Do I have to pay Capital Gains Tax?

Q. Our son has just purchased a unit as owner/occupier but cannot move in until current lease period has expired, which is 14/01/09.   Does this preclude him from the capital gains exemption as an owner when he does finally sell, after one year of ownership of course.

Josie’s answer: Capital Gains Tax is a confusing area of tax law and it is really a question that needs to be directed to an accountant.   Anyway, I will give you my understanding of the way it may apply to your son’s situation.   He may be subject to some capital gains tax, however it will be pro-rated when he sells.  For example, if he sells after 10 years, then one tenth of the capital gain will be assessed.

Lets say the gain was $200K, then $20K will be subject to capital gains tax.  However, it will reduce even more, as he will have owned it for over 12 months, which means that 50% of the total gain is not counted, whilst the other 50% will need to be included in his income tax return.

In this example, $10K will be included in his assessable income and then taxed at his marginal rate of tax.    Therefore, I don’t think he needs to stress too much.   If you don’t want to pay for advice, following is a link to the ATO, Capital Gains Tax guide (a terrific booklet if you are suffering from insomnia!).  Alternatively, give them a ring, as I usually find them very helpful.

Stay tuned for more money saving tips & techniques. Josie.

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