Avoid Capital Gains Tax When Selling Property

If you invest and sell property, capital gains tax (CGT), may raise its head – when you make a gain from the sale. However with planning and understanding of the various CGT exemptions it is possible to reduce, defer or eliminate CGT all together.

How much capital gains tax will I pay?

Companies will pay 30% tax on their capital gains (the current company tax rate). For individuals the rate will be your income tax rate for that year.

If you’ve acquired a capital gains tax (CGT) asset after 21 September 1999 and held it for over 12 months before selling it, you should be able to obtain a 50% discount on the capital gain.  If you sell an asset less than 12 months after buying it you don’t get the 50% discount and should pay tax on the full capital gain.

For example, if you sell an investment property that you’ve owned for over 12 months and you make a $200,000 capital gain, you’ll pay tax on 50% – $100,000.  This gain will be added to your taxable income and increase the tax that you pay.

If you acquired a CGT asset before 21 September 1999 and held it for over 12 months and then sell it, you may choose to use the indexation method instead of the CGT discount to determine how much capital you have to pay.  The indexation method applies a multiplier prescribed by the tax law to account for inflation on the cost base of your CGT asset.

If you make a capital loss you can deduct that from other capital gains you make from other sources. If however, you do not have other capital gains in that income year to apply your capital loss, you can carry the capital loss to later income years to reduce your future CGT.

When do I have to pay capital gains tax?

Generally, CGT is not a separate tax.  The net capital gains forms part of your assessable income in the year the CGT event occurred and is payable as part of your income tax assessment for the relevant income year.

When don’t I have to pay capital gains tax?

You should not pay CGT if you made a net capital loss for the income year.  There are also certain assets and events which are exempt from CGT. Some examples include:selling the principal home, your personal car or motorbike, or
selling an asset you acquired before capital gains tax was introduced on 20 September 1985.

The ATO full list of CGT exemptions.

We Can Help With

Reviewing all purchase and sales for real property to ensure any Capital Gains implications are understood to reduce, defer or eliminate all together.