House prices are on the move and some investors are cashing in on the growth.
According to the leading data provider for Australian property, CoreLogic, our hometown, Brisbane has had 23% growth in the last year.
To see how your area is moving, click on the link here: https://www.corelogic.com.au/research/monthly-indices
There is plenty of commentary on the reasons why there has been so much growth in the market.
For those who have cashed in and are looking for options after your investment property has sold, read the following steps we use when appraising what to do with the proceeds from your investment.
If you are selling at a profit, the ATO will be looking for their share of the fun (☹) through Capital Gains Tax.
We won’t go into great detail here on the calculation, which can be found on the ATO website here; https://www.ato.gov.au/individuals/capital-gains-tax/calculating-your-cgt/#HowtocalculateyourCGT.
However, in summary, if you have owned your investment property for over 12 months, the ‘gain’ (difference between sale price and purchase price net of costs) is discounted by 50%, and is then added to your income.
Want an example?
If your capital gain is $70,000 from owning a property and you have held it over 12 months, the assessable gain is $35,000.
If you are earning a salary of $70,000 for the year, your discounted capital gain ($35,000) will be added to the $70,000. So in fact the ATO taxes you as though you earned $70,000 + $35,000 = $105,000 for the year.
For this financial year, 2021-22, this means your overall tax will increase by roughly $11,375 (excluding the Medicare Levy). So at the end of the year the ATO will request payment for this amount.
Depending on your age and financial situation, you may look to use superannuation as an option to build wealth and reduce your tax burden if you have sold an investment property.
If your overall superannuation balance is under $500,000 as an individual, since the 2018-19 financial year the ATO has allowed you to use your unused concessional contributions. These are the contributions that go into your super pretax and get taxed within the fund at 15%. (For more details on the carry forward rules, click here.)
For example: let’s say your superannuation balance is under $500,000 and after analysing your concessional super contributions since and including the 2018-19 year, we find the total unused concessional contributions are $42,000 (inclusive of the expected unused contribution for this year). If that $42,000 is contributed into the super fund, it will be taxed at 15% as it enters the fund ($6300 tax within super). This means your taxable income will be $70,000 (salary) + $35,000 (capital gain) – $42,000 (super contribution) = $63,000.
In this instance, this will boost your overall superannuation of $35,700 net of tax. Additionally, instead of a tax bill at the end of the year, you will be due a refund of approximately $2275, because your total income will be $63,000 instead of $70,000.
The total tax savings you receive for this year will be $7350. (This comes from $11,375 (additional Capital Gains Tax if you did nothing) + $2,275 reduction in tax (from total incoming lowering from $70,000 to $63,000) – super contribution tax of $6300.)
Out of a total gain of $70,000, this is a nice little earner. Keep in mind, you will also have $28,000 left over from the sale of the property to go and celebrate… well, modestly of course, as we are prudent money managers!
If you need assistance with your superannuation and taxation planning, please touch base with our office. We love to help improve people’s financial situation; it is just what we do!