What is cap­i­tal gains tax?

Central Telegraph - - REAL ESTATE | FINANCE - – realestate.com.au

LIKE most tax and ac­count­ing re­lated mat­ters, cap­i­tal gains tax can be com­plex and daunt­ing for the unini­ti­ated.

Lisa Haber­field, a part­ner and di­rec­tor at Queens­land-based PJS Ac­coun­tants, ex­plains how cap­i­tal gains tax (CGT) im­pacts on prop­erty trans­ac­tions.

What is cap­i­tal gains tax?

Cap­i­tal gains tax is tax on the profit made on the sale of any cap­i­tal item, Haber­field ex­plains.

"This in­cludes all dif­fer­ent types of in­vest­ments, in­clud­ing, but not lim­ited to shares, units in unit trusts, busi­nesses and prop­erty."

When does it ap­ply?

"Cap­i­tal gains tax ap­plies in the fi­nan­cial year a cap­i­tal as­set is sold. The date of the ac­tual con­tract is the pur­chase or sale date for cap­i­tal gains pur­poses, not the set­tle­ment date," she says.

"This be­comes rel­e­vant for sales made to­wards the end of the fi­nan­cial year, which set­tle in the next fi­nan­cial year."

How much is cap­i­tal gains tax?

There is no ac­tual rate of cap­i­tal gains tax, Haber­field says.

"The cap­i­tal gain is cal­cu­lated as the dif­fer­ence be­tween the sale price, less as­so­ci­ated ex­penses, such as so­lic­i­tor fees, agent com­mis­sion etc, and the orig­i­nal pur­chase price, plus as­so­ci­ated costs of pur­chase, such as stamp duty, so­lic­i­tor fees, build­ing in­spec­tions etc," she says.

"Once you have cal­cu­lated your ac­tual gain, then for as­sets held by in­di­vid­u­als over 12 months, there is a 50 per cent dis­count, so the gain is halved. The dis­counted gain is then in­cluded in the per­son’s tax re­turn as as­sess­able in­come, along with their em­ploy­ment in­come and any other in­come. The nor­mal mar­ginal rates of tax then ap­ply."

Are there any ex­cep­tions?

"The main ex­cep­tion in re­la­tion to prop­erty is the prin­ci­pal place of res­i­dence ex­emp­tion, where the sale of your fam­ily home is cap­i­tal gains tax-free," Haber­field says.

"For homes on land over two hectares, not all of the gain will be ex­empt. Gift­ing a prop­erty to a fam­ily mem­ber will gen­er­ally not ex­empt you from cap­i­tal gains tax, ex­cept in lim­ited cir­cum­stances, such as via a will or on fam­ily break­down. The sale price of a ‘gifted’ prop­erty will be deemed to be the mar­ket value at the time of the trans­fer of the prop­erty," she says.

How can it be min­imised?

"Your cap­i­tal gain can be min­imised by en­sur­ing you keep records of all costs in re­la­tion to the pur­chase of your prop­erty and also for any im­prove­ments you make to the prop­erty while you own it," Haber­field says.

"You should also see your ac­coun­tant when con­sid­er­ing sell­ing a prop­erty to en­sure you plan around the sale. The tim­ing of the sale can make a dif­fer­ence as can en­sur­ing you max­imise other de­duc­tions in the same fi­nan­cial year, like su­per­an­nu­a­tion con­tri­bu­tions, to re­duce your over­all tax­able in­come."

More in­for­ma­tion

"The Aus­tralian Tax Of­fice web­site has a lot of in­for­ma­tion re­gard­ing cap­i­tal gains tax and a visit to your ac­coun­tant will al­ways help with more spe­cific ad­vice tai­lored to your sit­u­a­tion."

This in­for­ma­tion is of a gen­eral na­ture and does not con­sti­tute pro­fes­sional ad­vice. You should al­ways seek pro­fes­sional ad­vice in re­la­tion to your par­tic­u­lar cir­cum­stances.

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