Sarah purchased an investment property for $800,000 in 2020 and sold it for $950,000 in 2024. She has held the property for more than 12 months and has no other capital gains. What is her assessable capital gain for tax purposes?

Q: What is the correct answer to: Sarah purchased an investment property for $800,000 in 2020 and sold it for $950,000 in 2024. She has held the property for more than 12 months and has no other capital gains. What is her assessable capital gain for tax purposes?

The correct answer is $75,000. Option B ($75,000) is correct because Sarah's gross capital gain is $150,000 ($950,000 - $800,000). Under Division 115 of the Income Tax Assessment Act 1997, individuals who hold CGT assets for more than 12 months are entitled to a 50% CGT discount. Since Sarah held the investment property for 4 years (2020-2024), she qualifies for this discount. Therefore, her assessable capital gain is $150,000 × 50% = $75,000.

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

Capital Gains Tax in Australia applies to assets acquired after 19 September 1985. The CGT discount, introduced in 1999, provides a 50% reduction in assessable capital gains for individuals and trusts holding assets for more than 12 months. The discount encourages long-term investment over short-term speculation. Key legislation includes the Income Tax Assessment Act 1997, specifically Division 115 (CGT discount) and Division 118 (exemptions). The main residence exemption completely excludes gains on a taxpayer's principal place of residence, but investment properties remain subject to CGT with potential discount benefits.

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

Remember '50-12': 50% discount for assets held more than 12 months. Think of it as 'Fifty percent off after a full year plus'. Like a loyalty discount - the longer you hold (over 12 months), the bigger the tax discount (50% off your gain). When you see CGT questions, immediately check the holding period. If it's more than 12 months for an individual, apply the 50-12 rule: calculate the gross gain, then cut it in half for the assessable amount.

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

For CGT questions: 1) Calculate gross gain (sale price - cost base), 2) Check holding period, 3) If >12 months for individuals, apply 50% discount, 4) Verify it's not main residence (which would be exempt).

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

A real estate agent advising clients on investment property sales must understand CGT implications. When a client considers selling an investment property purchased 18 months ago for a $200,000 gain, the agent can explain that holding for over 12 months qualifies for the 50% CGT discount, reducing the assessable gain to $100,000. This knowledge helps agents provide valuable tax-effective timing advice, potentially saving clients thousands in tax and strengthening the agent-client relationship through informed counsel.

Question

Finance TaxationCGTMEDIUM

Sarah purchased an investment property for $800,000 in 2020 and sold it for $950,000 in 2024. She has held the property for more than 12 months and has no other capital gains. What is her assessable capital gain for tax purposes?

Answer Options

A

$150,000

B

$75,000

C

$112,500

D

$0 due to main residence exemption