Monday, 13 December 2010

A small introduction to the CGT.

After leaving in Germany for close to 18 months, we have put our house in Australia on the market and just sold our house in Australia. A couple of things stood out for me. One is how fast our house actually got sold, and secondly, CGT is a minefield!

From when we made the decision to put on the market to when we have signed contract, it took about 2 weeks. It is the quickest sale of a house that I have been involved it. The previous house sale that I was apart of took an average of about 4 weeks to sell. Now we have to wait for the banks and the lawyers to sort out the details and finalise the sale. We have opted for a 30 day settlement.

Now, CGT or Capital Gains Tax is a crazy thing, but I guess that it is the same with any tax law. For our situation where we have lived in the house for sometime before renting it out, we will be liable to have part of the profit subjected to taxation. Essentially, we can proportion the profit to the rental  period over the time which we have the house in our possession. In our case, the house was being rented for about 40% of the time we owned it, so only 40% of the profit is subject to CGT. The CGT portion is further discounted by 50% before it becomes part of your taxable income assessment. That is the simple version. There are other rulings that you can use to help minimise the liability. I may need to talk to a tax accountant.