WELCOME TO THE SEPTEMBER 2009
ISSUE OF iNEWS!

This Month

Capital Gains Tax for Investors

Being an investor in Australia inevitably leads to Capital Gains Tax (CGT) considerations. Many people leave this unpleasant topic to their accountant or financial adviser, but it pays to have a broad knowledge of the rules to help you avoid the pitfalls and make use of the concessions.

What is CGT?

CGT is the tax you pay on selling certain assets acquired on or after 20 September 1985. The capital gain you make is added to your taxable income (e.g. salary & wages) and taxed at your marginal tax rate. Therefore, CGT is not a separate tax and the amount of tax payable will be dependent on your marginal tax rate.

When Do You Make a Capital Gain?

As an investor, you would generally make a capital gain (or a capital loss) when you sell, transfer or gift shares in a company or units in a managed fund. This is called a CGT Event. In addition, if you have invested in managed funds, you may also receive distributions containing a capital gains amount.

It is important to remember the date a CGT event occurs is the date of any sale contract, not the date of settlement.

Capital Gains Exemptions

Examples of assets which are not subject to capital gains tax include:
an asset you acquired before 20 September 1985
cars, motorcycles and similar vehicles
your main residence
shares or units subject to CGT rollover relief provided certain conditions have been met

How to calculate your capital gain or capital loss?

As an investor, your capital gain/loss will generally be the difference between what you sell an asset for and the purchase price. The cost of selling and purchasing the asset are also taken into account when calculating your gain or loss.

If you have made a capital loss, the loss amount can be applied against other capital gains you have made in the current financial year or if there are no current year capital gains, the capital loss is carried forward to future income tax years and used to reduce any future capital gains. The capital loss amount can not be used to offset your other income (e.g. salary and wages).

Investors should take note of an important concession for assets held for at least 12 months. If you have made a capital gain and have held the asset for at least 12 months, you can reduce the gain by 50% after taking into account any current and prior year capital losses. This is an valuable concession which should be considered when deciding when to sell an asset.

How Much CGT will You Pay?

Let’s use an example. You made a capital gain of $20,000 on an asset you held for 3 years and your other taxable income is $60,000.

You are eligible for the 50% discount so your taxable income becomes $70,000 and the tax on this is $15,900. Without the capital gain your income was $60,000 with a tax of $12,600.

Therefore the tax paid on the capital gain is $3,300.

Records you need to keep

Most of the records you need to keep to work out your capital gain or capital loss when you dispose of shares, or units (including managed funds) will be given to you by the company, fund manager or administration platform manager. It is important that you keep everything they give you about your shares and units.

These records will generally provide the following important information:
purchase cost and purchase contract date of the shares or units

sale proceeds and contract date of sale
any incidental purchase and sale costs such as brokerage or commissions paid
Records must be kept for 5 years after you sell the asset

For more detailed reading, refer to one of the many resources available on the internet such as the ATO’s CGT section.

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How Long Will My Assets Last Me In Retirement?

Australians can expect to spend more than a quarter of their life in retirement.

The good news is that on average we are all living longer. A combination of improved healthcare, diet, exercise and lifestyle choices mean that Australians can expect to spend more than a quarter of their life in retirement.

However this increased longevity is accompanied by the risk that the retirement assets we have worked so hard to accumulate during our working lives may not last us for the length of our retirement.

How would you answer the following questions?

Research recently completed by a number of investment research firms, including Westpac, agree that a retired couple would require an annual income of around $50,000 to maintain a comfortable lifestyle. A single retiree would require around $38,000 per annum.

Of course some of us could make ends meet with a lesser amount while some of us would require a considerably higher income to enjoy a comfortable retirement.

Our retirement investment assets may include the following asset classes:

The following table provides a number of scenarios as to how many years a retired couple could expect their total investment assets to last.

Total value of investment	Number of years these assets on retirement. assets will last us.
$200,000	4.5
$400,000	10
$600,000	16
$800,000	24

In calculating the number of years our retirement investments will last us the following assumptions have been made.

Some retirees will also be able to access certain Centrelink benefits. This will depend on individual circumstances and has not been considered in the calculations.

Are you on track for a comfortable retirement?

What steps should you take to get your retirement plans on track?

There are a number of actions that you can take to boost your superannuation. These strategies were discussed in our August newsletter.
Using a regular savings plan and strategies such as gearing and adopting favourable taxation structures will keep your retirement plans on track.

Discuss your retirement plans with an iPlan adviser who can suggest a range of strategies to help you to achieve your retirement and lifestyle goals.

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Your Question's Answered

Got a question you would like answered?

Please email your questions to info@iplan.net.au, or why not phone one of our financial advisers directly on 13000 IPLAN (1300 047 526).

iPlan Financial Services Australia Pty Ltd ACN: 106 591 833 as trustee for the iPlan Australia Trust ABN: 58 928 175 252 is a Corporate Authorised Representative of iPlan Financial Services P/L ABN 70 122 979 140 AFS Licence No. 311824