period.
Please note that if the property is held in a company, then there is no entitlement to the 50% CGT discount, regardless of your residency status or when you purchased the property (except if the property was purchased before 20 September 1985, in which case it would be entirely CGT exempt).
In relation to the interest expense on the mortgage, yes, you will be entitled to claim this expense as an addition to the capital cost base of the property as well as other outgoings which relate to the property, such as land tax, council rates, repairs and maintenance, etc.
– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-on-capital-gains-and-more-233862.aspx

 

Tax Q&A: Your Questions On Non-Resident Tax and Capital Gains Tax

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Tax Q&A: Your Questions On Non-Resident Tax and Capital Gains Tax
Q: As a New Zealand resident purchasing property in Queensland, if I decide to rent it out, do I need to pay non-resident tax on the rental income? I have heard I do not need to as a New Zealand citizen.

Or would I file a tax return in New Zealand and pay tax on the income in New Zealand?

If I were spending some time living in Australia throughout the year, would this alter things?
A: As a non-resident of Australia for income tax purposes, all income and investment expenses from Australian-sourced investments and assets (such as your investment property in Queensland which generates rental income) is required to be lodged via an Australian income tax return.
The same rule would apply if you decided to sell your Queensland property for a capital gain/loss(irrespective of whether or not you have used it for rental income purposes and/or it was vacant while you were living overseas).
Australian non-residents for income tax purposes are not entitled to the tax-free threshold and are not entitled to the capital gains 50% discount concession either.

 

Your Australian-sourced income would also be included in your New Zealand income tax return, and as you would have already paid income tax in Australia you would be entitled to a tax offset in your New Zealand income tax return as well, which will ensure that you are not double taxed on the Australian income.

Therefore, you would be required to file an income tax return in New Zealand which will include all your worldwide income, plus an Australian income tax return which will only include income derived in Australia.

On the other hand, if you were spending time living in Australia throughout the year, it might still not be adequate to change things because the non-residency laws are quite complex and a few tests would need to be passed in order to qualify. The mere fact that you may be spending some time in Australia does not automatically qualify you to be an Australian resident for tax purposes. It’s always a case-by-case scenario and a question of fact.

However, if you were an Australian resident for income tax purposes for the required period, the opposite of the above would apply, in that you would be required to fi le an income tax return in Australia, which would include all of your worldwide income, including any income derived in New Zealand. Any tax that you would have paid for your overseas income would entitle you to a foreign income tax offset (thus again avoiding being double taxed) in your Australian income tax return, and will also mean you are eligible for the tax free threshold and the capital gains 50% discount concession as well.
– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-questions-on-capital-gains-answered-231205.aspx

 

TAX Q&A: Maximising Investment Property Loan – Tax Implications

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Q: I have two properties: an investment property that I built and an existing home that I live in.

By July 2017, I will have owned my investment property for two years, and at that stage I am planning to move into it as my own home.

I paid $750,000 for the land and construction costs. I have no plans at the moment to sell this property, unless my job situation changes.

At the same time, I am planning to convert my current existing residence into an investment property. I owe $350,000 on the loan and the median price of houses in the area is $550,000–$575,000. Can we maximise the loan on this property by refinancing so that I can gain negative gearing benefits as well?

Overall, what are the tax implications of what I am planning to do? Can you please advise of any CGT implications or other issues to do with tax?

Best regards, Madhav
A: As soon as you convert your current existing residence into an investment property, and provided it is available for rent and for income-producing purposes, the current debt of $350,000 converts to an investment debt. (Note that an investment property can also be a property that you decide to keep vacant, which therefore generally precludes you from negatively gearing the property for tax purposes in this instance.)

The interest expense on your loan, which is now an investment debt, can be tax deductible, as well as the other additional outgoings of the property, such as council rates, maintenance, real estate agent fees, insurance and depreciation for income tax purposes.

If you maximise and increase the current debt over and above $350,000, then the question becomes: what is the purpose of increasing the loan?

If there is a legitimate investment reason as to why you wish to increase the current loan (for example, you wish to borrow additional funds for repairs to the investment property and/or to renovate the investment property), then you may be eligible to claim the additional interest expense as a tax deduction for income tax purposes.

If there is no investment purpose for increasing the debt, then you will not be allowed to claim the additional interest expense as an income tax deduction. Merely increasing the debt because your property has now increased in value and gained equity is not an investment purpose, and therefore you will be unable to claim the additional interest expense as an income tax deduction.

Be mindful that if the dominant purpose of doing something is to obtain a tax benefit, then Part IVA of the Tax Act will disallow you from claiming such costs as income tax deductions – and the ATO will also impose substantial fines and penalties as well.

Furthermore, there are potential capital gains tax (CGT) considerations to bear in mind, in that from the moment you convert your current principal place of residence (PPOR) to an investment property, it then becomes subject to CGT if you sell it in the future.

Provided this property is held in your own individual name and was never used for income-producing purposes in the past, then the period prior to this should be CGT-free.

Similarly, your current investment property will be subject to CGT up until the moment you move into this property as your new PPOR. However, post this date it should be CGT-free.
– Angelo Panagopoulos

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-answered-229477.aspx

 

To Download a PDF copy click below:
Tax-QandA-DEC-2016

TAX Q&A: Maximising Investment Property Loan – Tax Implications

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TAX Q&A: Maximising Investment Property Loan – Tax Implications

 

Q: I have two properties: an investment property that I built and an existing home that I live in.
 
By July 2017, I will have owned my investment property for two years, and at that stage I am planning to move into it as my own home.
 
I paid $750,000 for the land and construction costs. I have no plans at the moment to sell this property, unless my job situation changes.
 
At the same time, I am planning to convert my current existing residence into an investment property. I owe $350,000 on the loan and the median price of houses in the area is $550,000–$575,000. Can we maximise the loan on this property by refinancing so that I can gain negative gearing benefits as well?
 
Overall, what are the tax implications of what I am planning to do? Can you please advise of any CGT implications or other issues to do with tax?
 
Best regards, Madhav
 

A: As soon as you convert your current existing residence into an investment property, and provided it is available for rent and for income-producing purposes, the current debt of $350,000 converts to an investment debt. (Note that an investment property can also be a property that you decide to keep vacant, which therefore generally precludes you from negatively gearing the property for tax purposes in this instance.)
 
The interest expense on your loan, which is now an investment debt, can be tax deductible, as well as the other additional outgoings of the property, such as council rates, maintenance, real estate agent fees, insurance and depreciation for income tax purposes.
 
If you maximise and increase the current debt over and above $350,000, then the question becomes: what is the purpose of increasing the loan?
 
If there is a legitimate investment reason as to why you wish to increase the current loan (for example, you wish to borrow additional funds for repairs to the investment property and/or to renovate the investment property), then you may be eligible to claim the additional interest expense as a tax deduction for income tax purposes.
 
If there is no investment purpose for increasing the debt, then you will not be allowed to claim the additional interest expense as an income tax deduction. Merely increasing the debt because your property has now increased in value and gained equity is not an investment purpose, and therefore you will be unable to claim the additional interest expense as an income tax deduction.
 
Be mindful that if the dominant purpose of doing something is to obtain a tax benefit, then Part IVA of the Tax Act will disallow you from claiming such costs as income tax deductions – and the ATO will also impose substantial fines and penalties as well.
 
Furthermore, there are potential capital gains tax (CGT) considerations to bear in mind, in that from the moment you convert your current principal place of residence (PPOR) to an investment property, it then becomes subject to CGT if you sell it in the future.
 
Provided this property is held in your own individual name and was never used for income-producing purposes in the past, then the period prior to this should be CGT-free.
 
Similarly, your current investment property will be subject to CGT up until the moment you move into this property as your new PPOR. However, post this date it should be CGT-free.

 
– Angelo Panagopoulos
Angelo Panagopoulos - Changes to Superannuation

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-answered-229477.aspx

 

To Download a PDF copy click below:
Tax-QandA-DEC-2016

TAX Q&A: On CGT Exemption

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TAX Q&A: On CGT Exemption

 

Q: I purchased a house in February 2014 as a first home buyer and lived in it for roughly a year. I then refinanced a year after purchasing it as an investment property loan and moved back in with my parents. Now I’m planning on selling it and I would like to know if I’m able to apply for the CGT exemption.

 

A: As a general rule, a dwelling is no longer your main residence once you stop living in it. However, in some cases you can choose to have a dwelling treated as your main residence for capital gains tax (CGT) purposes even though you no longer live in it.

Assuming that you purchased the property in your own name, you will be eligible for the CGT exemption because the property was initially used as your principal place of residence – provided you did not purchase or nominate any other property as your principal place of residence while you were living with your parents.
If you did not use your property to produce income while you were not living there (for example, you used it as a holiday home or you left it vacant), you can treat the property as your main residence for an indefinite period after you stopped living in it, provided it isn’t available for rent or advertised for rent.
If you used your property to produce income – for example, you rented it out or it was available for rent – you can choose to treat it as your main residence for up to six years after you stopped living in it.
This is usually known as the ‘six-year rule’, and provided you move back into the property prior to the six years expiring, then you can start a new period of six years.
There is no limit to how many times you can do this; however, please take into consideration the tax anti-avoidance provisions if your main purpose for doing this is to obtain a tax benefit. That is, you need to show that there is a genuine reason why you have moved out and back in again, such as your employer requesting that you live away from home to perform your occupational duties, or the need to care for family, your parents etc.
At this stage, either scenario will make you eligible for the main residence CGT exemption if you sell the property now.
– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-answered-227889.aspx

Property Investment Education – CGT

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Tax Q&A: Your Tax Questions On Property Investment Education – CGT, Answered

 

Q: Here is my scenario: I have an owner-occupied property that settled in July 2015.

In September 2015 a tenancy agreement was made to rent out 75% of the property to other family members. That tenancy agreement is still in place. As of July 2016, I am still living in the property and plan to keep the tenancy structure the same for some time.

Is the CGT exemption still valid as it has still been my principal place of residence for the 12-month period? For the 2015/16 financial year is it still tax deductible based on the 75% apportioning?

 

A: For capital gains tax (CGT) purposes, the applicable date is the contract date, not the settlement date.

Assuming you purchased your principal place of residence in your individual name with a three-month settlement, the contract date would have therefore been April 2015. This is important from a CGT perspective.

To be eligible for the full CGT exemption on your principal place of residence you will need to satisfy a few criteria, with the main ones being that the property must be in your own individual name(s); must not be used for income-producing purposes; and you must not nominate any other dwelling as your principal place of residence during this period.

That is, you can’t nominate more than one dwelling at a time as your principal place of residence.

There are two elements to this question, firstly the tax deductions that you are eligible to claim, and secondly the CGT considerations.

As you are using 75% of the property for income-producing purposes, you are eligible to claim 75% of all the total outgoings of the property, which includes but is not limited to interest on the loan, council and water rates, insurance, repairs and maintenance and depreciation.

However, as you are renting your property to other family members, you must charge them rent at the full market rate, on an arm’s length basis. You must ensure that you actually receive the funds and declare this as assessable income in your tax return, otherwise the amount of tax deductions that you will be eligible to claim will be reduced to below 75% of the outgoings of the property.

In relation to CGT, for the period between April 2015 and August 2015 (being the contract date to the end of August 2015, when you weren’t using the property for income-producing purposes), you will be eligible for the full CGT exemption, therefore CGT will not apply.

However, from September 2015 until the period when your property ceases to be used for income-producing purposes (whether rented to family members or otherwise), your CGT exemption will be reduced to 25% of the capital gain if you sell the property in the future.

For example, if you sold the property and the capital gain from September 2015 was $200,000, then the taxable capital gain would be $150,000 (being 75% of $200,000), and as you have held the property for more than 12 months then you would be eligible for the 50% CGT discount concession, which would then reduce your taxable capital gain to $75,000 (being 50% of $150,000).

The actual CGT would be $75,000 added to your other overall assessable income multiplied by your marginal rate of income tax – and say this was 37% plus 2% Medicare Levy, the tax payable on this capital gain would be $29,250 (being 39% of $75,000).

– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-qanda-your-tax-questions-on-property-investment-education-answered-225833.aspx

 

To Download a PDF copy click below:
Tax-QandA-OCT-2016

Proposed changes to Superannuation

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Tax Q&A – Proposed Changes to Superannuation -Tax Experts Go ‘Head To Head’

Q: The federal government announced a number of new initiatives and policies in the 2016 Budget, including significant changes to superannuation. How will the proposed budget changes around self-managed super in particular affect property investors?
A: The proposed changes to superannuation funds in the recent budget have focused mainly on the wealthy no longer being able to transfer millions of tax-free dollars into their retirement accounts. The lifetime limits for non-concessional contributions to superannuation have significantly decreased as well.

These changes mean that, potentially, many people will have already made non-concessional contributions in excess of the $500,000 lifetime limit from 2007. This means they will not be able to contribute any further non-concessional contributions into their super funds.

Prior to the recent announcements in the budget, many relied on making further contributions into their superannuation funds in order to invest in property with these superannuation funds. In contrast, previously the only contribution limit by way of non-concessional contributions into superannuation funds was $180,000 per annum.

Over a 20-year period, this amount aggregates to $3.6m; going forward, it is now capped at only $500,000 over a member’s lifetime. This is a significant difference and does not even take into account inflation and compounding returns on investment.

Q: What does this potentially mean for investors who wish to invest in property with their superannuation funds?

A: This depends on whether the property investor is already wealthy, with a sizeable property investment portfolio in a superannuation fund. It also matters whether the property investor does or does not have sufficient funds in a superannuation fund and wishes to invest in property within super.

Generally, there are fears that it is the wealthy who will mainly be affected by the new superannuation rules because there will now be a limit to how much money they can contribute, especially tax-free, into their superannuation funds. For these investors there will be no advantage in shifting cash into superannuation.

Therefore, wealthier investors will most likely consider other vehicles and structures for investing in property, especially with negative gearing in their own names as opposed to investing in
property with their superannuation funds.
– Angelo Panagopoulos
Angelo Panagopoulos - Your Tax Questions On Selling A Property And More

 

For full article please click on the link below:

http://www.yourinvestmentpropertymag.com.au/tax-questions/tax-experts-go-head-to-head-222562.aspx

 

To Download a PDF copy click below:
Tax-QandA-SEP-2016

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