- Home Loan Calculators
- How Much Can I Borrow For My Home Loan?
- Refinance Your Home Loan
- Fixed Rate Home Loans
- Interest Only Home Loans
- Variable Rate Home Loans
- Fixed vs Variable Interest
- Debt Consolidation
- Lenders Mortgage Insurance
- Home Equity Loans
- Interest Rates Information
- Mortgage Brokers
- First Home Buyer Grant
- Stamp Duty
- Investing In Property
- What To Consider Before Buying
- Finance Tips For Renovators
- Pre-Renovation Checklist
- Renovating vs Buying a New Home
- Home Loans Comparison Guide
- Home Loan Application Checklist
- 10 Mortgage Repayment Tips
- About Home Loans
- Home Loan Lenders
- Best Home Loan Rates
- No Deposit Home Loans
- NAB Home Loans
- Westpac Home Loans
Capital Gains Tax
Are you thinking about selling your home or investment property?
Whether you’re a home owner or investor, capital gains tax can potentially have a big impact on your return. Knowing how it might affect you in advance can be a major advantage when you’re ready to sell.
Here’s a quick look at capital gains tax for home owners and investment property owners, including how you might be able to avoid it.
What is capital gains tax?
When you sell your property for more than you paid for it, you make what is called a capital gain. This means you may have to pay capital gains tax. If you sell a property for less than you paid for it, you make a capital loss and capital gains tax does not apply.
The tax on capital gains started on 20 September 1985, and there are different methods for calculating the capital gain on properties (and other assets) bought before and after that date.
Capital gains tax (also known as CGT) only applies to the difference between the sale and purchase price, not the total cost of the property. The gain is counted as part of your income for the financial year in which the sale occurred, which is classified as the date contracts are exchanged, not when settlement occurs.
Calculating capital gain
There are different ways to calculate a capital gain, depending on how long you have owned the property and when you bought it.
If you purchased the property less than 12 months ago, you simply subtract the purchase price from the sale price. If this figure is positive, capital gains tax applies to the gain.
If you’ve owned the property for more than 12 months, there are two ways to calculate capital gains tax:
- Discount method. For properties bought after 21 September 1999, you simply subtract the purchase price from the sale price. If you have made unclaimed capital losses through other assets, subtract them too. If the final figure is positive, give yourself a 50% discount. CGT applies to the resulting figure.
- Indexation method. This method is more complex and applies to properties bought before 21 September 1999. By using the consumer price index to increase the cost base of the asset, you reduce your capital gains for tax purposes.
Are there capital gains tax exemptions?
The good news is you may be eligible for a capital gains tax exemption if the property you sell is your main residence.
This may only be a partial exemption if:
• You have not lived in the property for the entire time you have owned it.
• You have used part or all of the property to generate an income, for example by leasing it or using it as business premises.
If you sell an investment property, on the other hand, any gain you make on that sale is eligible for capital gains tax. Investments may include vacant land, business premises, rental properties, holiday houses and hobby farms.
One way to avoid paying capital gains tax on your investment property is not to sell it. That way, you can keep earning a slow and steady rental income without ever having to pay a cent in capital gains.
If you do need to sell, you may be able to deduct your capital losses against any capital gains to reduce your taxable income, potentially avoiding capital gains or reducing the amount you have to pay. You can also carry losses over to balance out capital gains in future years.
The information given here applies to individuals – there are different rules for individuals, trusts, companies and superannuation bodies.
Our brokers are experts in home loans and mortgages. If you’re planning on buying a new property, talk with our brokers today on 13 19 20 or start comparing home loans now.
iSelect powered by AFG does not compare all home loan lenders or products in the market. Some products may only be available from iSelect powered by AFG’s call centre. The availability of products may change from time to time. Not all products available from iSelect powered by AFG’s providers are compared due to commercial arrangements, your stated needs and circumstances. Not all products compared by iSelect powered by AFG will be available to all customers. Click here to iSelect powered by AFG’s range of lenders. Home loans products arranged by iSelect Mortgages Pty Ltd (ACN 148 217 181) powered by AFG, is an authorised credit representative of Australian Finance Group Limited (Australian Credit Licence Number 389087). Any advice provided in this email/article is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect powered by AFG’s advice or purchasing any product. iSelect receives commission for each product sold.