CGT is a tax levied on the profits you make when you dispose of an asset that has bee purchased on or after 20 September 1985. Any gain made on the sale of a CGT asset is included in your assessable income in the financial year that you sell the asset. For property, the CGT calculation starts from the contract date, not the settlement.
The CGT calculation involves taking the cost involved in acquiring and holding an asset from the proceeds of the asset sale. When you’re selling a home, any profit you make above the cost of buying and maintaining the home is considered a capital gain.
When are you exempt from CGT?
In some cases, there is no CGT depending on your circumstances:
- If the property purchase was before 20 September 1985 or
- If it’s your primary place of residence
The ATO doesn’t give an accurate description of what constitutes the primary residence, but gives the following points to consider:
- You and your family live in the dwelling.
- Your mail is delivered there.
- You have your personal belongings there.
- You’re registered to vote at the property’s address.
- You have connected a phone, gas and electricity to the property.
If you’ve lived in your home for the whole time and haven’t rented it out either entirely or to a lodger and the land is smaller than two hectares, you’ll get a full exemption on CGT when you sell, according to the ATO website. If you are a renovator and selling profits made from the renovation may be exempt from CGT.
When is CGT levied?
If you’re selling an investment property, its likely CGT is payable, and this is calculated based on the sale price of a property minus your expenses. It’s quite detailed – you should seek expert advice from your tax advisor on what constitutes cost base as its a long list of items you can claim.
There are several calculation methods where a CGT levy applies, but the one people are most familiar with is the Discount method.
The Discount method is for those holding assets for more than 12 months which is more common for property. You may be entitled to a 50% discount off of the CGT liability for individuals or a 33.3% discount off of the CGT liability for super funds if you use this method.
As always consult your tax advisor before making property decisions that may have tax implications. And do look at the ATO website CGT section which is most comprehensive.
For property advice call us at ela Property Advocates Guy Angwin 0412 022998 or Geoff Briscoe 0419 740 351