The Fundamentals of Property Investment remains unchanged. Wealth creation is a part of long term retirement planning. Capital gains on real estate are excellent, tax free capital gains, are even better.
Certainly, tax breaks exist in terms of negative gearing however; with direct income taxation remaining level, most new taxes will be user pay tax (ie GST). Accordingly, negative gearing benefit is diminishing and the spotlight for wealth creation is on capital gains (refer to tax rates of PAYG). Where expenses exceed income, this is commonly called negative gearing.
What may look to be an excellent property gross profit, after tax, can have a devastating consequence on relationships and personal finances, if tax payments are not put away to one side. In fact, with higher rental returns and higher capital appreciation since 2000 the property picture has never been better, however, an anticipated capital gain is essential.
Two methods of calculation exist for capital gains, being the old cost base indexation method and the new; marginal tax rate of half the net gain, where the relevant asset has been owned for at least twelve (12) months. Confused already? The old indexation is not as good as the new but get your accountant to run up the numbers.
As an individual if you earn $10,666 (single pension benefit) and made a capital gain profit of $150,000, your next tax bill is calculated as: $10,666 + $75,000 = $85,666 taxable income and a tax of $40,664.
If you earn $45,000 pa and made $150,000 profit your tax is calculated as: $45,000 + $75,000 = $120,000 taxable income and a tax of $45,185.
If you don't sell, no capital gains tax is paid, less tax is paid when no other income is declared in the year i.e. upon full retirement. However, capital gains tax is a 'death duty' as the price of death and eventual sale price by beneficiaries is taxable.
Like GST, no capital gains tax exists on the 'family principal place of residence'. However, 'INTENT' is also considered by taxation auditors. I suggest numerous cases of 'trading intent' will result in the taxman wanting his share (ie moving the family 3 times in two years), also repayment pro-rata of, stamp duty concessions. Why? The intent being Profit!
Real Estate is about more than bricks and mortar. Right timing and good advice can be obtained 'eyeball to eyeball' from Peter Campbell, phone 3325 0555 (direct).
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