Sarah bought an investment property for $500,000 and sold it 18 months later for $600,000. As an individual taxpayer, what CGT discount is she entitled to?

Q: What is the correct answer to: Sarah bought an investment property for $500,000 and sold it 18 months later for $600,000. As an individual taxpayer, what CGT discount is she entitled to?

The correct answer is 50% discount. Option C is correct because under Division 115 of the Income Tax Assessment Act 1997, individual taxpayers are entitled to a 50% CGT discount on capital gains from assets held for more than 12 months. Sarah held the investment property for 18 months, which exceeds the minimum 12-month requirement. As an individual taxpayer (not a company), she qualifies for the full 50% discount on her $100,000 capital gain, reducing her taxable gain to $50,000.

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

Capital Gains Tax discounts in Australia are governed by Division 115 of the Income Tax Assessment Act 1997. Individual taxpayers and trusts can claim a 50% discount on capital gains from assets held for more than 12 months. Companies are not eligible for any CGT discount. The discount applies to the net capital gain after offsetting any capital losses. The 12-month period is calculated from the contract date of acquisition to the contract date of disposal, not settlement dates. This discount significantly reduces the effective tax rate on long-term investments, encouraging capital formation and long-term investment strategies.

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

Remember '12-50': Hold for more than 12 months, get 50% discount. Think of it as 'Twelve months to Fifty percent savings' - like a loyalty program where patience pays off with half-price tax. When you see CGT discount questions, immediately check: (1) Is it an individual/trust? (2) Held more than 12 months? If both yes, apply the 12-50 rule for 50% discount.

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

For CGT discount questions, first identify the taxpayer type (individual gets 50%, company gets 0%), then check if holding period exceeds 12 months. Individual + 12+ months = 50% discount.

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

A real estate agent advises clients considering selling investment properties. A client bought a property 11 months ago and wants to sell for a $80,000 profit. The agent explains that waiting just one more month would qualify for the 50% CGT discount, potentially saving $15,000-20,000 in tax (depending on the client's marginal tax rate). This timing advice demonstrates how understanding CGT discount rules directly impacts client wealth and investment decisions.

Question

Finance TaxationCGTMEDIUM

Sarah bought an investment property for $500,000 and sold it 18 months later for $600,000. As an individual taxpayer, what CGT discount is she entitled to?

Answer Options

A

No discount available

B

25% discount

C

50% discount

D

75% discount