An investor purchases an investment property for $800,000 and sells it 18 months later for $900,000. What capital gains tax discount are they entitled to?

Q: What is the correct answer to: An investor purchases an investment property for $800,000 and sells it 18 months later for $900,000. What capital gains tax discount are they entitled to?

The correct answer is 50% discount on the capital gain. Option C is correct because under Australian tax law, individuals who hold a capital asset (including investment property) for more than 12 months are entitled to a 50% CGT discount. Since the property was held for 18 months, it exceeds the 12-month threshold. The capital gain of $100,000 ($900,000 - $800,000) would be reduced by 50% to $50,000 for taxation purposes, assuming the investor is an individual taxpayer and not a company or trust with different rules.

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

Capital Gains Tax (CGT) in Australia applies to the disposal of capital assets acquired after 20 September 1985. The CGT discount of 50% is available to individuals and trusts for assets held for more than 12 months. This discount reduces the taxable capital gain by half. Companies do not receive this discount. The holding period is calculated from the day after acquisition to the day of disposal. Investment properties are subject to CGT unless they qualify as the main residence. The discount encourages long-term investment and helps offset inflation effects on capital gains.

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

Remember '12 months = 50% off' - like a loyalty program where holding an investment property for more than 12 months earns you a 50% discount on your CGT bill. Think of it as a 'frequent investor' reward program. When you see any CGT question, immediately check the holding period. If it's more than 12 months for an individual, automatically think '50% discount applies' before calculating the tax implications.

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

Always identify the holding period first in CGT questions. If over 12 months and the taxpayer is an individual, the answer will involve a 50% discount. Companies never get the discount regardless of holding period.

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

Sarah buys an investment apartment in Melbourne for $650,000 in January 2023. She sells it in March 2025 for $750,000, realizing a $100,000 capital gain. Since she held it for over 12 months (26 months), she qualifies for the 50% CGT discount. Instead of paying tax on the full $100,000 gain, she only pays tax on $50,000. This discount significantly improves her after-tax return and influences her decision to hold properties long-term rather than flip them quickly.

Question

Finance TaxationCGTMEDIUM

An investor purchases an investment property for $800,000 and sells it 18 months later for $900,000. What capital gains tax discount are they entitled to?

Answer Options

A

No discount - full CGT applies

B

25% discount on the capital gain

C

50% discount on the capital gain

D

Complete exemption from CGT