As an investor, you need an understanding of Capital Gains Tax and Land Tax. You will need to understand the difference between the taxes and account for your costs associated with both.
CAPITAL GAINS TAX
Known as CGT and introduced in the mid 1980s, it is calculated on the profit you make from the disposal of an asset. That profit or gain forms part of your income tax.
Generally, personal assets such as your home and car are exempt from CGT.
A capital gain or loss is the difference between the cost of the asset and the amount received when that asset is disposed of & there are numerous methods for calculating the amount owed. Different methods may apply depending on when the asset was purchased and whether or not you have held the asset for more than 12 months. If an asset is obtained as a result of marriage breakdown then exceptions may be available.
If, when you dispose of the asset, you make a loss, this does not reduce your income tax but can be used to reduce any other capital gain may have made and CGT is calculated at the end of the financial year.
Land Tax applies to land owned in New South Wales and is levied on 31 December each year by the Office of State Revenue (OSR) which issues an assessment notice informing you of any amount owed.
Land Tax does not apply to your principal place of residence but applies to all other land owned.
Land Tax is calculated on the basis of a threshold which varies from year to year. The current threshold for 2016 is $482,000.00. This means that the tax is calculated on the total value all of your taxable land above that threshold amount.
The rate of the tax is $100 and 1.6% of the land value up to the value of the premium rate threshold which is currently $2,947,000.00. The rate applied after the premium rate threshold is 2%. Some exemptions apply to certain trusts. The value of the land is determined using the Valuer General’s valuation from the previous year which is based on land only.
If you have any questions or need help with your purchase of an investment property, please email nicole@AandTLegal.com or call on (02) 9186 2533.
The information provided as a guide only and specific advice should be sought from an accountant.