CGT on Property

CGT is an important aspect of property transactions in Australia. Whether it be an investment property or primary residence, it is significant to understand CGT consequences. CGT is a tax levied on the profit from the sale of property. However, there are exemptions and concessions depending on the scenarios.

Capital Gain= Capital Proceed-Cost Base

Capital proceeds are what you receive, or are entitled to receive, from a capital gains taxevent, such as selling a property. In most cases your capital proceeds will be money.They can alsobe thevalue of any property you receive or are entitled to receive.

The cost base of a capital gains tax (CGT)asset is generally what it cost you to buy it,plus other costs you incur to hold and dispose of it. The cost baseof an asset is additionof following five elements:

1. Money paid or property given for the CGT asset.
2. Incidental costs of acquiring the CGT asset or that relate to the CGT event.
3. Costs of Owning the CGT asset.
4. Capital costs to increase or preserve the value of asset or to install or move it.
5. Capital costs of preserving or defending title or rights to CGT assets Generally, tax deductible costs are not included.

There are exemptions and concessions in relation to CGT events.Some of them are Main Residence Exemption, 50% CGT discount if asset held longer than 12 months, small business concessions for qualifying businesses. If the asset was held for 12 months or more, CGT is reduced by 50% for resident individual. If you are a small business and if your company possessed an asset that was used to conduct your business, then you will only pay tax on 50% of the capital gain when you eventually sell this asset.

Generally, main residence is exempt from CGT. A property can’t be treated as main residence if you stop living in it, except:

• For up to 6 years ifit’sused for income producing activity (the 6-year rule)
• Indefinitely, if it’s not used to produce income.