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What Is Capital Gains Tax?
Capital Gains Tax is the tax that you pay, when you make a capital gain (profit) on the sale of an asset, such as an investment property, land, holiday homes, farms and business properties. Capital Gains Tax is not payable on your own principle place of residence ie: your home.
Capital Gains Tax is calculated, for most taxpayers, as the difference between the capital proceeds received from the sale of an asset, and the original cost of that asset.
If you make a profit and have held the asset for in excess of 365 days, for individual tax payers the capital gain is reduced by 50%. Capital Gains Tax is then payable on the reduced gain. If you hold an asset for less than 365 days, the individual tax payer will pay Capital Gains Tax on the full 100% of the capital gain that was generated.
Capital Gains Tax is payable when you lodge your income tax return, in the following year. It is not a separate tax as such, but merely a component of your annual income tax liability, and is payable at your marginal tax rate.
Capital gains are generally disregarded for properties that were acquired before 19 September 1985.
If you receive more that what the asset originally cost, a net gain will result. Conversely, if you sell the asset for less than it cost, a net loss will result.
If you make a net loss, that loss can only be offset against another capital gain that has been made during that year, or must be carried forward to offset against a future capital gain, as and when they are generated. You cannot deduct a capital loss against your other income sources.
There are special rules that are designed to adjust the cost base of assets, where depreciation is claimed. Land cannot be depreciated. However, a house that has been constructed for investment purposes, may qualify for concession.
Disclaimer: The above information has been provided as a general guide only. It is not intended to provide you with taxation advice and we recommend that you seek your own taxation advice from a qualified taxation advisor;
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The Taxation Office regards any tax payer who buys and sells property on a frequent basis, or on a large scale, as potentially a property developer. This may include someone who buys and sells a number of properties over a relatively short period of time, or someone who has bought and subdivided a large piece of land;
Investing in property is generally viewed as a fairly safe method of investing that yields good returns on your money, even in times of a drop in the market, as with the recent global financial crisis;