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What is Capital Gains Tax?

A capital gain, or capital loss, is the difference between what it cost you to obtain, maintain and improve the property (the cost base), and what you receive when you sell it. These costs include the purchase price, stamp duty, agent's commissions and any legal fees paid at the time of purchase. They may also include any capital improvements made and not claimed before your property was rented for the first time. 

Amounts that you have claimed as a tax deduction, or that you can claim, are excluded from the property's cost base. These costs include the building costs that have been claimed over the term that the property was rented.

You pay capital gains tax (CGT) on your capital gain.

If you acquired the property before CGT came into effect on 20 September 1985, there won't be a capital gain or capital loss. However, you may make a capital gain or capital loss from some capital improvements made since 20 September 1985, even if you acquired the property before that date.

If the property was your main residence for part of the time you owned it, or it was your main residence and you rented out a part of it, you may be entitled to a partial main residence exception from capital gains tax. Simply, the time that you lived in your property as your main residence is not calculated for CGT purposes. It is also evident, that an investment property must have an assessed value from the time of being used as a rental property to the time it is sold for CGT calculations


Individuals or joint owners who have a capital gain can generally discount it by 50% if they've owned the property for at least 12 months. The dates used to calculate the 12 months are contract dates and not settlement dates. In addition, the contract date of the sale of your investment property will determine the year for CGT  and tax payment liabilities.

The Capital Gains Tax is then classed as income and added to your current salary. It is then taxed at your current PAYG rate of tax.

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