Basically, if you buy any investment, including a property, and sell it for another price, the difference between the amounts is your capital gain or capital loss.
If you receive more for your property than what you paid for it, you’ll have made a capital gain and you most likely need to pay Capital Gains Tax on it.
How much Capital Gains Tax will I pay?
The amount of Capital Gains Tax you’ll pay depends on factors including how long you’ve owned the property, what your marginal tax rate is, and whether you’ve also made any capital losses.
Your marginal tax rate is important because your capital gain will be added to your assessable income in your tax return for that financial year.
The length of time you’ve held your asset is also relevant, because if you’ve held the property for over 12 months, you can usually get a 50% discount on your capital gain.
What is a CGT event?
Selling assets, such as an investment property, or even transferring them to someone else, triggers what’s called a “CGT Event”.
The CGT event marks the point in time at which you make a capital gain or incur a capital loss.
What happens if I make a capital loss?
You would make a capital loss if you sold your investment property for less than you paid for it.
If you make a capital loss, you can use it to reduce a capital gain in the same financial year.
If your capital losses are greater than your capital gains, or if you make a capital loss in a financial year in which you don’t make a capital gain, you can generally carry the capital loss forward and deduct it against any capital gains you make in future years.
What happens if I inherit assets?
A CGT event is generally only triggered when you sell inherited assets, including property.
If the person who passed away bought the property after CGT was introduced on 20 September 1985, then the person inheriting the assets will need to determine the cost base. Generally, the cost base could be:
- The existing cost base of the deceased person who originally bought the assets; or
- The market value of the property at the time of death.
If, however, the person who passed away acquired the assets before 20 September 1985, then the person inheriting them is said to have acquired the asset at the time of death. In most cases, the cost base will then be the market value of the property at that time. contact us today by sending us an email, or via phoning on 03 9888 3175
Capital Gains Tax is a very complex and can put a dent into the proceeds that you may receive from a property disposal. Speak to us to help legally limit the tax liability you will be liable for.