What is the CGT rate?
For individuals, there is no set rate in Australia. Instead, it is paid through the marginal rate of tax if needed.
Trading companies on the other hand are required to pay a flat rate of 26% if their annual turnover is less than $50 million and 30% if it exceeds $50 million).
Self-managed super funds (SMSFs) are taxed at 15%. Investment companies, not eligible for the 26% rate, are taxed at 30%.
How to calculate capital gains tax on an investment property
There are a few ways to reduce the amount of Capital Gains Tax you may have to pay.
As an individual, hold on to the property for more than 12 months. That way you will be entitled to a 50% discount on the CGT.
Have your residential property reevaluated before renting it out. You’ll only be answerable for CGT on the capital gain you make from that point on, rather than the gain from when you first purchased the property.
Invest in affordable housing. In January 2018, the Australian government introduced an additional discount for those who invest in qualifying economical housing, bringing the maximum CGT discount up to 60%. For your investment property to be approved, it must be rented out to low or moderate income tenants at a rate below the private market rental rate.
There are also assets that are CGT-exempt. CGT-exempt assets include:
any assets that were purchased prior to 20 September, 1985
your main residence
personal vehicles, and
depreciating assets in an investment property.
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Capital gains tax FAQs
Yes. Property has several exemptions from Capital Gains Tax.
If the property is your principal residence, where you live full time, you are exempt from CGT. There are some restictions on properties that are 2 hectares or larger.
If the property has been in your name for longer than 12 months, from teh date of signing on the contract, you are entitled to a 50% discount on the CGT amount.
If the property you are selling was your primary residence when you purchased it, but you then moved out to rent the property, you can claim an emeption from CGT for up to 6 years after you moved out.
The Capital Gains Tax 6 Year Rule allows you to use your property investment, as if it was your principal place of residence, for up to six years, whilst you put it to work producing additional income.
This means that you would be able to sell the property within the six-year period and be exempt from paying Capital Gains Tax just as you would if you sold the house considered your main residence.
The Capital Gains Tax 6 Year Rule exists because there are many reasons why you may not be living in your property for some time. The Australian Tax Office recognises that there are various unique circumstances beyond the control of the property owner.
The Capital Gains Tax 6 Year Rule will also appeal to homeowners wanting to make some additional money for the period that they are not able to reside in their home — all without prompting the need to pay CGT upon its eventual sale.