Capital Gains Tax On Investment Property (Updated 2020 Rulings)

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Hi. I’m here to talk about capital gain tax on investment property, and how it affects you as a property holder. So when is capital gains tax paid is question number one, and do you have to pay it on investment property? Well, yes you do have to pay it on an investment property unfortunately, there’s no ifs, buts, maybes about it. And how do we calculate what capital gains is?

Let me just write it up on the board for you. It’s basically the purchase price plus purchase costs, and those costs could be like the stamp duty, the land titles registration, any government charges, bank fees that you haven’t claimed in the processing of your investment property taxes, minus any depreciation over the journey, which equals your cost base. Now we get the sales price. And I’ll give some dollar examples, of $400,000 less the cost base, which was all of this here, and let’s say that works out to $300,000. Well then our capital gains equals $100,000.

How does that affect us? We’ve got a capital gains of $100,000. There’s a thing called the discounting method. So we get a 50% discount if we’ve held the asset for greater than a year. So we’re talking about investment properties. So if I were to use shares as an example, you got to pay capital gains on shares. A lot of people trade their shares in and out of a year, which means there’s no discount, if this was shares they’d have to pay tax on $100,000.

But for us with this investment property, we’ve held it for multiple years, we only have to pay 50%. So that means out capital gain that was taxable is now reduced to $50,000. Okay. And if our income from our wages is $100,000 we have to add in that $50,000 and pay tax at the marginal rate, most likely around 34%, around there, on that $50,000. Which would be equivalent to about $15,000-ish. Now, if we’ve got a partner, and they are also on the title for this, we would actually be dividing this again by another 50%, and it all depends on the ratio you set up with the purchase of that investment property with your partner.

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