Australia: Taxes

Overview

An important consideration when you’re buying a home in Australia, even if you don’t plan to live there permanently, is taxation, which includes property tax, wealth tax, capital gains tax (CGT) and inheritance tax. You will also have to pay income tax if you live permanently Down Under or earn an income from a property there.

INCOME TAX

As in many countries, there’s a two-tier tax system in Australia: first class for the self-employed and companies and a second class system, called pay-as-you-go (PAYG), for employees. The self-employed pay their tax in arrears, whereas an employee’s income tax is deducted at source from his salary by his employer. There’s no state income tax in Australia, although it may be introduced under wide-ranging tax reforms currently under consideration. The income tax year in Australia runs from 1st July to 30th June of the following year (for reasons known only to the tax office). Tax is calculated on taxable income derived during the income tax year, although in certain circumstances a substitute accounting year beginning on a different date may be used. Changes in federal taxation are usually announced in the annual budget in May. Australian income tax law recognises the following general types of taxpayer: companies, individuals, partnerships and trusts. Specific provisions apply to insurance companies, mining operations, minors, primary producers, superannuation funds and certain other businesses.

Domicile

Residents of Australia are taxed on their worldwide income and non-residents only on Australian income. An individual is resident in Australia for tax purposes if he:

• normally resides in Australia or

• is domiciled in Australia and doesn’t have a permanent place of abode outside the country or

• spends at least 183 days per financial year in Australia (unless he doesn’t intend to take up Australian residence and has a usual place of abode outside Australia).

Double-taxation Agreements

Australia has double-taxation agreements with many countries, including Argentina, Austria, Belgium, Canada, China, the Czech Republic, Denmark, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kiribati, the Republic of Korea, Malaysia, Malta, the Netherlands, New Zealand, Norway, Papua New Guinea, the Philippines, Poland, Romania, Singapore, the Slovak Republic, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Thailand, the UK, the USA and Vietnam. Despite their name, double-taxation agreements are designed to prevent you paying double taxes and not to ensure that you pay twice! Under double-taxation agreements, certain categories of people are exempt from paying Australian tax. If part of your income is taxed overseas in a country with a double-taxation treaty with Australia, you won’t be required to pay Australian tax on that income.

Foreign employees working in Australia for Australian companies or organisations are subject to Australian tax on their earnings. However, if your stay is less than six months, you aren’t considered an Australian resident and are subject to Australian tax at the rates applicable to non-residents. However, double-taxation agreements contain particular articles dealing with directors, entertainers, government services, professors and teachers, which may alter this position. If you stay in Australia for longer than six months, you may be considered an Australian resident and therefore pay tax at the same rates as residents. Salary and wage income earned by residents from services performed overseas is exempt if the taxpayer has been employed outside Australia for a continuous period of at least 91 days, provided the income has been taxed overseas.

In addition to Australian taxes, you may also be liable for taxes in your home country. Citizens of most countries are exempt from paying taxes in their home country when they spend a minimum period overseas, e.g. one year. One exception is citizens of the USA. It’s usually your responsibility to familiarise yourself with the tax procedures in your home country or country of domicile. If you’re in doubt about your tax liability in your home country, contact your embassy or consulate. American citizens can obtain a copy of a brochure entitled Tax Guide for US Citizens and Resident Aliens Abroad from American embassies.

Tax Evasion & Avoidance

Tax evasion in Australia is a criminal offence, for which you can be heavily fined or even imprisoned. Nevertheless, most Australians don’t consider it a crime to cheat the tax office – an attitude that has spawned a nation of tax fiddlers (it’s a national sport). Australia has a flourishing black economy, which the ATO estimates costs around $16 billion per year in unpaid tax on undeclared income.

Tax avoidance, i.e. legally paying as little tax as possible, if necessary by finding and exploiting loopholes in the tax laws, is a different matter altogether from tax evasion. It’s practised by most companies, self-employed people and wealthy individuals. Unfortunately there are few (legal) ways an individual paying PAYG tax can reduce his income tax bill (dying is one of them), although it’s possible to appeal against your tax bill or anything connected with your tax affairs which you believe is incorrect.

If you own a company or are self-employed, you can delay paying your tax for a period by appealing against a tax demand. As in many countries, the wealthiest Australians use elaborate schemes to avoid paying tax and take maximum advantage of low-tax investments. Many wealthy Australians avoid or minimise their income tax by establishing trusts, which cost the government $millions per year in ‘lost’ tax. However, the tax office is planning a crackdown on overseas tax shelters and trusts. Around two million Australians are estimated to use trusts in some form. Australian banks and other institutions paying interest and dividends must provide details to the tax office of all payments made (which is why some people invest their money overseas, although not declaring income earned overseas is illegal).

There are many books published annually about how to reduce your income tax bill, including the Australian Tax Guide and the Australian Master Tax Guide (Longman). Whether you’re self-employed or an employee, you should always ensure that you don’t pay any more tax than is necessary.

Accountants

If your tax affairs are complicated or you’re unable to understand your own finances (like many people), you should consider employing an accountant or tax consultant (many banks also provide a personal tax service). This applies to most self-employed people, but very few who are on PAYG. However, don’t pick an accountant simply by sticking a pin in the telephone book, but ask your business associates, colleagues or friends if they can recommend someone. If you’re self-employed, you should choose an accountant who deals with people in your line of business and who knows exactly what you can and cannot claim.

Substantial tax savings can be made with regard to pensions, trusts and other tax-avoidance schemes, although some schemes apply only to the very rich, as the cost of using them is prohibitive to anyone else. As soon as the ATO closes one loophole, tax accountants usually find another. Accountant’s fees vary from around $100 to $400 per hour, so ask in advance what the rates are (they’re highest in the major cities) and avoid ‘high-powered’ accountants who cost the earth. You can reduce your accountant’s fees considerably by keeping itemised records of all your business expenses (preferably on a computer), rather than handing your accountant a pile of invoices and receipts. A good accountant, however, usually saves you more than he charges in fees.

Australia has Byzantine tax regulations (the Income Tax Act runs to around 3,300 pages) and it’s possible to receive conflicting information from different tax ‘experts’ and even from different branches of the tax office. Taxpayers constantly complain of inconsistency in the way the ATO makes its rulings and you should never trust the ATO to take only what it should or to credit you with all your allowances and deductions; although the ATO won’t cheat you deliberately, it does make mistakes. If you pay PAYG tax, make sure that the tax deducted is correct and never hesitate to dispute a tax bill with which you disagree. A tax appeals system was introduced in 1997 and the ATO also has a problem resolution service (local call rate 13-2870).

Information

Tax Help is a volunteer service to help certain people complete their tax returns, including Aborigines and Torres Strait Islanders, those on low incomes (including senior citizens), people from non-English speaking backgrounds, and those with disabilities. The translating and interpreting service (TIS) helps non-English speaking people with tax questions by setting up a three-way telephone conversation with an interpreter and the tax office (local call rate 13-1450). The languages covered include Arabic, Chinese, Croatian, Greek, Indonesian, Italian, Japanese, Korean, Macedonian, Polish, Serbian, Spanish, Turkish and Vietnamese.

For general income tax enquiries, contact the Australian Taxation Office (ATO), Head Office, 2 Constitution Avenue, Canberra, ACT 2601 (13-2861). There’s also a ‘fax from a tax’ information service where you can receive information via fax (13-2860). The ATO runs a comprehensive (if complicated and cumbersome) website where most information is accessible (www.ato.gov.au). Australia’s tax system was revised on 1st July 2000. The reforms included the introduction of a goods and services tax (GST, see below) and a $12 billion cut in personal income tax. Benefits such as family assistance and pensions were also increased – older Australians are also entitled to a one-off bonus. Most TAFE colleges (Technical and Further Education colleges, Australia’s largest providers of further education), in conjunction with the ATO, run courses explaining the tax system and how to complete tax returns.

There are various computer tax programs such as QuickTax (Reckon Intuit) and SmartTax (Mysterious Pursuit), although they’re mainly for ‘experts’. A better option for individuals is to join Taxpayers Australia, who for an annual fee of $312 provide you with 24 issues of the latest tax information, a telephone helpline and a 900-page booklet on the current year’s tax return (www.taxpayer.com.au).

Taxable Income & Rates

Taxable income includes income derived directly or indirectly from all sources except where it’s specifically exempted. It includes allowances and benefits, capital gains, dividends and bonuses, foreign income, income from partnerships or trusts, interest, lump sum payments, pensions, rental income, salary or wages, and termination payments. The tax law makes a basic distinction between income and capital receipts, and generally only income is assessable. However, capital gains made from the sale of assets acquired after 20th September 1985 are included in your assessable income. Some income is tax exempt, including defence and United Nations payments, education payments, certain pensions, and social security allowances and payments.

Other income that’s exempt from income tax includes family payment, certain scholarships, bursaries and other educational allowances, and the income of certain non-profit organisations. Most government pensions are subject to tax, although a system of rebates ensures that no tax is paid by a pensioner who earns only a small amount of other income. Special provisions deal with other types of income, including lump-sum payments received on retirement, non-cash benefits, irregular income earned by artists, sportsmen and the like, and the income of farmers. Those with irregular income are permitted to average their earnings out over five years; the tax payable is calculated according to a complicated formula, taking into account ‘normal’ income and adding this to one-fifth of your ‘abnormal’ income over a five-year period. Special tax rules apply to those under the age of 18, when income is generally taxed at a higher rate.

Since the 2000 tax reform, Australia has had four income tax rates, from 17 to 47 per cent (excluding the Medicare levy), as shown below (effective 1st July 2005):

Income:

Under $6,000 – 0%

$6,001-$21,600 – 17%

$21,601-$63,000 – 30%

$63,001-$80,000 – 42%

Over $80,000 – 47%

Some 40 years ago the top rate of tax (47 per cent) was applied at 14 times average weekly; today it’s payable at just one and a half times average earnings. However, it doesn’t apply to most people and over 80 per cent of Australian taxpayers pay tax at 30 per cent or below. Anyone who isn’t resident in Australia for a whole financial year receives a pro rata portion of the tax-free allowance ($6,000 per year), e.g. if you’re resident in Australia for half the tax year, your tax-free allowance is $3,000. Your taxable income is your income after all allowances and deductions have been made from your gross income from all sources.

Non-residents: There’s no tax-free allowance for non-residents, who are taxed as shown below. Note, however, that non-residents should have a tax file number and quote it to their employer (if applicable), otherwise they’re taxed at the maximum rate of 47 per cent. Non-residents with business and trading income in Australia are taxed as below:

Income:

up to $21,600 – 29%

$21,601-$63,000 – 30%

$63,001-$80,000 – 42%

Over $80,000 – 47%

Individual Taxation: The joint filing of returns by spouses isn’t permitted in Australia, where the same tax rates apply to married and single individuals. There are three main systems of collecting tax from individuals in Australia:

• Pay-As-You-Go (PAYG);

• Prescribed Payments System (PPS);

• PAYG Instalments System.

Deductions & Rebates: All taxpayers can claim deductions and rebates in addition to credit for tax paid during the relevant financial year. The gross tax payable on taxable income is reduced by the relevant credits, deductions and rebates to obtain the net tax payable. There’s a difference between a deduction and a rebate. Deductions reduce taxable income, but rebates are subtracted from the tax payable on your taxable income. Rebates are essentially available only to Australian residents whose dependants also live in Australia. There’s no unified system of deductions or rebates that applies to all taxpayers. Full details of all deductions and rebates for individual taxpayers are contained in the free Tax Pack.

Deductions: Deductions are subtracted from your gross income to calculate your taxable income. Most deductions are occupation-specific and must be legitimate expenses incurred in earning your assessable income, provided they aren’t capital, domestic or private. They’re commonly claimed by employees and include car, self-education, travel and work expenses. Deductions are also allowed for certain non-business expenses such as gifts to approved charities. Deductions must usually be substantiated by documentation, and special documentation requirements must be met where employment-related expenses exceed $300 per year. Allowable deductions include:

• Car expenses relating to work;

• Travel expenses relating to work;

• Occupational clothing expenses (e.g. protective clothing and uniforms);

• Work-related self-education expenses;

• Other work-related expenses, including books, computer and office expenses, insurance premiums, journals, overtime meals, telephone, tools and union fees.

• Tax losses carried forward from previous years;

• Australian film industry incentives;

• Personal (non-employer sponsored) superannuation contributions;

• Interest and dividend expenses such as taxes and fees;

• Gifts or donations to recognised charities, funds, organisations and political parties;

• Expenses for managing your tax affairs;

• The deductible amount of the undeducted purchase price (UDP) of an Australian pension or annuity;

• The undeducted purchase price of a foreign pension or annuity;

• Non-employer sponsored superannuation contributions.

Rebates: Rebates (also called tax offsets) provide you with tax relief and are subtracted from the tax due on your taxable income. If rebates are greater than the tax due, you don’t pay any tax. There are two exceptions to this: the private medical insurance rebate, where the excess is refunded; and the landcare and water facility rebate, where the excess is carried forward and used to reduce future tax liability. Rebates don’t, however, reduce your Medicare levy. Rebates are made on tax due in respect of:

• savings income at 15 per cent with a maximum rebate of $450;

• private health insurance premiums at 30 per cent, provided insurance is from a registered health fund (you may choose to claim the rebate as a reduction in your insurance premium);

• net medical expenses (including dental, medical and optical aids) over $1,500 that aren’t reclaimable from Medicare or private health insurance at 20 per cent.

There are also:

• zone rebates for people living in some remote or isolated areas of Australia (there are also special areas within these zones) – most apply to areas in northern and central Australia;

• rebates for beneficiaries, overseas forces personnel and pensioners;

• rebates for low-income taxpayers: if the sum of your assessable income and total reportable is less than $30,999, you may be eligible for a tax rebate of up to a maximum of $1,000;

• rebates for certain dependants, as follows:

Spouse (including de facto) - $1,535

Child-housekeeper - $1,535

Child-housekeeper (with dependent child/student) - $1,841

Invalid relative - $691

Parent or parent-in-law - $1,381

Whether you can claim a rebate usually has nothing to do with the amount of taxable income you earned. However, some rebates, such as beneficiary and pensioner rebates and the rebate for low-income taxpayers, do depend on your income.

Family Tax Benefit: Under the tax reform in 2000, Family Tax Assistance was replaced by Family Tax Benefit. Family tax benefit can be paid either directly by the Family Assistance Office or through the tax system. Family tax benefit is subject to an income test, usually based on your tax return from the previous tax year. For further information contact the Family Assistance Office (local call rate 13-6150, www.familyassist.gov.au).

Income Tax Returns: You must lodge a tax return in Australia if any of the following applied (with certain exceptions) during the previous financial year:

• You received a government benefit or allowance and had other income.

• You received a government pension or allowance which was reduced because you had other income.

• You received more than $6,000 in taxable income during the financial year.

• You received more than $772 in income other than salary and wages and you were under the age of 18 on 30th June of the financial year in question.

• You’re a non-resident and earned more than $1 from which non-resident withholding tax had not been deducted.

• You stopped full-time education, became an Australian resident or stopped being an Australian resident and your income exceeded the part-year threshold amount.

• You paid tax during the previous tax year (with certain exceptions).

• You were liable for child support under the Child Support (Assessment) Act 1989.

• You made a loss or can claim for a loss made in a previous year.

• You carried out business in Australia.

• You were entitled to a distribution from a trust or had an interest in a partnership which carried out a business of primary production.

• You were an Australian tax resident and any of your income came from overseas.

If you don’t need to lodge a return for the financial year in question but lodged one for the previous financial year, you must complete a Non-lodgement Advice and send it to the ATO (one is provided in the Tax Pack – see below).

Returns must be lodged by 31st October for the previous tax year, e.g. the tax return for the 2005/06 tax year ending 30th June 2006 must be lodged by 31st October 2006. If you’re expecting a refund, the earlier you lodge your return, the sooner you’re likely to receive it. If you’re unable to meet the deadline because of circumstances beyond your control, you should request permission to lodge at a later date in writing to the office where you last lodged, before the deadline.

Tax Pack: The ATO provides a comprehensive free Tax Pack (almost 150 pages) for individual taxpayers, which is available from newsagents, post offices and tax offices (it’s also available overseas in some countries). A copy is also delivered to all households just before the end of the financial year (30th June). The pack contains two ‘long form’ tax returns (consisting of six pages) at the back, one of which is to be completed and sent to the ATO (the other is in case you make a mistake or wish to make a copy for your records). A ‘short form’ tax return is available for those with simple tax affairs and is sent to you automatically if you answered a relatively small number of questions on your previous tax return. If applicable, attach statements (group certificates or tax stamp sheets) issued by your employer to your tax return. If you don’t have them, you should obtain a statement from your employer showing salary and income tax payments; otherwise, you must complete a statutory declaration for missing or lost group certificates or tax stamp sheets.

Don’t forget to sign and date the return on the last page before posting it. If you use the Tax Pack to complete your return and make a mistake, you won’t be subject to any penalties, although you may be required to pay interest on any tax owed unless the mistake was due to misleading information contained in the Tax Pack.

The tax office where you lodge your return is determined by your postcode, a list of which is given in the Tax Pack. You can post your tax return or lodge it personally in the box provided at a tax office. You can also lodge your tax return electronically by using e-tax, a free service provided by the tax office. In 2003, over 800,000 Australians lodged their tax return using e-tax. Taxpayers have been able to lodge their returns over the internet since 1997/98.

Keep a copy of your tax form and anything else you send to the ATO. This is useful if your tax form is lost in the post or there are any queries. You should also keep a copy of all documentation (invoices, receipts, statements, etc.) which substantiate claims made in your tax return. Records must be kept for three and a half years for salary and wage earners, and five years for the self-employed (seven years for car and travel-related expenses). Selected tax returns are audited, and you may be penalised if the information provided is found to be incorrect. As in most countries, the self-employed are much more likely to be audited than employees.

OTHER TAXES

Property & Land Taxes

Property taxes (called council rates in Australia) are levied by councils on homeowners to pay for local services. These include community and welfare services, footpaths, health inspections, libraries, parks and recreational facilities, roads, rubbish collection and disposal (which may be charged separately), and town planning and building control. In some states there’s a swimming pool levy to ensure compliance with safety standards. Rates are based on the ‘rateable value’ of a property, officially called the ‘unimproved capital value’, which is reassessed every few years by the Valuer General’s Department. Rates are levied annually but are usually paid quarterly. Check the current rates before buying a property, as in some areas they can be very high (pensioners may receive a concession). Rates usually also increase when land valuations go up, although there’s a limit on what councils can charge.

Land tax is levied on the ownership of land in all states and territories except the Northern Territory. It’s based on the unimproved value of land (i.e. excluding the value of any buildings or capital improvements) at a prescribed date, e.g. 31st December in NSW, which is determined by a state’s Valuer General. There’s sometimes a threshold, below which no land tax is payable. For example, in ACT land tax is levied at 0.65 per cent on land valued at up to $50,000, at 1 per cent on land valued between $50,001 and $125,000, at 1.25 per cent on land valued at between $125,001 and $225,000, and at 1.5 per cent on land valued at over $225,000. In NSW, land tax is payable on investment property holdings (not principal residences) at 0.4 per cent for properties valued at up to $400,000, 0.6 per cent on those valued at between $400,000 and $500,000, and for those worth above $500,000, the tax is $2,200 plus 1.4 per cent of the value above $500,000. In Queensland land tax is only payable if the land is worth over $275,997 and if you’ve been awarded a deduction claim (as most people are); primary residences are exempt.

Goods & Services Tax

Australia originally levied a wholesale tax, which was applied at varying rates on a limited range of ‘new’ goods. In July 2000, as part of a major tax reform, a goods and services tax (GST) was introduced. GST is a broad-based tax (similar to VAT in western European countries) and is levied at a flat rate of 10 per cent on most goods and services. GST is included in the price you pay, and an ‘easy’ way to calculate the amount of GST on goods and services is to divide the price by 11. Some items are exempt from GST, such as basic foods, cars for the disabled, and certain medical aids and appliances.

The introduction of GST has been a logistical and public relations disaster for the government. Large and small businesses have had tremendous problems in the interpretation and implementation of GST rules, which for a single item may run into several paragraphs! The government has also had to introduce compensatory measures such as an Educational Textbook Subsidy, which was offered to students when they objected to the ten per cent increase in the price of books.

In mid-2001, on the first anniversary of the introduction of GST, statistics were released showing that bankruptcies were at a record high and consumer spending at an all-time low, although it wasn’t clear whether these were caused by GST or other economic factors. Large groups, including pensioners and the self-employed, claim that GST has made them significantly worse off. On the other hand, some groups such as fresh food retailers (unaffected by GST) have seen sales grow strongly. The general impression is that GST is a negative, time-comsuming tax that has generally made Australians poorer and has done little to combat the black market.

Most businesses are required to register for GST and most must lodge a quarterly return to pay or claim GST, although if a company’s annual turnover exceeds $20 million, a monthly return must be made.

Fringe Benefits Tax

Fringe benefits tax (FBT) was introduced in 1986 in order to reduce the amount of non-cash, non-taxable benefits (or ‘perks’) offered to employees by employers as part of their salary package. It includes children’s private education, company cars for employees’ private use, free or subsidised accommodation, free holiday travel, low interest or interest-free loans, and private health insurance. The level of taxation on company cars depends on the business ‘mileage’ and is from 7 to 26 per cent. However, leases of luxury cars as part of executive salary packages are exempt. FBT also applies to: airline transport provided free or at a discount to employees in the airline travel industry; discounted goods or services provided by an employer in excess of a specified threshold; entertainment expenses; payment or reimbursement of private expenses on behalf of employees; and the waiver of employee loans or debts. A portion of a living-away-from-home allowance paid to employees may also be subject to FBT, although ‘reasonable’ costs for food and accommodation aren’t. Staff canteens, employee share acquisition schemes and employer superannuation schemes are exempt from FBT. Frequent-flyer schemes aren’t taxable, even when your employer pays the membership fees, and childcare provided on ‘business premises’ or a building controlled by your employer is also exempt (including employer-sponsored/leased places at childcare centres).

FBT is paid at the rate of 48.5 per cent. The FBT tax year is different from the financial year (just to confuse you even further) and runs from 1st April to 31st March. Payments are made quarterly, by the 28th of July, October, January and April, each payment being equal to 25 per cent of the previous year’s liability, the balance being payable when your annual tax return is filed. An employer must usually file an annual fringe benefits tax return by 28th April each year and fringe benefits are recorded on the employee’s payment summary.

Capital Gains Tax

Australia doesn’t have capital gains tax as such, but provides for the inclusion in assessable income of any profits made on certain assets during the financial year. The part of a gain that’s subject to income tax, i.e. the proceeds of a sale less the purchase cost after being reduced by indexation and any losses, is treated as ordinary income and subject to the same income tax rates. However, the amount of tax you pay is calculated by adding 20 per cent of the total gain to your other income, calculating the extra tax due on this portion, and then multiplying it by five (the ATO never makes anything simple).

Tax is payable on the sale of certain assets, including equipment and plant, goodwill on the sale of a business, personal use assets, real estate (other than your principal home), shares, and trust distributions. What are termed ‘listed personal use assets’, such as works of art and antiques, are also taxable if the purchase price was over $100. Listed personal use assets include money or property received other than as gifts or loans, but don’t include an inheritance arising from the death of an asset-holder. Exemptions from tax include bonds, debentures and other loans without a deferred interest element, motor vehicles (whether acquired for personal or business use), your principal residence and up to two hectares of attached land, superannuation and insurance policies, and certain personal use goods with a disposal value of less than $10,000 and any assets acquired before 20th September 1985.

Any realised capital gain from the disposal of assets acquired after 19th September 1985 is taxable. There are two methods of calculating a taxable gain: indexation or the discount system. Under indexation, the excess of the sale price over the indexed cost base is the taxable capital gain, which is added to your other taxable income. The discount system consists of a 50 per cent discount on the amount of capital gain being taxed provided the assets have been owned for at least 12 months by an individual or jointly with others. If the item was purchased after 21st September 1999, the discount system applies. Capital losses can be used to offset gains, either in the current year or in future years without a time limit, but cannot be used to offset other income.

New residents are deemed to have acquired non-Australian assets for their fair market value at the time they became resident (except for assets acquired prior to 20th September 1985, which are exempt). Upon ceasing to be a resident, you can choose to treat all non-Australian assets as ‘taxable Australian assets’, thereby deferring payment of tax until the assets are disposed of or you resume resident status. Overseas employees who become residents during their Australian assignments are subject to complex tax rules that may affect their assets located outside Australia. If you’re in this position, you should obtain expert advice regarding capital gains.

Gains made on the sale of your principal residence in Australia are usually exempt from tax. However, tax is payable on capital gains made on the sale of an investment property or a second home. There’s a federal government taxation incentive for those who let a property for less than their mortgage repayments, when the loss can be offset against other income. There’s a qualifying period of two years for exemption from tax on an inherited home and, if you choose not to live in an inherited home and sell it after two years, no tax is payable.

There are four capital gains tax concessions available for small businesses: a 15-year exemption from capital gains tax; a 50 per cent active asset reduction; a retirement exemption, where you’re entitled to a lifetime tax-free amount of $500,000 (if you retire before the age of 55, the amount must be paid into a superannuation or similar fund); and a ‘roll-over’. All these concessions are subject to certain conditions and you should seek advice from a professional tax adviser. Tax complications can occur when a business undergoes re-organisation or re-structuring, when you should seek advice from an accountant or tax consultant.

The ATO publishes a number of booklets (also available online), including Capital Gains Tax – What You Need to Know, Capital Gains Tax and Your Home, Capital Gains Tax and Investments in Shares and Units, Capital Gains Tax after Divorce or Involuntary Disposal of Assets, Capital Gains Tax and the Assets of a Deceased Estate, and Capital Gains Tax and Small Businesses.

© Survival Books Limited 2006

“Buying a Home in Australia & New Zealand” 1st Edition, Graeme Chesters.
Reproduced with the permission of Survival Books Limited.

Further information on this topic can be found in “Buying a Home in Australia & New Zealand” 1st edition, by Graeme Chesters.

For extensive information about buying a property in Australia & New Zealand, you can purchase this book at www.survivalbooks.net