Capital gain tax

I recently bought an investment property and was told that I'd be hit by a capital gains tax if ever I sold the property. Can you explain to me how this tax works and what it will cost me?

There are a few technical aspects of this tricky tax, so let me walk you through it. Capital is the money you use to buy assets such as shares, property, even a piece of art. As it increases in value, this is called capital gain and if you sell this asset and realise the gain, you're up for capital gains tax (CGT). However, it isn't as simple as that and don't worry, there is some good news to come. First, your residential home is exempt from the tax. Second, the first $30,000 or any asset is free of CGT as well. The rate you pay is the same as you pay on your wages or salary. Third, if you hold the asset for more than a year you pocket a 50% discount. So if your gain was $100,000 you only pay CGT on $50,000.

That's the simple story. There is more to learn about CGT. The key question is what is your actual gain? When you buy a rental property, the costs of buying the property - legal expenses, stamp duty etc. are a cost you can deduct from the gross gain. Also any major renovations that enhance the value of the property get deducted as well. The complex story is that there are three ways to calculate CGT and you can find these at www.ato.gov.au (click on individuals, then capital gains tax). When you see all this, it makes you want to find a great accountant!

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Capital gain tax

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