If you sell a capital asset, such as real estate, you usually make a capital gain or a capital loss. This is the difference between what it cost you to acquire the asset and what you receive when you dispose of it. You need to report capital gains and losses in your income tax return and pay tax on your capital gains. All assets you’ve acquired since tax on capital gains started (on 20 September 1985) are subject to CGT unless specifically excluded. Foreign residents make a capital gain or loss if a CGT event happens to an asset that is 'taxable Australian property'. In fact, most personal assets are exempt from CGT, which includes the main residence exemption for CGT of selling property. Main residence exemption The main residence exemption means that there is no capital gain or capital loss made from a CGT event that relates to a dwelling that is the taxpayer’s main residence. The main residence exemption will not apply where: • the residence was only a main residence for part of the ownership period, or • the residence was used for the purpose of producing assessable income. More than One Residence If a taxpayer owns more than one residence that qualifies as a main residence, they must choose which one is the main residence for CGT purposes. This choice occurs in the income year where the CGT event occurs in relation to the dwelling. Where a taxpayer has a main residence and acquires another dwelling that is to become the new main residence, then both dwellings are treated as the taxpayer’s main residence for the shorter of: • six months ending when the ownership interest in the existing main residence ends, or • the period between the acquisition of the new ownership interest and end of the old ownership interest. This change of main residence exemption only applies where the existing main residence was used as a main residence for a continuous period of at least three months in the preceding 12 months, ending when the taxpayer’s ownership interest in it ends and it was not used for income-producing purposes during that 12-month period. Generally, a taxpayer can treat the dwelling as your main residence for: • up to six years if it is used to produce income • indefinitely if it is not used to produce incomeCapital Gain Tax Full Article Link
Client often ask whether they could reduce their income tax by diverting income received from personal services through companies, partnership, or trusts. Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. Income is classified as PSI when more than 50% of the amount you received for a contract was for your labour, skills or expertise. Before deciding whether to set up a new business structure, the first thing we need to do is work out if any of your income is classified as PSI. The PSI rules (or alienation of PSI rules) were introduced to ensure that taxpayers cannot reduce or defer income tax by diverting income received from their personal services through companies, partnerships or trusts or by claiming inappropriate deductions against this income. The impact of the PSI rules, for those affected by them, is: • the PSI is included in the assessable income of the individual taxpayer whose personal efforts or skills generated the income and • there are restrictions on the deductions that may be claimed by the individual or the entity against the PSI so that they broadly correspond to the deductions available to employees. Personal services income is income that is mainly a reward for an individual's personal efforts or skills. It does not include income that is mainly: • for supplying or selling goods (for example, from retailing, wholesaling or manufacturing), • generated by an income-producing asset (such as a bulldozer), • for granting a right to use property (for example, the copyright to a computer program), or • generated by a business structure (for example, an accountant working for a large accounting firm).Personal Service Income Full Article Link
Clients often ask whether they need to lodge a tax return if they only earn less than $18,200,
if they are sole traders but earn less income, etc. In this article, we would like to list the circumstances that you need to lodge individual tax return. Taxpayers who must lodge a tax return include: 1. Most resident individuals whose total assessable income exceeds $18,200 for the 2020 income year. However:
a. Persons who received certain Australian Government allowances will not need to lodge a tax return if they only had income from this source or if their taxable income was not more than $20,542.
b. Persons who received certain Australian Government pensions or who are entitled to an aged pension will not be required to lodge a tax return unless their rebate income is more than:
i. $32,279 if at any time during the year they were single, widowed or separated
ii. $31,279 if at any time during the year the person and their spouse had to live apart due to illness or the person or their spouse was in a nursing home
iii. $28,974 if at any time during the income year the person and their spouse lived together
c. A person who was an Australian resident for only part of the year will be required to lodge a tax return if their taxable income exceeds their adjusted tax-free threshold ($13,464 plus ($4,736/12) x number of months or part month the person was an Australian resident) 2. A person who has had tax withheld under the PAYG withholding system other than amounts withheld from:
a. franked or partially franked dividends where the amount of the dividends or distributions received and any franking credits totalled less than $18,200
b. dividend, interest and royalty payments received by foreign residents
c. Departing Australia Superannuation Payments
d. payments made to persons participating in the Seasonal Labour Mobility Program
e. certain superannuation lump sum payments made to a person with a terminal medical condition 3. A person who has a Reportable Fringe Benefits Amount (RFBA) or a Reportable Employer Superannuation Contribution (RESC) shown on their PAYG Payment Summary or Income Statement, regardless of income. 4. Every person who, during the year, was not an Australian resident for tax purposes and derived income (including capital gains) that is taxable in Australia, other than franked dividends, interest and royalty income subject to withholding payments 5. Every person carrying on a business or profession regardless of profit or loss. 6. A person who paid Pay As You Go Instalment Tax during the income year, irrespective of income. 7. A person who has made a loss (including a capital loss) during the income year or has a carried forward loss (including a capital loss), which they can claim in the current year . 8. A person who was entitled to the private health insurance rebate but did not claim the correct entitlement as a premium reduction, and their spouse (if they had one) is not claiming the rebate for them in their income tax return. 9. A person, 60 years old or older, who received an Australian superannuation lump sum that included an untaxed element or it is a superannuation lump sum death benefit paid to a non-dependant 10. A person, under 60 years old, who received an Australian superannuation lump sum that included a taxed element or an untaxed element or it is a superannuation lump sum death benefit paid to a non-dependant.
....Taxpayers who must lodge a tax return full article link