When you are buying and selling an investment property it does not only involve annual rental income or loss, you also have to beware of the tax which you have to sell it. This tax is one of the biggest taxes and it is called Capital Gains Tax (CGT)
Despite the commonly used term and its widespread impact, most of the people don’t know what CGT is and what the effects of CGT are.
What is Capital Gains Tax?
CGT was introduced in Australia in 1985 and applies to asset you have acquired since that time. When you are buying most financial assets like shares or commodities aimed to earn some profit then in that scenario that profit is usually subject to CGT.
In the case of property, CGT is usually considered by the property investors as the tax only applies for investment purchase not for your owner occupied residence.
How do I work out my CGT?
CGT is calculated on the difference between selling price and the purchase price, which can include sum paid for the property plus all the legal fees, stamp duty and upfront costs as well as the value of any capital improvement completed by you. Capital Gain occurs when the sale price is greater than the Cost Price.
In regards to a property investment, the principal CGT exemptions include:
If an investment property is held for 12 months or more you are entitled to a 50% discount. In other words Capital gain is halved before tax is applied.
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