With the development of the Australian property market, more and more households and individuals are
buying one or more houses within an affordable economy. Many Chinese
investors and local buyers in Australia don't know much about property taxes. We have talked about the knowledge of the
Australian stamp duty before, today, let me
introduce another tax
closely related to housing purchase: Capital Gain Tax, CGT.
The Capital Gain Tax (CGT) mainly refers to the tax needed to be paid to obtain income after
handling assets. Here, assets include tangible and intangible assets, such as
land, investment property, construction, unit trust, and foreign currency,etc.
In Australia, capital gains tax is not an independent tax, but a branch of Income Tax, which is mainly levied on the profits
gained from selling or transferring property. When you sell a property, the
amount of money sold over the purchase price is capital appreciation, or
taxable capital.
Who need
to pay for the capital gain tax?
According to the Australian tax law, the payment of capital
gain tax is the obligation of all Australian citizens, permanent residents and
overseas investors (overseas taxable residents) who are qualified to work in
Australia. If do not declare duty, tax bureau can produce ticket to undertake corresponding fines.
How to
calculate the capital gain tax?
As we mentioned before, capital gain tax is a branch of personal income tax, so
capital gain tax
is also levied at the rate of personal income tax. However, we need to calculate the part
of capital appreciation that needs to pay taxes (Taxable Capital Gain).
CGT was introduced on September 20, 1985, so there
was no CGT
involved in reselling property acquired before that date.
The discount of CGT was implemented on September 21, 1999. You can get a 50% discount on real
estate sold 12 months after you buy it.
After calculating the taxable capital appreciation, the taxable
capitals on this basis shall be
calculated at the rate of personal income tax. The table below is the personal income tax rate for the 2017-2018 fiscal
year:
The table of personal income
tax rate for local residents
The table of personal Income tax rate for overseas residents
How to
reduce the capital gain tax?
When taxpayers move from the Main Residence to
rent the property, the
house property taxpayers can deduct the tax by using fees related to the real estate, such as: the interest of
purchasing the real estate, body
corporates, land tax, property
insurance, etc.
However, the taxpayer, in selling the property used as the main house and later used for rental, can use Temporary
absence rule and Market value rule to calculate the capital tax of the real estate to reduce its capital tax.
Temporary absence rule
When a property is no longer the taxpayer's main residence, that
is, the taxpayer move out of the housing, the taxpayer can use
temporary vacancy rule, during the whole or part of the period that
the taxpayer is not living
in the real estate, the property will continue to be used as a main residence. And after the taxpayer move from the main house,
the house property will gain profits, then during a single period that the real estate is used for profits, the taxpayer still can regard it as the main
residence within six years as the longest time limit.
If the taxpayer applies the "temporary vacancy rule", the taxpayer can no longer use other
properties as his/her main residence during the period when the property is regarded as
his/her main
residence.
Market value rule
If the taxpayer moves out of his main residence and the
property was first used for rental after August 20, 1996, the taxpayer can apply market value rules. Using the rules generally must meet two conditions: first,
because the real estate is used for profit purposes, when selling the property, taxpayer can only obtain parts of the exemption for major residential capital gain tax; Second, if the property is sold
immediately before the first time of gaining profits, then the taxpayer has received all
exemptions for the
main residential CGT.
If the taxpayer uses the market value rule, the capital gain or capital loss of the
taxpayer will be affected when selling the property. The market value rules are as follow:
When a house is used for profit, the capital gains are
calculated by replacing the cost value of the house with its current
market value.
A new ownership period begins when the property is first used
for profit.
Market value rules are not optional. This means that the market value rule is applied automatically as long as the
conditions are met.
To sum up, when selling the property that used to be the main
house for rent, the taxpayer can apply the temporary vacancy rule to significantly reduce its capital income.
However, the disadvantage of the temporary vacancy rules
is that, if the taxpayers have purchased a new property and the taxpayer still considers the
former property as the main residence, the taxpayer's new property cannot obtain the
main residential capital income tax exemption during the
period that the old
housing is used as
the main residence
(6 years for applying the temporary vacant rules).
Therefore, in order to make a good plan, in the above case,
the taxpayers should consider many factors to determine
whether applying the temporary vacancy rules for old property or setting the new property as the main residence when moved into the new property. In this case, it is important to note
that taxpayers do not need to make a final decision until they sell their old properties.
H property group’s tips for purchasing
property
-
Try not to sell the property in the year that you get higher income, because the property income
will eventually be added to your wages, then the corresponding tax rate is calculated according to the total amount of your
wages,
which means the higher your income is, the higher applicable tax rate will be.
-
Try
not to sell a property if you hold it less than a year. If you hold a property
more than a year, you can waive the 50% capital gains tax.