Capital Gains Calculator

The capital gains tax is an important part of property investment

The ultimate goal of any investment should be the maximising of your returns. Making profits on your assets is a key indicator that your investment may be viable in the long term.

When it comes to property investment, the ways that returns are made is through rental yields and capital gains.

Rental yields are the amount of income generated by an investment property. Capital gains come from the profit made when selling that asset.

The profit is the difference between what it cost you to acquire the asset and what you receive when you sell it.

Capital gains are not just paid on real estate though. Shares and similar investment also attract a capital gains tax for example.

A history of capital gains

Before 1985, there wasn’t a proper tax on capital gains in Australia, with most capital gains excluded from the income tax base. Generally, the tax was applied the most to gains from property held for less than one year.

Based on a standpoint of equity, it was thought that capital gains can be considered similar to wages because they can potentially allow for more leverage in the buying market as they increase.

The capital gains tax legislated in 1985 applied to realised gains and losses on assets acquired post 19 September 1985. From 1985 to 1999, an indexation system was used, so that only real, not nominal, gains were taxed.

How much is paid?

If you're selling an investment property, the CGT calculation is based on the sale price of a property minus your expenses. These expenses are called your cost base.

The cost base is the original purchase price plus any incidental, ownership and title costs. Any government grants and depreciable items can be subtracted from this. Depreciable building items weren’t included in cost base calculations before 1997.

When broken down, these can include:

  • Incidental costs – stamp duty, agent fees, legal fees, advertising and marketing fees.
  • Improvement costs – any improvements you've made on the property like bathroom or kitchen renovation
  • Ownership costs – rates, land tax, maintenance and interest on your home loan. ( You are only able to add rates, land tax, insurance and interest on borrowed money to your cost base if the property was acquired after 20 August 1991. Also, if it hasn’t been used to produce any assessable income like vacant land or as your main residences)
  • Title costs – legal fees associated with organising the title on the property.

The Australian Taxation Office offers a guide as to how to calculate your capital gains.

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Exemptions

The capital gains tax is complex, especially in regard to real estate. There can be many different rules and exemptions that you should be familiar with; even if it is only on a basic level.

The ATO is the ideal place to find this information.

The basic things that can be capital gains tax exempt are:

  • Your main residence
  • Vehicles such as a car or motorcycle
  • Depreciating assets
  • Anything acquired before 20 September 1985.

But I made a capital loss…

If you make a capital loss, you can't claim it against your other income but you can use it to reduce a capital gain.

In other words, you can't deduct capital losses from taxable income to pay less tax. You can carry any capital losses forward in future years and offset these against capital gains you've made.

Your investment and capital gains

As your investment property is not your primary residence, you will most likely have to pay capital gains tax on it should you decide to sell.

If selling is right for you and your property portfolio, contact Little Real Estate for a market appraisal today.

Our sales team work hard to get you an accurate and fair estimate on how your property is worth.


Disclaimer: The information in this publication and the links to further information within it are provided for general information only and should not be taken as constituting professional advice from Little Real Estate. You should not rely on the accuracy of this information and should seek independent legal, financial, taxation or other advice to check how any of this information relates to your unique circumstances. Little Real Estate is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, or from our website.

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