Buying and selling an investment property does not only involve annual rental income or loss.

You also have to keep in mind the tax you have to pay when you sell it, known as Capital Gains Tax (CGT).

In the year of sale, you need to declare this capital gain or loss in your tax return.

How is your capital gain calculated?

A capital gain is calculated by taking the capital proceeds you receive less the cost base of your property.The proceeds include the amount of money the property was sold for.

The cost base generally includes the amounts of money you paid for the property, plus incidental costs, less building depreciation claimed along the way.

An example capital gain calculation

So, if an investor sold their property for the list price of $400,000, their proceeds are $400,000. If they bought the property for $200,000, and paid $2,000 of legal fees to buy, $20,000 of stamp duty to buy, $2,000 of legal fees to sell, $10,000 agents commission to sell and claimed $50,000 of building depreciation, their cost base is $284,000.

Their gross capital gain is the proceeds less the cost base being $116,000. If they owned the property for more than one year the net taxable capital can be halved, so they only declare $58,000 in their tax return.

This amount is added to their regular income and tax is paid accordingly just like regular taxable income.

What is a capital loss?

A capital loss is calculated very similar to a capital gain. While a capital gain is added to your regular income to calculate your tax, a capital loss cannot be used to offset your regular income.

It is carried forward to be offset against capital gains only, so you do not get an immediate tax benefit from a capital loss unless you have capital gains. This is the downside of a capital loss.

Capital gains for trusts & companies

Obviously, the above only applies to individuals who own rental properties. If you are a trust, super fund or company you have different CGT discount rules.

Also, if the property you owned was purchased before the 1990’s, or was not residential, your cost base is slightly changed.

Speak to an accountant

This information is general only and has been provided by Lucentor Pty Ltd who are accountants that specialise in tax for property investors.

We recommend investors obtain financial advice specific to their situation before making any investment or decision regarding their finances.

  • Dominic

    Is there any special discounts or packages for bank employees?

  • Hi Dominic,

    Capital gains tax is applicable to all individuals regardless of their employment situation, such as being self-employed or PAYG.

  • Dim

    I’m not sure if I can qualify for a 90% investment loan because I’m in a complicated situation although I do think I can meet my repayments easily. Please assist.

  • Hi, our mortgage brokers have vast industry experience and investment loan expertise so please call 1300 889 743 and discuss your issues with one of us. We will then advise on what lender, deal or offer can be best for you.

  • Harry

    How do I request a discharge with my bank? I’m planning on applying with another bank.

  • Hello Harry,
    You can simply sign your lender’s discharge form and give it to your mortgage broker and they will handle it all for you. If you’re not using a mortgage broker then you’ll need to follow a whole list of steps which you can check them out here:

  • Blackwell

    What’s the actual process of refinancing a home loan?

  • Hi Blackwell,
    Refinancing is the same as applying for a new loan so after proper investigation and shopping around, you’ll need to apply for it with the chosen lender and submit standard supporting documents and get discharged with the previous lender. Please check out this page to learn about this in detail:

  • Thomas M

    How much does a pro pack usually cost?

  • Hi Thomas,

    The annual fees for a professional package range from $300 to $750 depending on what type of professional package you apply for i.e. a standard home loan package or a private banking package for high net worth borrowers.

  • Woodlet

    I’m a self-employed importer of home appliances. Do I have to pay capital gains tax on every asset that I make a profit on?

  • Hi Woodlet,
    Capital gains tax (CGT) applies to all assets you’ve acquired unless specifically excluded:
    Most personal assets are exempt from CGT, including your home, car and personal use assets such as furniture.
    CGT also doesn’t apply to depreciating assets used solely for taxable purposes, such as business equipment or fittings in a rental property.
    You could can more information on CGT on the ATO Capital Gains Tax page