June 30 is fast approaching, so now is the perfect time to take a look at capital gains tax. This tax has the greatest impact on investors, so let’s delve into what it is, when it applies, if there are exceptions, and how to minimise it.
What is capital gains tax?
Capital gains tax is paid when you make a capital gain.
When does capital gains tax apply?
Any capital gain that results from selling an asset is subject to this tax. An asset includes: shares, rental property, holiday homes, business property, or vacant land. The difference between the purchase price and the selling price of an asset will determine the capital gain (or loss). The fees of buying or selling the asset are added to the cost. For example, if you purchased a rental property for $400,000 including fees and sold it for $650,000 less fees, you’ll have a capital gain of $250,000 and that $250,000 will be subject to capital gains tax.
Are there any exceptions to capital gains tax?
Capital gains tax does have a few exceptions. It doesn’t apply to the sale of your principal place of residence (your home). Capital gains tax also only applies to assets that were bought after the 20 September 1985 capital gains tax was introduced.
Also, while not really an exception, if you hold a property for more than 12 months, you may be eligible for a 50% discount on the capital gains tax assessed.
How to minimise capital gains tax?
Obviously, if you buy an investment property or rural weekender and never sell it, you’ll never have to pay capital gains tax; or, if you buy a principal place of residence, you won’t have to pay it. Since your home is exempt from capital gains tax, you could buy and sell over and over and over.
These are some of the basics of capital gains tax. Before you purchase an asset that is subject to capital gains tax, we always suggest you speak to someone about the possible impact.
Follow our blog for more helpful tips and to stay up-to-date on current real estate news.
If you have questions about real estate or rural real estate investment, contact us to speak to a qualified real estate agent. We’d be happy to offer advice.