Capital gains tax - how does it work?

What every property buyer needs to know about capital gains tax (CGT) in Australia.

What is CGT?

Capital gains tax is the tax that you pay on the profit you make when you sell an investment property.

It’s part of your income tax, not a separate tax.

When does it apply?

CGT generally applies when you sell:

• An investment property

• A holiday home

• Vacant land

It does not usually apply to your primary place of residence (family home).

How is it calculated?

CGT is calculated based on your cost base for the property. These costs reduce your taxable gain. If you’ve owned the property more than 12 months, individuals typically get a 50% discount.

The discounted gain ($85,000 in this example) is then added to your annual income and taxed at your marginal tax rate. This means the actual tax you pay depends on your income bracket.

What is your “cost base”?

Your “cost base” is more than what you paid, it includes:

• Purchase price

• Stamp duty

• Legal & conveyancing fees

• Buyer’s agent fees

• Building & pest inspections

• Capital improvements (renovations, extensions, not including maintenance)

Important things to know

Your primary place of residence (your home) is exempt from CGT, only investment properties, holiday homes and vacant land attract CGT.

Holding on to your investment property for longer can significantly reduce your CGT, make sure you keep records of all costs and expenses.

Thinking of investing?

Capital Gains Tax isn’t something to fear but it is something to plan for. When you understand how it works, you can make smarter decisions.

If you’re considering entering the Tasmanian market, the right strategy from day one can make a significant difference to your end result.