When you sell a property in Australia, you may make a capital gain—the difference between your sale price and the cost base (what you paid for the property plus certain expenses). This gain is subject to Capital Gains Tax (CGT), which is included in your income tax return and taxed at your marginal rate.
Understanding how CGT works and how to reduce it can make a big difference at tax time.
How Do I Calculate the Cost Base?
Your cost base can significantly reduce your capital gain. It includes:
- Purchase price of the asset
- Stamp duty and legal fees
- Loan establishment and title transfer costs
- Capital improvements (e.g. renovations or extensions), less any capital works deductions previously claimed in your tax returns
- Selling costs like agent commissions and advertising
Repairs, maintenance, and loan interest are generally not included in the cost base, as they are deductible against rental income.
Exemptions and Concessions
There are several ways to reduce or eliminate your capital gains tax liability through exemptions, concessions, or discounts:
- 50% CGT Discount: If you’ve held the property for more than 12 months, you’re generally eligible for a 50% discount on the capital gain. Only the remaining half is added to your taxable income.
- Main Residence Exemption: If the property was your main home for the entire ownership period, you may be fully exempt from CGT. If it was rented out for part of the time, you may qualify for a partial exemption.
- Small Business CGT Concessions: If the property was used in conjunction with your business (not as a passive investment), you might qualify for:
- The 15-year exemption if you’re retiring and meet eligibility criteria
- The Active Asset Test, which applies if the property was actively used in the business
These concessions can significantly reduce or eliminate CGT, but eligibility is strict. A tax adviser can help you assess your situation.
Record Keeping: Don’t Get Caught Out
The ATO requires you to keep detailed records for at least five years after selling. This includes contracts, legal fees, renovation receipts, agent commissions, and anything supporting your cost base or exemptions.
Need clarity on your CGT position? One of our accountants can help you make the most of your exemptions and keep you compliant.
