What is Capital Gains Tax?
If thinking about finances, property investment and all things money make you weak at the knees, never fear, we’re here to help.
Capital Gains Tax is one of those sticky issues which can seem incredibly daunting, but once you understand the basics, it isn’t as difficult as it first seems.
In this blog, we’ll take a look at what capital gains tax is, when it applies, and how to calculate it. So let’s stop putting it off, and get down to business.
What is ‘capital gain’?
Capital gain is simply the profit (or difference) you make on the sale of an asset such as shares or property. You can also make a capital loss on your asset if you sell the asset for less than you originally bought it.
What is ‘capital gains tax’?
Capital Gains Tax (CGT) is a tax that you pay on the capital gain from the sale of your asset(s), like when you sell your property.
Which assets does CGT apply to and which assets are exempt for CGT?
Examples of assets CGT applies to
All assets acquired since September 20 1985 (when CGT was introduced) are subject to CGT
- Foreign currency
- Collectables and personal use assets above a certain value
Examples of assets which may be exempt from CGT
Any asset acquired before September 20 1985
- Your main residence
- A car or motorcycle
- Depreciating assets used for taxable purposes
- Personal use items bought for $10,000 or less
- Collectables bought for $500 or less
- Winnings or losses from competitions or gambling
What properties does CGT apply to?
As we noted above, if you sell a property that is your main place of residence, you will be exempt from CGT. However, if you have not lived in your current main place of residence for the entire period of ownership, or the property is located on more than two hectares of land, you may not receive the full CGT exemption.
How is CGT calculated?
Calculating CGT is dependent on the amount of time you have owned the property.
If you have bought and sold the property in the last 12 months, CGT is included as part of your income tax, NOT as a stand-alone tax. The capital gain will simply be added to your income, increasing the amount of tax you will pay.
However, if you owned the property for more than 12 months before selling, you can choose from two ways of calculating the CGT (subject to eligibility). These two calculation methods are the Discount method and the Indexation method.
We hope this article has provided a thorough introduction of Capital Gains Tax, for more information, ensure you contact your accountant or visit the Australian Tax Office Website.
Are you looking to sell a property for your dream price in record time? At RE/MAX Profile, we’re committed to delivering the best possible outcome for the sale of your property. Contact our experienced team today to get started or request a sale appraisal.