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. But these may not settle until in the next financial year.
RATE OF CAPITAL GAINS TAX
There is no actual set rate of capital gains tax. The capital gain is calculated as the difference between the sale price and the original purchase price. Remember to account for associated expenses, such as legal fees, agents commission, etc, plus associated costs of purchase including stamp duty, legal 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 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 property to a family member not exempt you from capital gains tax, except in limited circumstances. (i.e. 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.
Remember to seek advice from your accountant. More information is available from the ATO: https://www.ato.gov.au/General/Capital-gains-tax/