Capital Gains Tax on Your Investment Property

Wondering how to calculate the amount of capital gains tax on your investment property ?  

This article will discuss how things work from a basic level.

When you sell your property, you will need to determine whether you have made a capital gain or capital loss on the sale. 

Many people think that there is some sort of separate capital gains tax, but this is not quite accurate. 

What happens is that you calculate the capital gain or loss you made on the sale and if you have made a capital gain it is added to your other assessable income to determine your tax liability. 

A capital loss can be used to offset any other capital gains you have made e.g. sold some shares at a profit.  If you have no other capital gains to offset then the capital loss can be
carried forward indefinitely to be used at a later stage to offset any future capital gains.

There are several things that need to be considered in working out the amount of the capital gain to include in your income tax return and hopefully the following will help you to
understand this better. 

Firstly, it helps to determine which type of entity is holding the asset.

Individuals

If the investment property is held in an individual’s name, then the capital gain will be reduced by 50% if the property has been held for more than 12 months. 

For example, let’s assume that I held an investment property for more than 12 months and I calculated my capital gain to be $50,000. 

The amount I will include in my income tax return as being assessable will be $25,000. So, although I made a gain of $50,000 I will only be taxed on the $25,000 at my marginal tax rate.

Trusts

Trusts also get the benefit of reducing the capital gain by 50% if the property has been held for more than 12 months.

Note that Self Managed Super Funds, which are a type of trust, do not get thee 50% CGT Discount.  For an SMSF it is 33.3%

Companies

Companies do not get the benefit of reducing the capital gain by 50% even if the property has been held for more than 12 months.

The entire capital gain is taxed at a rate of 30% or 25% if the company is a Base Rate Entity.

This is one of the reasons that most advisers will not recommend having an investment property held in a company.

If the asset is development stock, i.e. part of a property development, then a company may be appropriate.

Remember if you have a company acting as trustee for a trust it is the trust that is assessed and the company acting as trustee.

https://www.propertytaxsolutions.com.au/loss-carry-back-rules/