As a first-time investor, it’s vital not to overlook the implications of capital gains tax (CGT) before purchasing an asset such as real estate. Thankfully, it’s not always certain that you’ll have to pay CGT if you sell your asset as there are some exemptions that could apply.
Given CGT is such a complex tax, we can’t give you all of the answers, but hope the below may be of assistance as a starting point when you are buying or selling an asset.
What is Capital Gains Tax (CGT)?
CGT is a tax that applies to profit you make from selling specific assets. These assets can include property, shares, foreign currency, and leases, to name a few. After you sell an asset, the money you make or lose is called a capital gain or a capital loss respectively.
When completing your income tax return, you may need to include your capital gains and/or losses. CGT forms a part of income tax, and, you may need to pay tax on any profit you make from selling your relevant assets.
How much will you need to pay in CGT?
Calculating a CGT liability is a detailed process and you may be better to seek professional advice for your circumstances.
Broadly, any capital gain (profit you make on selling a relevant asset) is added to your overall taxable income. If you have incurred a capital loss, you may be able to offset that loss against any other capital gain. You may also be able to reduce any capital gain by deducting selling costs, property improvement expenses and/or certain other costs.
If you have an asset you are planning to sell, seeking professional advice is recommended.
Are there any exemptions to CGT?
Again, the CGT requirements can be quite complex. Certain exemptions may apply for your situation, such as you purchased your property before a certain date, or the property is or was your main residence. Seeking professional advice about your situation is strongly recommended to ensure you don’t fall foul of the law.
More information on CGT can be found on the Australian Taxation Office (ATO) website.
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