A property investor purchased an investment property for $500,000 and sold it 18 months later for $600,000. What CGT discount are they entitled to as an Australian resident?

Q: What is the correct answer to: A property investor purchased an investment property for $500,000 and sold it 18 months later for $600,000. What CGT discount are they entitled to as an Australian resident?

The correct answer is 50% discount. Option C is correct because under Australian tax law, specifically the Income Tax Assessment Act 1997, Australian residents are entitled to a 50% CGT discount on capital gains from assets held for more than 12 months. Since the property was held for 18 months (exceeding the 12-month threshold), the investor qualifies for the full 50% discount on their $100,000 capital gain. This means only $50,000 of the gain would be included in their assessable income for tax purposes.

Q: What background knowledge is needed for this Finance Taxation question?

Capital Gains Tax (CGT) discount is governed by the Income Tax Assessment Act 1997. Australian residents can claim a 50% discount on capital gains from assets held for more than 12 months. The discount applies to the capital gain amount, not the total sale proceeds. For example, if an asset purchased for $500,000 is sold for $600,000 after 18 months, the capital gain is $100,000. With the 50% discount, only $50,000 is included in assessable income. This encourages long-term investment over short-term speculation. The 12-month holding period is calculated from the contract date of purchase to the contract date of sale, not settlement dates.

Q: What is a good way to remember the answer to this Finance Taxation question?

Remember '50-12': 50% discount for assets held over 12 months. Think of it as 'Fifty percent off after a full year plus'. Like a loyalty reward program - hold for more than a year, get half off your tax bill on the gain. When you see any CGT question, immediately check the holding period. If it's over 12 months for an Australian resident, automatically think '50% discount applies'. The 50-12 rule makes it simple to identify the correct discount rate.

Q: What exam tip applies to this Finance Taxation question?

Always check the holding period first. If over 12 months and Australian resident, the answer is 50% discount. Don't get distracted by other percentage options - Australian CGT discount is always 50% for qualifying assets.

Q: How does this Finance Taxation concept apply in Australian real estate practice?

Sarah, a property investor, purchases a rental property in Melbourne for $450,000 in January 2023. Due to market conditions and personal circumstances, she decides to sell in August 2024 for $520,000. Having held the property for 19 months, Sarah qualifies for the 50% CGT discount on her $70,000 capital gain. Instead of paying tax on the full $70,000 gain, she only includes $35,000 in her assessable income, potentially saving thousands in tax depending on her marginal rate.

Question

Finance TaxationCGTMEDIUM

A property investor purchased an investment property for $500,000 and sold it 18 months later for $600,000. What CGT discount are they entitled to as an Australian resident?

Answer Options

A

No discount applies

B

25% discount

C

50% discount

D

75% discount