Capital Gains Tax
Capital Gains Tax & some things to be mindful of.
A few years ago I was involved in the subdivision of a property and once we had disposed of the whole site we had to work out how the distribution of sale of the asset would affect any Capital Gains Tax.
It was an expensive land subdivision and once all the construction and development costs had been distributed throughout the development, there was a significant capital loss that effected whether there was any Capital Gains Tax applicable.
There were a couple of interesting things that I learnt about Capital Gains Tax by doing this development. Firstly, it was reassuring to know that subdividing land did not result in a Capital Gains Tax event if you retain ownership of the subdivided blocks. Therefore, you do not make a capital gain or a capital loss at the time of the subdivision. This means that at the moment the Land Title’s Office registered the land into separate lots that there was no Capital Gains Tax applicable.
However, Capital Gains Tax was definitely applicable the moment that I disposed of the separate blocks.
Capital Gains Tax can make a huge difference to any outright profit that a developer can make out of a subdivision or development.Capital Gains Tax can destroy it's feasability.
The ramifications of Capital Gains Tax can also have a huge impact on investors who are either selling their investment properties or maybe cashing in their share portfolios because of the downturn in the global economy. The Capital Gains Tax can make a huge difference to the amount of money they actually realize out of these investments.
The amount of Capital Gains Tax revenue raised by the government could also be affected. There will be a number of developers and investors in these current economic will potentially end up with capital losses rather than capital gains, which means that in some of their recent investment strategies they won’t have Capital Gains Tax to pay, but instead they may potentially have a Capital Gains Tax credit that they can carry forward.
If a developer or investors' total capital losses for the year are more than their total capital gains, the difference creates a net capital loss for the year and has huge Capital Gains Tax implications. This loss can be carried forward to later income years to be deducted from the Capital Gains Tax applicable to any future capital gains.
This may benefit the investors/developers in a future development but this saving in Capital Gains Tax won’t necessarily help them to be cashed up to capitalize on any potentially lucrative investments or develops in the present climate.
Whilst the Capital Gains Tax laws won’t allow you to the deduct capital losses or a net capital loss from your income, there is no time limit on how long you can carry forward a net capital loss.
Because there is no time limit on carrying forward the losses, it is important to keep in mind that you have that credit that you can claim when it comes time to pay any Capital Gains Tax in the future.
Here's a personal example of being mindful of these Capital Gains Tax laws.
We sold an investment a few years back and when it came time to calculate our Capital Gains Tax the credit was neglected until I reminded my accountant that we still had a capital loss from the subdivision that could be included within our Capital Gains Tax calculation.
Some people will make a loss on an item and get annoyed about the loss and not realize that they could claim that loss against a future gain and could help you to reduce your Capital Gains Tax.
Before rushing off and selling any property or shares, it’s advisable to do a complete review of your Capital Gains Tax liabilities. You don’t always need to sell a property to buy another, or dump a share to jump into another company. Instead you could consider leveraging against an unrealised gain to reduce the requirement to pay Capital Gains Tax.
Be aware that your gains or losses are still there even if you do not realise them at this point. They are also worth more to you when you do not have to pay a part of the sale proceeds in Capital Gains Tax to the tax office!
It’ also worthwhile keeping in mind that there are some assets which don't produce an income that also attract Capital Gains Tax. These non-income producing assets may not be exempt from Capital Gains Tax and there may become a time when you will have to pay tax on the gain.
There may also come a time when you need to sell an asset to access the capital you have tied up within the asset. If that time arises, it’s important to choose carefully when to sell as selling your asset once side of the financial year or the other may also provide a way that you can minimize the Capital Gains Tax that you may have to pay.
Be aware of Capital Gains Tax.
Since most people at some time would like to benefit from the gain made, it is likely that the time may come when you are ready to liquidate some, or all, of your assets which means that Capital Gains Tax may be applicable to the nett proceeds. This is why it is really important to do your home work on Capital Gains Tax.
Capital Gains Tax