Centrelink payments and new capital gains tax rules, Digi Mart USA News (Australia): Australian financial adviser Nick Bruining answers reader questions about new capital gains tax (CGT) rules that take effect from next July.
One reader asked whether people receiving Centrelink payments are exempt from the new 30 per cent minimum income tax. Bruining said the rules apply to assets sold after July next year and calculate any resulting capital gain subject to a minimum 30 per cent tax.
The measure is intended to stop people from splitting asset sales across two or more years to keep each year’s gain below the level at which income tax becomes payable.
According to Bruining, the minimum tax does not apply if the individual receives a Centrelink income support payment during the financial year in which the capital gain occurs. Eligible payments include Jobseeker, the disability support pension, the carer payment (but not the carer allowance) and the aged pension.
He cautioned that receiving such a payment does not mean all income tax on the gain is avoided.
For a share portfolio, Bruining said the investor would need a valuation as of June 30 next year. The change in value from the original purchase date to June 30 would be calculated under the current rules, with 50 per cent of that profit added to other income in the year of sale.
Growth above inflation after July 1 next year would form a second component, with tax applying to growth above the inflation rate from July 2027. The two amounts are combined and added to other income, taxed at normal marginal rates.
If income is below the tax-free threshold, the 30 per cent rate would apply to post-2027 gains.
A second reader asked whether transferring rental properties to children would trigger CGT. Bruining said CGT applies to any disposal, and there is no exemption for gifting.
A transfer would use the market value on the transfer date, which should be supported by an independent valuation from a licensed valuer, and the same value would be used for transfer stamp duty.
For properties acquired before September 1985, Bruining said no CGT would apply to a gift made before July 1 next year. A transfer after that date would attract CGT from July 1, 2027 up to the transfer date, with a minimum 30 per cent tax on growth above inflation over that period.
If property passes through a will, CGT may be payable when it is eventually sold, as children would inherit the original cost base and acquisition date. They may be able to claim a main residence exemption from acquisition until sale if the property becomes their primary residence.
