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A Guide to Capital Gains Tax

If you buy and sell an investment property, you may be required to pay capital gains tax (CGT) on that sale. It’s important to understand this tax when buying or selling a home.
What is CGT?

This is a tax that you are required to pay on any capital gain earned on the sale of an asset such as a property. CGT applies to any asset obtained after 19 August 1985. It is not a separate tax you have to pay. Rather a tax on ‘net capital gain‘ is included in your taxable income and taxed at your marginal tax rate. The ‘net capital gain’ will be reduced by your capital losses for the current income year and capital losses from previous years

 

What is a capital gain?

Put simply, a capital gain is made when a profit is made from the sale of an investment, so when the sale price exceeds the original purchase price. If you sell an investment property for less money than the purchase price, you will have made a capital loss. An industry expert can help you work out your net capital gain or loss.

If you make a capital loss i.e. sell the property less than what you bought it for, you can’t claim it against your other income but you can use it to reduce a capital gain at a later stage.

 

Calculating CGT

It’s really quite simple. For the sale of a single investment, take the selling price of the property then subtract the amount you originally paid for it, along with any associated costs such as stamp duty and legal fees. The amount remaining will be your capital gain. If you make a loss rather than a gain, you will not be taxed.

 

You may be eligible for a 50 per cent reduction of the CGT payable if you purchased the property after 21 September 1999 and owned it for at least one year before selling, and the property was purchased by an individual, trust or complying superannuation entity.

 

Exemptions

While any investment properties sold will be subject to CGT, you do not have to pay this tax on every property you buy and sell. Your main place of residence is exempt, as long as you have never rented it out.

 

You also are not required to pay this tax at the highest marginal tax rate. Any capital gain obtained will be added to your taxable income and then taxed at the relative margin.

 

 

If you have any more questions about CGT, talk to our experts on 1300 537 000

 

This article is for information only; please seek advice from a tax adviser before making any decisions.

 

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