Sarah purchased an investment property for $600,000 in 2020 and sold it for $750,000 in 2024. If she held the property for more than 12 months, what CGT discount is she entitled to as an individual taxpayer?

Q: What is the correct answer to: Sarah purchased an investment property for $600,000 in 2020 and sold it for $750,000 in 2024. If she held the property for more than 12 months, what CGT discount is she entitled to as an individual taxpayer?

The correct answer is 50% discount. Option C is correct because under Division 115 of the Income Tax Assessment Act 1997, individual taxpayers who hold a CGT asset (including investment property) for more than 12 months are entitled to a 50% CGT discount. Sarah held the property from 2020 to 2024 (more than 12 months), making her eligible for the full 50% discount. This means she only pays CGT on half of her $150,000 capital gain ($75,000), significantly reducing her tax liability compared to the full gain being taxable.

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 receive a 50% discount on capital gains from assets held for more than 12 months. The 12-month period is calculated from the day after acquisition to the day of disposal. This discount applies to various assets including investment properties, shares, and business assets. Companies and trusts have different discount rates (companies receive no discount, while trusts may pass through discounts to beneficiaries). The discount significantly reduces tax liability and is a key consideration in investment property strategies and timing decisions.

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

Remember '50-12': 50% discount for 12+ months. Think of it as 'Fifty percent off after a full year plus.' Visualize a calendar showing 12 months, then imagine cutting your tax bill in half with scissors - that's your 50% CGT discount reward for patient investing. When you see any CGT discount question, immediately check the holding period. If it's more than 12 months for an individual taxpayer, automatically think '50-12 Rule' - 50% discount applies. This quick mental check eliminates wrong answers and confirms the 50% discount option.

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

For CGT discount questions, first identify the taxpayer type (individual vs company) and holding period. Individual + more than 12 months = 50% discount. Don't be distracted by other percentages - Australian law is specific about the 50% rate for qualifying individuals.

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

A real estate agent advises clients considering selling investment properties. Understanding CGT discount timing is crucial - selling just before the 12-month mark means full CGT on gains, while waiting just past 12 months halves the tax liability. For Sarah's $150,000 gain, this knowledge saves approximately $37,500 in tax (assuming a 50% marginal tax rate). Agents must advise clients about this timing to optimize their investment returns and avoid premature sales that result in unnecessary tax burdens.

Question

Finance TaxationCGTMEDIUM

Sarah purchased an investment property for $600,000 in 2020 and sold it for $750,000 in 2024. If she held the property for more than 12 months, what CGT discount is she entitled to as an individual taxpayer?

Answer Options

A

25% discount

B

33.3% discount

C

50% discount

D

No discount available