Capital Gains Tax Guide

Capital Gains Tax Guide

Capital Gains Tax Capital Gains Tax (CGT) is a tax on gains made on the sale of a property that was acquired after 20 September 1985. There are two available methods for calculating capital gains tax and this guide provides a brief example using the new method in place since 13 May 1997. You should always check with your accountant before selling an investment property.   Read about the Property Investor Suite.   Read a guide about Negative Gearing.   Read a guide about Non Cash Expenses.

The Capital Gains Tax example used will be quite simple and you should be aware that complexities can arise where properties were used for private purposes for a period of time, where assets within the property are sold for a greater price than they were purchased for and others which your accountant can advise you on.

Example Details The demonstration example will use the source details presented in the table to the right. Note that the property was constructed after 1985 and was purchased after 1997.
The Net Sale Price is calculated from the actual sale price less the costs of sale such as your real estate agent's commission. Sale costs are not directly tax deductible and can only be used to lower any capital gains tax payable.
The next step is to include the Purchase Price and Purchasing Costs. The purchase price is simply the cost of the property before any additional costs. The purchasing costs include the original state government stamp duty and original conveyancing costs. Purchasing costs do not include any costs involved in obtaining loan finance.
If the property is liable for capital gains and was purchased after 13 May 1997 you will need to make an adjustment for any Building Allowance claimed over the period of ownership. The effect of this adjustment is to increase the capital gains tax payable but there are very few circumstances where there is any benefit in not claiming building allowance over the term of ownership.
The Gross Capital Gain is calculated by deducting the net purchasing costs from the net selling price.
If the property was owned for a period longer than one year the capital gain is subject to a Concessional Adjustment of 50 percent. The gain that is taxable is one half of the total gain.
The Capital Gains Tax is calculated by comparing the amount of income tax payable on your before and after gain income. In this example the tax payable on the before gain income of $45,000 is $10,555. Tax payable on the after gain income of $87,500 ($45,000 + $42,500) is $29,818. Capital gains tax is given by $29,818 - $10,555.
Disclaimer The information presented on this website does not constitute financial advice and is for general purpose use only. You should always consult your financial advisor before making investment decisions.