An Australian property investor would have an understanding of the broad topic of taxation. This includes that different taxes that are related to assets and investments. People in this industry encounter terms such as investment property tax, income tax, as well as capital gains tax (CGT).
What is CGT?
CGT refers to the tax that you need to pay for capital gain or loss on your asset/s.
CGT refers to the tax that you need to pay for capital gain or loss on your asset/s. It is part of your income tax and is the difference between what you’ve paid when you’ve bought the asset and the amount you’ve received once you sold it. Here are other essential details that you should know about capital gains tax:
- If you’re an Australian resident, the capital gains tax will apply to all of your assets, within or outside Australia. If you’re a foreign resident, capital gain or capital loss will be applicable if it involves an assets that is classified as an Australian property that is taxable.
- CGT is not a separate tax. Instead, it forms part of your income tax. That is why the CGT will be paid as part of your income assessment for the current income year.
- If you make a net capital loss in a particular income year, you will not pay CGT. But remember that this net capital loss does not make you entitled to offset tax on other forms of income. It will just be carried over to offset capital gains in the upcoming years.
- There are assets that are exempted from CGT. These include personal assets such as your home, vehicle, furniture as well as other items intended for personal use. Also, CGT is not applicable to depreciating assets such as fittings and business equipment.
- If you have a CGT asset which is held for over a year before selling it, you can be entitled to a 50% discount on your capital gain. However, this will apply only if you do not have other capital losses.
- Keep a good record of all necessary documents. Make sure to keep all initial sale contracts, interest paid on related borrowings, valuations, receipts, and expenses reports. With all the necessary documents on hand, it will be easier for you to know how much you need to pay for the CGT.
- Rates of CGT differ among individuals and companies. For individuals, the rate is the same as the rate of the income tax for the given year. On the other hand, a company is not eligible to get a CGT discount. For any net capital gains, it is required to pay 30% tax.
Do you have other ideas about capital gains tax and property tax in Australia? Share your insights in the comments section.