Capital gains tax or CGT is the tax you pay on profits from selling an asset, such as a property, the Australian Taxation Office (ATO) explains. It applies to assets acquired after 20 September 1985 (the date the tax was introduced). You report capital gains (profits) and capital losses in your income tax.
Hold the property for at least 12 months
Any properties bought and sold within 12 months will be taxed at the full capital gains tax rate. But if you hold onto a property for longer than 12 months, you can reduce your capital gain using either the discount method or indexation method.
You are exempt from paying CGT on your home. Investors pay CGT when selling an investment property, but there's a 50% discount if you've owned the property for 12 months. Use a CGT calculator to estimate your capital gains tax when selling a property.
Use the main residence exemption
If the property you are selling is your main residence, the gain is not subject to CGT. However, the exemption may not fully apply if the residence has been used to produce income. In this case, a portion of the capital gain will be taxable.
Say for example, you received a capital gain of $200,000 on a property that you had held onto for over 12 months. Your marginal tax rate is 37% then, your capital gains tax would be $74,000 ($200,000 x 37%).
Capital gains are taxed exactly at the same rate as your taxable income, that is, if you earn $40,000 (at 32.5% tax bracket) per year and makes a capital gain of $60,000, you will pay income tax for $100,000 (at 37% tax bracket) and your capital gains will be taxed at the same rate, 37%.
If you make $80,000 a year living in Australia, you will be taxed $18,067. That means that your net pay will be $61,933 per year, or $5,161 per month.
Will I pay capital gains tax when I sell my house? If the property you are selling is your main residence, you generally do not have to pay CGT. However, there are some exemptions to this. For example, if you rented out part of your home, flipped it or ran a business out of it you may need to pay CGT.
12-month ownership requirement
The CGT event is the point at which you make a capital gain or loss. You exclude the day of acquisition and the day of the CGT event when working out if you owned the CGT asset for at least 12 months before the 'CGT event' happens.
Usually, a property stops being your main residence when you stop living in it. However, for CGT purposes you can continue treating a property as your main residence: for up to 6 years if you used it to produce income, such as rent (sometimes called the '6-year rule')
Capital gains are taxed at the same rate as taxable income — i.e. if you earn $40,000 (32.5% tax bracket) per year and make a capital gain of $60,000, you will pay income tax for $100,000 (37% income tax) and your capital gains will be taxed at 37%.
Simply put, yes, retirees pay capital gains tax in Australia. However, being a retiree does make one eligible for certain exemptions and concessions, particularly in regards to the sale of property or a business.
In Australia, there are no specific restrictions on how soon you can sell your house after purchasing it. Once the property is officially in your name and the settlement process is complete, you have the right to sell it at any time.
A person can only have one principal place of residence. If you own multiple properties and live in more than one of them, you are generally only eligible for one exemption on the property deemed to be your principal place of residence.
As a general rule, you can avoid capital gains tax when selling your investment property if that property is your primary place of residence (PPOR). This rule exists because you usually don't generate an income from living in your own home.
An exception to this is the 6 month rule which states that where a taxpayer acquires a new dwelling that is to become their main residence, and the taxpayer still owns their existing main residence, both dwellings can be treated as the taxpayer's main residence for a period of up to 6 months.
There is a capital gains tax (CGT) discount of 50% for Australian individuals who own an asset for 12 months or more. This means you pay tax on only half the net capital gain on that asset. Some assets are exempt from CGT, such as your home.
The proposal would reduce the capital gains tax discount to 25 per cent. This means that the taxable value of a capital gain on an asset held for more than 12 months would be increased to 75 per cent (rather than 50 per cent) of the value of the capital gain.
If the 15 year small business capital gains tax (CGT) exemption applies then any capital gains on the sale of business assets will be entirely exempt i.e. 100% tax free. As the whole gain is exempt there is no need to offset the gain with any current or prior capital losses before applying the 15-year exemption.
Your main residence (your home) is exempt from CGT if you are an Australian resident and the dwelling: has been the home of you, your partner and other dependants for the whole period you have owned it.
You normally work out your gain by taking the proceeds (or in some cases, the market value on disposal) and then deducting all of the following: Original cost (or in some cases, market value when acquired) Incidental costs of purchase. Costs incurred in improving the asset.
In most areas of Australia, an income of AUD 100,000 will be more than enough to cover basic expenses. A salary of $80,000 to $100,000 is sufficient to maintain a comfortable standard of living in Sydney and other major Australian cities. It's above the norm in that respect.
The average annual salary in Australia is $68,900 and $35.30 per hour. It is just the average salary for basic workers but skilled and experienced workers also earn around $108,980 annually. The average salary also varies depending on the field of work and the job role of workers.
So a taxpayer with an income of $80,000 a year is therefore in the top 20 per cent of Australians.