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Word Doc version - Grahame Jackson & Associates Attorneys at Law

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Word Doc version - Grahame Jackson & Associates Attorneys at Law ...

    calculate the difference between the asset’s cost identify which assets are pre-CGT assets and base (indexed to 30/9/99) and the capital which are post-CGT assets, as the ultimate value proceeds, or calculating the difference between of these may be significantly less than their face

    the asset’s cost base and the capital proceeds, value if they are post-CGT assets. without indexation, but applying a CGT discount for individuals (currently 50%) which is now the Record Keeping only method for assets acquired after 21/9/99. It is of vital importance that accurate records are CAPITAL GAINS TAX kept regarding the cost base of an asset, including Cost base includes what was paid on the asset’s date of acquisition, cost, incidental costs, Capital gains tax (CGT) obligations will arise in the acquisition, the incidental costs of acquisition and applicable rates and interest and improvement purchase and sale of capital assets, such as real disposal such as legal costs and stamp duty, the costs. Records of capital proceeds should also be estate, businesses and shares. non-capital costs of ownership such as rates and kept. interest, and improvement costs such as Other, less obvious areas in which CGT may arise renovations to a property. Records must be kept for at least 5 years after the is with family law property settlements, the CGT event occurs. drawing of wills and subsequent administration of Capital proceeds is the amount of the money estates, and re-arrangements of shareholdings or received or entitled to be received at the time of Conveyancing units in companies and trusts respectively. sale of the asset (eg. market value). There are different issues to keep in mind when It is therefore very important to be aware of and We strongly recommend you contact your considering the purchase of and subsequent sale think about the CGT consequences of significant accountant, or tax planner, or investigate the ATO of a property. transactions prior to the event giving rise to the website www.ato.gov.au click on “Individuals” in CGT liability, that is, at the time of purchasing or left margin, then click “Capital Gains Tax” at the Purchase acquiring an asset. end of the list (or Tel: 13 28 61) for specific ? In what entity (individuals, trust or company) advice on calculating your gain. will the property be purchased? Upon the sale What is Capital Gains Tax? of the property, different CGT rates and CGT is the income tax you pay on any net capital Pre-CGT Assets and Post-CGT Assets concessions apply to individuals and gain you make. Not all assets will be subject to CGT on the companies; happening of a CGT event. ? How will the property be used? Concessions For example, when you dispose of a parcel of land may apply if the property is used as a as part of a CGT event, you are subject to CGT. Pre-CGT assets are those assets acquired prior to principal place of residence, and small 20 September 1985. Usually, when these assets business concessions may apply if the net A CGT event occurs when a transaction takes are disposed of, no CGT applies and thus the value of the business’ assets and related place, such as the sale or acquisition of an asset. taxpayer can make a tax-free capital gain. parties is less than $5 million; This is a very general definition and the Income Tax Assessment Act 1997 (Cth) sets out the full Post-CGT asset are those acquired on or after 20 Sale list of CGT events. September 1985. CGT will usually be payable on Pre or post-CGT asset? CGT will only apply if the the disposal of these assets. property is a post-CGT asset. How is CGT calculated? ? Sale price: where the property is sold for less The net capital gain is added to your income in It is therefore important when considering than its market value, the capital proceeds the year derived, which is then taxed at the investing in property, shares, or entering into will be taken to be the property’s market appropriate income threshold rates. After 21 family law property settlement negotiations or value at the time of sale; September 1999 an investor (who has held the considering the terms of a will, for example, to asset for over 12 months) has the choice to

    ? GJALAW Pty Ltd

? Inclusions: where the property includes on the structuring, shareholdings or unit terms of a property settlement with a former depreciating assets for which you are entitled entitlements of members or beneficiaries. spouse. to claim a deduction, the expenditure may be ? Roll-over of cost base: usually, where assets deducted from the cost base. It is therefore For example, consideration should be given to the are transferred from one spouse to another important to apportion the various differences between the corporate tax rate of 30% following marriage breakdown, the receiving depreciating assets and the property in the and the personal rate of 47%. Further, a CGT 50% spouse may “inherit” the former spouse’s cost Contract for Sale. discount is available only to individuals, but not base. This is usually automatic if the transfer companies. This may affect the structure of a occurs pursuant to a court order (including new business or the purchasing entity of an Wills and Estates consent orders). existing business. This is an important factor to take into The consequences of CGT can affect the ultimate account where, for example, an investment For more in depth analysis on CGT implications of value of the assets which are left to beneficiaries. property is being transferred to a spouse. In any proposed transaction, we always strongly Drawing Wills this case, if it is the receiving spouse’s recommend that you obtain advice from your intention to sell the property, the net value of ? Post-CGT assets that are inherited by a accountant, or tax advisor, who can give you beneficiary can result in the beneficiary the property may be affected and reduced by specific advice on the amount of capital gains tax inheriting a CGT liability; a CGT liability and thus should be taken into (for sales) and the correct purchasing entity for account in settlement negotiations. ? Main-residence exemption and Right of your existing financial structure (for purchases). Occupancy: if the Will leaves a property being ? Record keeping is crucial in order to ensure the receiving spouse does not inherit a greater the testator’s main residence, the main-You may also consider reviewing the ATO website residence exemption may not pass to the CGT liability than what may be applicable. www.ato.gov.au and entering “capital gains tax” beneficiary unless a right of occupancy is also in the search box, or calling them 13 28 61. Shares & Units granted under the will; ? Record-keeping regarding the cost base is If you require further information, please don’t Company shares or units in a Unit Trust are also crucial as the beneficiaries inherit the hesitate to contact us. assets which may attract CGT consequences testator’s cost base. Administration of Estates Usually, where shares or units, being post-CGT ? Post-CGT assets: a post-CGT asset is taken to Grahame Jackson BEc. LLB assets, are sold/disposed of or are otherwise be acquired by the testator’s legal personal subject to a CGT event, CGT will be payable on representative (eg. executor) and then the grahamejackson@gjalaw.com the net capital gain made. beneficiary, for the asset’s market value at the date of death. Therefore valuations of

A CGT liability may arise regardless of whether Tel: 9908 1700 such assets should be obtained at the date of

the owner of the shares or units voluntarily death; participates in the distribution. ? Main-residence: apart from the exemption Fax: 9908 1755 outlined above, if one of the assets was the Certain shares and units have special CGT rules deceased’s main residence, an exemption will for example, bonus shares and units, rights and be available so long as the property is sold Grahame Jackson & Associates options and employee shares. within 2 years of the testator’s death. Attorneys at Law Structure of Companies, Trusts and Businesses Suite 4, 3-7 Grosvenor Street Family Law Neutral Bay NSW 2089 The CGT implications should be considered when One common area where CGT implications should setting up a family company or trust and deciding ABN: 31 -99 497 551 be carefully considered is when negotiating the ? GJALAW Pty Ltd

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