What is Capital Gains Tax?

LIKE MOST TAX AND ACCOUNTING RELATED MATTERS, CAPITAL GAINS TAX CAN BE COMPLEX AND DAUNTING FOR SOME

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

Capital gains tax applies in the financial year a capital asset is sold. It is important to note that the date of the actual contract is the purchase or sale date for capital gains purposes, not the settlement date.  This becomes relevant for sales made towards the end of the financial year, which settle in the next financial year.

There is no actual rate of capital gains tax.  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 including stamp duty, solicitor fees, building inspections, etc.

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

The exception to capital gains tax is in relation to selling a principal place of residence property, where the sale is capital gains tax-free.  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.