Capital Gains Tax

What is capital gains tax?

Capital gains tax refers to the tax you pay on the profit you earn from selling certain valuable assets such as stocks or property. 

How much capital gains tax do you have to pay? 

The amount of capital gains tax you pay is different from person to person. It can depend on the type of asset you're selling, how long you have held it, depreciation on the asset  as well as your income level. For instance, if you’ve sold an investment property within 12 months for a capital gain of $50,000, you could pay roughly $10,000 (assuming at 20% tax rate).

How do you avoid capital gains tax on a property? 

There are 3 instances where you might be exempt from paying capital gains tax:

Selling a primary place of residence (PPOR) 

When selling a house that has served as your primary residence for at least 6 months from the settlement date, you may qualify for an exemption from capital gains tax (CGT). Recognising that your primary residence is typically not treated as an investment property for profit, this rule aims to acknowledge it as a place for you and your family to live. 

6-year rule capital gains tax exemption

The 6-year rule in Australia provides a unique benefit for treating a property as your primary residence for tax purposes, even if you're not residing in it. This means you may be exempt from paying capital gains tax (CGT) on any profit from the property's sale. 

The rule allows you to enjoy the CGT exemption for up to 6 years, even if you're renting out the property during that period. This provision is designed to assist individuals who are unable to live in their home due to reasons like work or travel, allowing them to avoid additional tax when selling. 

Property acquisition before 20 September 1985 

If you acquired the property before 20 September 1985, you're exempt from paying capital gains tax when selling. This date marks the introduction of CGT, implying that any assets purchased before this date are not subject to this tax.