2nd May 2019 / Beth Oleyar: Understanding the Capital Gains Tax

Dealing with financial matters relating to your property can seem an unnerving task from a distance.

With many clients now asking how the Capital Gains Tax affects them, it's important to first take a step back and find out what it is, how it is used and where it applies.

Put simply, the Capital Gains Tax (CGT) is a levy one pays on a capital gain made from the sale of an asset. Essentially, this is where the Federal Government receive their share of the profit you've made from investing in a property.

According to the Australian Taxation Office (ATO), 'if you sell a capital asset, such as real estate or shares, you usually make a capital gain or a capital loss. This is the difference between what it cost you to acquire the asset and what you receive when you dispose of it'.

Assets included in this tax not only apply to real estate and shares, but also leases, licenses, foreign currency, goodwill, contractual rights and personal use holdings purchased for more than $10,000.

The CGT was first introduced in Australia on September 20th 1985. This means, any assets purchased prior to this date are exempt from the tax. Additionally, the exemption also applies to any depreciating assets used solely for taxable purposes as well as your car, furniture and primary residence.

In order to claim a property as your primary residence and receive exemption from the tax, you must be able to prove you have lived in your home, your personal belongings are in it, this is the address your mail is delivered to, this is the address featured on the electoral roll and that utility services, such as gas and electricity, are connected.

To help you stay organised when it comes to tax time, we recommend holding onto things like initial sales contracts, interest paid on related borrowings, receipts for ongoing expenses, valuations and expense records.

Given that the Capital Gains Tax forms part of your income tax, any capital gains and losses need to be reported on your income tax return in the year your property was sold. This can be calculated in several ways, using either the CGT Discount Method or Indexation Method.

To assist you in deciding how to calculate your capital gains tax, we recommend visiting the Calculating and Paying Capital Gains Tax page on the NAB website.

Sources:

• A Complete Guide to Capital Gains Tax
• What is Capital Gains Tax and How do I Calculate it?
• Calculating and Paying Capital Gains Tax
• Capital Gains Tax