Capital Gains Tax

Capital gain is an increase in the value of an asset — such as a property — so that it is worth more now than what you paid for it.

If I bought a house for $800,000, then sold it for $1M, I earned $200,000 in capital gain, or less if there were extra costs incurred in transferring or holding the asset.

In Australia, you pay tax on the $200,000 in the year that the property is sold as part of your annual income for that year. If I sold it after owning it for longer than 12 months, the amount is halved, so $100,000 is taxable in the year that I sold it.

This applies to Australians even if the asset is not in Australia.

Exempt from Capital Gains Tax are personal assets such as the home in which you live, the car that you drive, or the furniture that you are using. It also doesn’t apply to depreciating assets such as business equipment or fittings in a rental property.

If you happen to make a capital loss, you can’t claim any tax back, but you can deduct it against capital gains in a future year.

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au