Capital Gains Tax on Property in Australia

Capital Gains Tax (CGT) was introduced in Australia on 20th September 1985. The tax applies only to assets acquired on or after that date. Gains (or losses) on earlier assets called pre-CGT assets are ignored.

CGT was introduced to reduce the inconsistency between the taxing of wealth and the taxing of income. The CGT system works by including the assessable gain on the disposal of a CGT asset in the assessable income of the entity disposing of it.

What is a Capital Gains Tax (CGT)?

Put simply, Capital Gains Tax is not a separate tax; it is part of your income tax liability. CGT is the tax you pay on the difference between the amount you sell an asset for and the amount you paid for it.

Capital Gains Tax in the context of the Australian taxation system applies to the capital gain made on the disposal of an asset, except for specific exemptions (e.g. the most significant exemption is the family home).

What is a Capital Gain?

A capital gain will occur when a capital asset is sold at a higher price than it cost you. For example:

When you sell an asset for more than what you paid for, this is referred to as a “capital gain”, and

If you sell an asset for less than what you paid for, this is referred to as a “capital loss”

Whether you make a capital gain or not depends on the purchase price of an asset compared to its selling price.

A capital gain usually has a different meaning for the tax department, the economists and the accountant.

Is a Capital Gain Treated as Taxable Income?

Yes, Capital Gains Tax operates by having net capital gains treated as taxable income in the tax year an asset is sold or otherwise disposed of.

It is important to note, that a Net loss in a tax year cannot be offset against any income. But, the net loss can be carried forward to be deducted against any capital gains in future years.

What is a Capital Gain Discount?

If the asset is held for at 1 year and you have determined the total capital gain, the CGT discount can then be applied. The total gain on the assessable income is first discounted by:

50% for individuals taxpayers, or

33.3% for self-managed superannuation funds

Note: Companies and other trusts are not entitled to a CGT discount.

What is a CGT Event?

A taxpayer can only make a capital gain or a capital loss if a CGT Event happens. The CGT events is the disposal of a CGT asset, which covers a change of ownership (e.g. by sale or giving away) of assets.

Why you seek help from an Accountant

Use this informative as a guide only and employ the services of an Accountant as every financial decision requires time and expertise, even a small mistake can harm you terribly. So, it is wise to seek expert advice from your accountant.

If you require funding to pay the ATO out a tax debt contact an expert mortgage broker who has a thorough knowledge of Capital Gains Tax (CGT).