Capital gains tax is one of the complicated terms in the investment world. It’s essential, though, to understand it when it’s time to sell your investment property. We break down some of the frequently asked questions about capital gains tax here.
- What does it mean?
Capital gain means you sell your asset for a profit. This includes investment properties and shares. Selling an asset for a capital loss is when you lose money on that asset come sale time.
- What’s excluded from CGT?
Capital gains tax only applies to your assets, not your personal property. Your personal home, car, and collectables are excluded from taxation. According to the ATO website, depreciating items don’t count in calculating capital gains tax. This is usually plant & equipment in your rental property portfolio. Also excluded are:
- Injury compensation
- Personal assets like boats and furniture
- Anything bought before September 20th, 1985 (pre-CGT)
- Winnings or losses from gambling
- Do rates vary?
That depends if you’re an individual or a business. The rate paid to you is the same as that of your income tax rate the year of your return. The way capital gains tax is calculated remains the same. The most common method is subtracting your cost base from the sale price of your property.
The cost base is how much you bought the property for, plus any associated expenses. This includes stamp duty, plus legal and incidental costs. You also must subtract depreciating items. Finder.com visualising the calculations like this:
- Can I get a discount on my capital gains tax?
Yes, you can get a discount on your tax, but only if you’ve held the asset for more than 12 months. You can also claim a discount for the amount of time the asset was used for personal reasons.
If you’re not sure about your capital gains tax, there’s free calculators available from investment websites like Your Investment Property.