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5 Things You Need To Know About Capital Gains Tax

Capital Gains Tax in AustraliaDid you know that when you sell a property you may be hit with something called capital gains tax?

What is it, why do I have to pay it and how much will it cost me?

Here are 5 things you need to know about capital gains tax.

What is capital gains tax?

Property owners in Australia are hit with capital gains tax (CGT) when they make a profit on the sale of a property. CGT is a tax that is implemented on a capital gain from any asset which has been acquired on or after 20 September 1985.

For example, if you’re selling a property that you inherited from your late grandfather who bought the property on or after 20 September 1985, then the property will be liable for CGT.

CGT is calculated by subtracting your expenses on the sale price of a property. These expenses are referred to as your cost base. If the cost base of the property is $250,000 and you sell it for $425,000, then you’ll be charged tax for the $175,000 in CGT.

What is a capital gain?

Capital gain can be understood as the difference between the buying price of the asset and the price of the asset when you sell it. You make a capital gain if you sell the property for more than what you paid for it.

Suppose you’ve got a house that you originally bought for $350,000 and in 5 years time you sell it for $500,000, your capital gain would be $150,000.

What is a capital loss?

Put simply, capital loss is the exact opposite of a capital gain.

For example, if you purchase a property for $400,000 and later sell it for $370,000 then your capital loss would be $30,000.

Did you know that you can actually reduce the amount of capital gain included in your taxable income by offsetting any capital loss you’ve made against your capital gains?

Please speak with a qualified accountant before making any financial decision.

If you’re an investor, check out our Property Investor Centre for tips on investment strategy.

What are the costs subject to capital gains tax?

The most notable costs that are subject to CGT are:

  • Incidental costs – These costs include stamp duty, legal fees, agent fees, and advertising and marketing fees.
  • Ownership costs – The tax rates, land tax, maintenance, and interest on a home loan. It should be noted that only properties acquired after 20 August 1991 are eligible to offset these costs.
  • Improvement costs – These costs include any replacements or improvements made to the property such as a new kitchen or bathroom renovations.
  • Title costs – These are legal fees associated with protecting your title on the property.

What assets are exempt?

There are certain assets that you don’t need to pay capital gains tax on. Some of the common exemptions include:

  • Your primary residence.
  • Your car or any other vehicle.
  • Assets acquired before 20 September 1985.
  • Some personal items and collectibles.
  • Depreciating assets.
  • Prizes or winnings from gambling or any other competition.

Please note that this is only general information.

If you have more questions about CGT our mortgage brokers can help.

They’re experienced property investors in their own right and have undertaken training in understanding the process of buying and selling property.

Please call 1300 889 743 or complete our free assessment form today.