Sarah bought an investment property for $500,000 and sold it 18 months later for $600,000. What CGT discount is she eligible for?

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

The correct answer is 50% discount. Option C is correct because Sarah held the investment property for 18 months, which exceeds the 12-month minimum holding period required for the CGT discount under Division 115 of the Income Tax Assessment Act 1997. As an individual taxpayer (not a company or trust), she qualifies for the full 50% CGT discount. This means only 50% of her $100,000 capital gain ($50,000) will be included in her assessable income and taxed at her marginal tax rate.

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

Capital Gains Tax (CGT) discount is governed by Division 115 of the Income Tax Assessment Act 1997. Individual taxpayers who hold a CGT asset for more than 12 months are eligible for a 50% discount on the capital gain. The discount applies to the net capital gain after offsetting any capital losses. Companies and most trusts don't qualify for the discount. The 12-month period is calculated from the day after acquisition to the day of disposal. This discount significantly reduces the effective tax rate on long-term investments, encouraging longer holding periods and reducing speculative trading.

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 a reward for patience - the tax office gives you half off your capital gains tax bill if you wait just over a year. Like a loyalty discount for being a long-term investor rather than a quick flipper. When you see any CGT question, immediately check the holding period. If it's more than 12 months and involves an individual taxpayer, think '12-50 Rule' and look for the 50% discount option. If it's 12 months or less, no discount applies.

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

Always identify the holding period first in CGT questions. Count from day after purchase to sale day. More than 12 months = 50% discount for individuals. Exactly 12 months or less = no discount. Companies never get the discount regardless of holding period.

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

A property investor contacts you about selling a rental property they bought 15 months ago. They're concerned about the tax implications of a $80,000 capital gain. You can advise them that because they've held the property for more than 12 months, they qualify for the 50% CGT discount, meaning only $40,000 will be added to their taxable income. This could save them thousands compared to selling within the first 12 months, demonstrating why timing property sales is crucial for tax planning.

Question

Finance TaxationCGTMEDIUM

Sarah bought an investment property for $500,000 and sold it 18 months later for $600,000. What CGT discount is she eligible for?

Answer Options

A

No discount - full CGT applies

B

25% discount

C

50% discount

D

75% discount