Taxation is a broad topic. An Australian property investor would know the different taxes associated with assets and investments. There’s investment property tax, income tax, and capital gains tax (CGT).
What is CGT?
This is the tax you pay for capital gain or capital loss on an asset which is the difference between the amount you've paid for it and what you receive after selling it.
What is CGT? This is the tax you pay for capital gain or capital loss on an asset which is the difference between the amount you’ve paid for it and what you receive after selling it. While it is called capital gains tax, it is not a separate tax. It is actually part of your income tax.
Here are important things to know about capital gains tax:
- As an Australian resident, the capital gains tax is applicable to your assets wherever they are in the world. As for foreign residents, a capital gain or loss occurs if it involves an asset that is considered taxable Australian property.
- Keep all initial sale contracts, interest paid on related borrowings, receipts and records of expenses, as well as valuations. It is easier to know the amount that you need to pay if you have all the necessary documents.
- When should you pay CGT? Since it is not a separate tax, you’ll pay it as part of your income assessment for the relevant income year.
- Is there a chance that you don’t have to pay CGT? You shouldn’t pay CGT if you make a net capital loss in a given income year. Bear in mind that the net capital loss will not enable you to offset tax on any other form of income. What will happen is, it will be carried over to offset capital gains in the coming years.
- CGT does not apply to personal assets such as your home, vehicle, furniture, and other items for personal use. Depreciating assets such as business equipment or fittings are also exempt from CGT.
- You can get a 50% discount on your capital gain for any CGT asset that is held for more than a year before selling it. This is on the assumption that you don’t have other capital losses.
- CGT rates vary among individuals and companies. For the former, the rate to be paid is the same as the rate of the income tax for that year. As for a company, it is not entitled to any discount on CGT. Instead, it needs to pay 30% tax on any net capital gains.
Got other ideas on capital gains tax in Australia? Share your insights in the comments section.