If you’re an Aussie expat or a foreign investor with assets in Australia, understanding Capital Gains Tax (CGT) can feel like trying to solve a tricky puzzle. You’ll deal with CGT whenever you buy or sell an asset in Australia. While you might know the basics, the finer details can be confusing.
Things like your residency status, tax treaties between countries, and foreign tax offsets can all affect how much tax you’ll pay.
This complete guide to Capital Gains Tax explains how CGT works in Australia for expats and foreign investors. We’ll share clear examples to help you make smarter decisions. By the end, you’ll know how to save money, reduce stress, and make better investment choices.
Capital Gains Tax in Australia is the tax you pay on the profit made when you sell or dispose of an asset. This could be property, shares, cryptocurrency, or even collectibles.
The profit is called a capital gain, and it’s worked out by subtracting the purchase price and selling costs from the sale price. If you sell at a loss, it’s called a capital loss.
Here’s an example:
- Emily buys a house for $500,000
- She sells it 5 years later for $700,000
- Her capital gain is $200,000
- She’ll need to pay CGT on that amount
This example doesn’t include any discounts or exemptions she might qualify for.
What Is the CGT Rate in Australia?
There is no separate CGT rate. A net capital gain is added to your taxable income and taxed at your marginal rate — 0% up to $18,200, then 16%, 30%, 37% and 45% (2025–26 resident rates). What changes what you pay: holding 12+ months as a resident discounts 50% of the gain; as a non-resident there’s no tax-free threshold and no 50% discount (taxed from the first dollar, 30%+). So the effective rate on a property sale runs from 0% (main residence exemption) to 45%.
What Is a CGT Event?
A CGT event is triggered whenever you transfer ownership of an asset subject to Australian capital gains tax. Here are the standard disposals that trigger CGT events:
- Selling an asset
- Trading, exchanging, or swapping assets
- Involuntary disposal – the loss or destruction of an asset or creating contractual or other rights
The specific type of CGT event applicable to your situation may influence the timing of the CGT event and the method used to calculate your capital gain or loss.
If a contract of sale is involved, the CGT event usually occurs when you enter the contract and stop being the asset’s owner.
For instance, consider Emily entered a contract to sell her land in May 2023. The contract was settled in September 2023. Emily made the capital gain in the 2022–23 income year (the year she entered the contract), not the 2023–24 income year (the year of settlement).
If your CGT asset is lost, stolen, or destroyed, the CGT event occurs when you first receive compensation for the loss, theft, or destruction.
Your capital gain is the compensation received minus the asset’s original cost. If you don’t receive compensation, the CGT event occurs when you discover the loss or when the destruction happens.
CGT events are crucial because they trigger the need to calculate your capital gains tax liability, either a net capital gain or a capital loss. Knowing about CGT helps you anticipate your tax obligations and make informed decisions about when to sell or transfer assets.
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How to Calculate Your CGT
In Australia, the Australian Taxation Office (ATO) treats net capital gains as part of your taxable income, not as a separate tax.
Here’s an example:
- You earn $95,000 a year
- You sell a property you’ve owned for 20 years
- You make a profit of $100,000
- That profit is added to your taxable income, making it $195,000 for that year
Australia has a progressive tax system. In this case, your income puts you in the top tax bracket for 2025–26, with a 45% tax rate. Here’s how much tax you’d owe:
- $53,888 if you’re a tax resident
- $63,100 if you’re a non-resident
How?
- $53,888 = $51,638 flat amount + $2,250, which is 45% of the income over $190,000
- $63,100 = $60,850 flat amount + $2,250, which is 45% of the income over $190,000
Please note that these are simplified calculations, all in AUD, that don’t take any deductions into account.
What to Consider When Calculating Capital Gains Tax in Australia
The percentage of capital gains tax you’ll pay in Australia based on your net capital gains depends on several factors:
- The length of time you have owned the asset or property
- Whether you use the property for business purposes
- Your income tax rate
- Any capital losses you incur
- Legal service costs
- Estate agent service fees
- Stamp duty on the property
The actual percentage of capital gains tax you pay can vary depending on the above factors even though the ATO treats net capital gains like your annual income tax rate.
How Aussie Expats and Investors Calculate CGT in Australia
Here are the steps to determine how much capital gains tax you need to pay to the ATO for the year.
Step 1: Determine What You Received for the Asset
Your capital proceeds are the amount you get when you sell the asset or from another CGT event, like an insurance payout if the asset was destroyed.
If you give the asset away or sell it for less than its market value, the market value is used instead.
Step 2: Calculate the Cost Base
The cost base is what you spent to buy, hold, and sell the asset. It includes:
- The purchase price
- Legal fees
- Other related costs
If you made a loss, use the reduced cost base instead. For assets bought before 21 September 1999, you can adjust the costs for inflation up to that date, which might lower your capital gain.
Step 3: Subtract Costs from Capital Proceeds
Subtract the cost base (Step 2) from the capital proceeds (Step 1):
- Positive Result: You have a capital gain.
- Negative Result: You have a capital loss (use the reduced cost base).
Step 4: Repeat for Each CGT Event
If you had multiple CGT events during the financial year, repeat Steps 1–3 for each one.
Step 5: Offset Capital Losses Against Gains
If you have a capital loss, subtract it from your capital gains.
- Use any capital losses from previous years to offset gains.
- Apply losses to gains that don’t qualify for the CGT discount first to maximise your savings.
- Result Positive: Move to Step 6.
- Result Negative: This is your net capital loss, which you can carry forward to future years.
Step 6: Apply the CGT Discount (If Eligible)
You can claim a CGT discount if you’re an Australian tax resident and have owned the asset for over 12 months:
- Individuals and Trusts: 50% discount
- Super Funds: 33.33% discount
- Affordable Housing: Up to 60% discount
- Companies: No CGT discount
You can’t use the discount if you indexed the cost base in Step 2.
Step 7: Report on Your Tax Return
- Net Capital Gain: Add it to your taxable income and pay tax at your marginal rate.
- Net Capital Loss: You can’t deduct it from other income but can carry it forward to offset future gains.
Following these steps will help you calculate your CGT and ensure you pay the right amount.
Capital Gains Tax Exemptions
Let’s discuss the Capital Gains Tax exemptions you may want to consider as an Australian expat or investor.
Assets Acquired Before 20 September 1985
You’re exempt from CGT all assets you’ve acquired before 20 September 1985. This includes all sorts of real estate, such as vacant land, business premises, and rental properties.
However, this doesn’t apply to any property improvements or additions you make after that date, which may be subject to CGT.
Main Residence Exemption
Australian tax residents can claim the CGT main residence exemption. You don’t have to pay capital gains tax on the property you live in as your home.
Investment properties aren’t eligible. Foreign residents lost access to the main residence exemption from 30 June 2020 and can only claim it if they meet the life events test.
However, you may still have to pay CGT on your home if:
- You rent out a part of your primary residence
- You use it for business purposes
- The property stands on more than 2 hectares of land
- You’re a foreign resident who doesn’t meet the life events test when the CGT event happens
Other CGT Exemptions
You’re exempt from CGT on the following assets:
- Granny flat arrangements
- Cars and motorcycles
- Shares, units, and similar investments
- Crypto assets
- Personal use assets, such as boats, furniture, etc.
- Collectables, such as artwork, jewellery, etc.
- Intangible assets, such as leases, contractual rights, etc.
- Foreign currency
- Depreciating assets, including business equipment and items in a rental property
- If you were a resident of Norfolk Island and acquired an asset there before 24 October 2015
50% CGT Discount
If you’re an Australian tax resident and have owned an asset for more than 12 months, you may qualify for a 50% CGT discount. However, this doesn’t usually apply to foreign or temporary residents for assets bought after 8 May 2012.
Let’s revisit the earlier example:
- With the 50% discount, the taxable capital gain drops to $50,000
- This makes your total income $145,000 for that year
- You now move down to the 37% tax bracket
Thus, you now owe $34,988 in tax as a resident.
How? $34,988 = $31,288 flat amount + $3,700, which is 37% of the income over $135,000.
This is a simplified example in AUD and doesn’t include any deductions.
Extra Discount for Affordable Rental Housing
If you’re an Australian tax resident, you could get an extra 10% CGT discount for offering affordable rental housing to low or moderate-income earners. This increases your total CGT discount to 60% as a residential rental property owner.
Foreign Resident Capital Gains Withholding Tax
Foreign residents, including Aussie expats classified as non-residents by the ATO, generally can’t access CGT discounts or exemptions.
If you’re a non-resident selling a property in Australia, the buyer must withhold 15% of the purchase price as foreign resident capital gains withholding tax (FRCGW) and send it to the ATO.
At the end of the financial year, you’ll need to lodge a tax return to report your Australian income, including any capital gain from the sale.
You’ll also need a Tax File Number (TFN) to do this. When you lodge your return, you can claim a credit for the 15% withholding amount.
Since 1 January 2025 the rate is 15% and applies to every sale — the previous 12.5% rate and the $750,000 property-value threshold no longer apply.
Case Studies: Capital Gains Tax Australia
Scenario One: Australian Tax Resident in Singapore
Carol, an Australian, moved to Singapore in her mid-thirties. Here’s her situation:
- Bought her Sydney house in 2017 for AU $580,000.
- Lived in the house until 2022, after which she moved to Singapore.
- Despite applying for non-residency, the ATO hasn’t approved her non-residency status yet.
- She pays tax on her rental income from the Sydney property and her earnings in Singapore.
- Rents out her Sydney house and earns annual rental income.
In 2024, Carol decides to sell her house:
- Property prices in Sydney have increased, and she sells her house for AU $1,500,000.
Now, Carol works out her capital gain and calculates her tax:
Calculate Cost Base
- The cost base includes various expenses like:
- Purchase Price: AU $580,000
- Stamp Duty, Transfer Costs, and Professional Fees: AU $40,000
- Carol’s total cost base is AU $620,000 (AU $580,000 + AU $40,000).
Net Capital Gain
- Selling Price: AU $1,500,000
- Subtract the Cost Base: AU $1,500,000 – AU $620,000 = AU $880,000 net capital gain
- 50% CGT discount for Tax Resident: AU $880,000 × 50% = AU $440,000 taxable capital gain
Tax Calculation
- Carol’s Tax Bracket: 45%
- Tax Payable on the First AU $190,000: AU $51,667
- Tax on the Remaining AU $250,000 (AU $440,000 – AU $190,000): 45% of AU $250,000 = AU $112,500
- Total CGT Payable: AU $164,167 (AU $51,667 + AU $112,500)
Carol will owe AU $164,167 in CGT to the ATO.
Scenario Two: Expat in Hong Kong
Jack, an Australian who has permanently relocated to Hong Kong, still owns a property in Melbourne. Here’s a summary of his situation:
- Jack moved to Hong Kong for work and gave up his Australian residency.
- He still owns a property in Melbourne, which he’s rented out for the last five years.
- Rental Income: Jack reports this income on his Australian tax return.
Property Investment and Sale
- After two years in Hong Kong, Jack decides to expand his investment property portfolio.
- He takes out an Australian home loan to buy another unit for AU $810,000.
However, Jack faces some financial struggles while in Hong Kong:
- He is using a negative gearing strategy on this property, which allows him to claim a tax deduction for rental losses.
- He struggles to find tenants, and property values in the area are falling.
- After only 18 months, Jack decides to sell the unit at a loss.
The Sale
- Jack sells the unit for AU $780,000, a loss of AU $30,000 (AU $810,000 purchase price – AU $780,000 sale price).
- The buyer withholds 15% of the sale price as foreign resident capital gains withholding tax (FRCGW).” (15%, no threshold, from 1 Jan 2025.)
- Jack’s cost base for the property (including various expenses) totals AU $15,000.
- After accounting for all costs, Jack’s total capital loss on this property sale is AU $40,000.
Reporting the Loss
- Jack reports the capital loss of AU $40,000 on his Australian tax return.
- He can carry this loss forward indefinitely, using it to offset future capital gains.
The Following Year
- The next year, Jack has a capital gain of AU $65,000 from another CGT event.
- He decides to offset his previous capital loss of AU $40,000 against this gain:
- Capital Gain: AU $65,000
- Less Capital Loss from Previous Year: AU $40,000
- Remaining Taxable Capital Gain: AU $15,000
Tax Payable
- Jack’s tax bracket is 30%.
- On his remaining capital gain of AU $15,000, Jack needs to pay 30% tax, which amounts to AU $4,500.
Jack will owe AU $4,500 in capital gains tax for the year.
How to Minimise Capital Gains Tax as an Expat or Investor
Here are some ways to reduce your capital gains tax (CGT) as an Aussie expat or foreign investor.
- Increase Your Cost Base: Make sure to include all the costs you’ve paid to acquire and improve the property, like stamp duty, legal fees, and any renovations. A higher cost base means a smaller capital gain when you sell, which can lower your CGT.
- Offset Capital Gains with Losses: If you’ve lost money on other investments, you can use those losses to reduce your capital gains. This can help cut down your CGT bill.
- Time Your Sale: When you sell matters. If you sell in a year when your income is lower, you might pay less CGT. Timing your sale around other financial events can also reduce the tax you owe.
- Look for Special Concessions: Some assets, like affordable housing for low-income earners, might qualify for specific CGT discounts. Even if you’re a non-resident and can’t get the usual 50% CGT discount, these special concessions can still help reduce your tax.
- Check Main Residence Exemption: If you lived in the property as your main home before moving overseas, you might still qualify for a partial CGT exemption.
- Structure Your Investments: Non-residents may want to hold their investment properties in structures like a Self-Managed Super Fund (SMSF) or a family trust. While non-residents don’t get the SMSF CGT discount, the overall tax rate in these structures can be lower, which can help cut your CGT.
In addition to these strategies, you can consult a tax professional for personalised advice to optimise your tax position based on your circumstances.
Strategise Your Australian CGT and Maximise Your Profits
Dealing with capital gains tax can be tricky, especially if you’re an Australian expat or non-resident. But it gets a lot easier when you have the right help.
At Odin Tax, we’re here to give you advice tailored to your needs. We can help you figure out the best time to sell your property, how to claim the right deductions, and whether selling at a loss could help offset any gains.
If you’re an Aussie expat or foreign investor and need help with CGT, stamp duty, or filing your returns, our expert tax professionals are here to help.
We’ll guide you through it, so you can make the most of your Australian investments while staying on top of all the rules.
FY2026–27 is here
Book a free 30-min Expat Tax Assessment and know exactly where you stand this tax season.
FAQs about Capital Gains Tax in Australia
What is capital gains tax on property?
Capital Gains Tax (CGT) on property in Australia is a tax on the profit made when you sell a property for more than its purchase price. Here’s how it works:
Taxable Amount: The capital gain is the difference between the sale price and the original purchase price, minus any associated costs (like legal fees, stamp duty, and improvement costs).
Primary Residence Exemption: If the property is your primary residence, it is generally exempt from CGT.
Investment Properties: For investment properties, CGT applies. If you’ve held the property for more than 12 months, you may qualify for a 50% CGT discount.
Tax Rate: The taxable capital gain is added to your taxable income and taxed at your marginal tax rate.
If you sell an investment property after 12 months and make a $100,000 gain, only $50,000 is added to your taxable income due to the 50% discount.
CGT is payable when you lodge your annual tax return for the year the property was sold.
How much is capital gains tax on property in Australia?
The Australian Taxation Office (ATO) treats capital gains as a component of income tax. If you sell a property within Australia, you must add the capital gain to your tax return for that fiscal year.
If you don’t pay income tax in Australia, the purchaser will hold back 15% of the purchase price for the ATO. You’ll have to file a tax return to recover the withheld amount.
What is the CGT rate Australia?
In Australia, Capital Gains Tax (CGT) is not a separate tax but is part of your income tax. The rate you pay depends on your marginal income tax rate and how long you’ve held the asset.
Key Points:
Holding Period:
- If you’ve held the asset for more than 12 months, you are eligible for a 50% CGT discount, meaning only half the gain is added to your taxable income.
- If held for less than 12 months, the full capital gain is added to your taxable income.
- Income Tax Rates
Foreign resident tax rates 2025–26
- $0 – $135,000: 30%
- $135,001 – $190,000: 37%
- Above $190,000: 45%
Resident income tax rates 2025-2026
- $0 – $18,200: 0%
- $18,201 – $45,000: 16%
- $45,001 – $135,000: 30%
- $135,001 – $190,000: 37%
- Above $190,000: 45%
If you make a $100,000 capital gain and hold the asset for more than 12 months, only $50,000 will be taxed at your marginal tax rate. If you’re in the 30% tax bracket, you’d pay $15,000 in CGT.
How much capital gains tax is there in Australia?
The Capital Gains Tax (CGT) in Australia is not a separate tax but part of your income tax. The amount of CGT you pay depends on your marginal tax rate and how long you’ve held the asset.
Here’s a breakdown:
CGT Discount for Long-Term Assets:
- If you’ve held the asset (such as property or shares) for more than 12 months, you are eligible for a 50% discount on the capital gain. This means you only pay tax on half of the profit.
No CGT on Primary Residence:
- If the property is your primary residence, it is usually exempt from CGT when sold.
Full Capital Gains Added to Taxable Income:
- For assets held for less than 12 months, the full capital gain is added to your taxable income and taxed at your marginal tax rate, which can range from 19% to 45%, depending on your income bracket.
For example, if you’re in the 37% tax bracket and sell an investment property after more than 12 months with a $100,000 gain, only $50,000 is taxed at 37%, resulting in $18,500 in CGT.
CGT in Australia depends on your income tax bracket and whether you qualify for the 50% discount, which applies after holding an asset for more than 12 months.
How do I avoid capital gains tax in Australia?
The main residence exemption allows Australian tax residents to escape capital gains tax on their primary residence. To qualify, one must pay income tax in Australia and have resided in the property for at least 12 months.
Expats can reduce their CGT liability by meticulously documenting their property-related expenditures.
What is the 6 year rule for capital gains tax in Australia?
The 6-year rule for Capital Gains Tax (CGT) in Australia allows you to treat your property as your primary residence for up to 6 years after you move out, even if you are no longer living in it, and still claim a CGT exemption when you sell it. Here’s how it works:
Absence from Primary Residence:
- If you move out of your home and use it as a rental property or leave it vacant, you can maintain it as your primary residence for up to 6 years, meaning you don’t have to pay CGT if you sell it within that time frame.
Re-setting the 6-Year Period:
- If you move back into the property at any point, the 6-year period can reset, allowing you to claim the exemption again if you later move out and rent it.
No Other Primary Residence:
- During the period you’re using the 6-year rule, you cannot nominate another property as your primary residence for CGT purposes, unless you apply the exemption to multiple properties under special conditions.
For instance, if you live in a property for 5 years, then move out and rent it for another 4 years, you can sell the property without paying CGT as long as you sell it within the 6-year period after moving out.
The 6-year rule allows homeowners to rent out their property and still claim a CGT exemption on its sale, provided it is sold within 6 years of moving out and they have not declared another property as their primary residence.
Do I qualify for the 50% CGT discount?
When you sell or dispose of an asset, you can have the 50% CGT discount if you’re an Australian tax resident and have owned the asset for at least 12 months.
You can’t use the CGT discount if:
- Your home was used for rental or business less than 12 months before disposal.
- You choose to index the cost of an asset acquired before 21 September 1999.
- A foreign or temporary resident made the gain after 8 May 2012.
- A CGT event creates a new asset, like in a restrictive covenant.
- Disposing of shares or trust interests in entities with fewer than 300 members.
- An income asset is converted into a capital asset.
Companies also can’t use the CGT discount; however, Australian trusts and super funds can if the asset is held for at least 12 months.
How do costs and gains on shares affect capital gains tax in Australia?
Various factors determine the capital gains tax calculation in Australia for shares, such as the sale price, the individual’s income tax rate, and the original purchase price of shares that caused the CGT event.
For example, suppose an individual purchased shares worth AU $20,000 and created a CGT event that resulted in an AU $20,000 capital gain upon selling the shares. In that case, the capital gains tax they would pay is calculated based on the difference between the purchase and sale prices.
The tax to be paid is calculated as a percentage of their taxable income rate. Assuming a taxable income rate of 37%, the individual must pay AU $7,400 in capital gains tax.
How much is the capital gains tax for selling an asset at a loss in Australia?
If you sell an asset for less than the purchase price, you’ll incur a capital loss, but in Australia, you won’t have to pay any capital gains tax.
In other words, it is like a capital gains tax exemption. You can offset the loss against any capital gains you make in the following financial year, reducing the amount of capital gains tax you must pay.
What are the CGT rules for foreign and temporary residents on assets acquired before and after 8 May 2012?
If you’re a foreign or temporary resident, check the following cases.
For assets acquired after 8 May 2012, you must pay CGT on taxable Australian property and are not eligible for the 50% CGT discount.
For assets acquired on or before 8 May 2012, you may apply a CGT discount. There are two methods.
- Pro Rata Method: Use this if you were an Australian resident for any period after 8 May 2012.
- Market Value Method: Use this if you were a foreign or temporary resident on 8 May 2012.
Choose the method that applies to your situation to calculate your CGT discount.
How much is the capital gains tax on investment properties in Australia?
The amount of capital gains tax you’ll need to pay in Australia for your rental or investment property depends on your income.
For instance, let’s consider the following scenario.
Your income is AU $75,000, and your annual tax rate is 30%. You purchased your rental property for AU $350,000 and sold it for AU $600,000 with expenses totalling AU $70,000. Your total capital gain is AU $180,000.
When you add your net capital gains to your other income, you get AU $180,000 + AU $75,000 = $255,000. As a result, your tax rate jumps to 37%, and you’ll need to pay AU $66,600 in capital gains tax.
What is the capital gains tax on 100000 in Australia?
The Capital Gains Tax (CGT) on a gain of $100,000 in Australia depends on several factors, including how long you’ve held the asset and your income tax bracket. Here’s a breakdown of how it’s calculated:
1. Holding the Asset for More Than 12 Months:
If you’ve held the asset for more than 12 months, you’re eligible for a 50% CGT discount. This means only half of the capital gain is taxable.
- Taxable Amount: $100,000 × 50% = $50,000
- The $50,000 is added to your taxable income and taxed at your marginal tax rate.
2. Income Tax Brackets:
The tax you pay depends on your total income, including the $50,000 capital gain.
Foreign resident tax rates 2025–26
- $0 – $135,000: 30%
- $135,001 – $190,000: 37%
- Above $190,000: 45%
Resident income tax rates 2025-2026
- $0 – $18,200: 0%
- $18,201 – $45,000: 16%
- $45,001 – $135,000: 30%
- $135,001 – $190,000: 37%
- Above $190,000: 45%
Let’s assume your total income (including the $50,000 capital gain) is $90,000, which puts you in the 32.5% tax bracket.
- Tax on the $50,000 capital gain: $50,000 × 32.5% = $16,250
3. Holding the Asset for Less Than 12 Months:
If the asset was held for less than 12 months, no discount applies, and the entire $100,000 capital gain is added to your taxable income. In this case, if your total income is $90,000 (including the $100,000 gain), it would be taxed as follows:
- The first $30,000 (from $60,000 to $90,000) taxed at 32.5%
- The remaining $10,000 (from $90,001 to $100,000) taxed at 37%
Summary:
For a $100,000 capital gain, if held for more than 12 months, the taxable amount is $50,000, which is then taxed at your marginal tax rate. If held for less than 12 months, the entire $100,000 is taxed at your applicable income tax rate.
What income threshold value applies for CGT in Australia?
Suppose the total capital gains from selling a property and any other income are AU $18,200 or less. In that case, you’ll not have to pay capital gains tax in Australia. This income threshold applies to individuals.
Do Australian non-residents pay capital gains tax?
Yes, Australian non-residents pay Capital Gains Tax (CGT) on taxable Australian property, such as real estate and business assets. However, non-residents are generally exempt from CGT on other assets, such as shares, unless they own 10% or more of an Australian company.
How to avoid capital gains tax in Australia?
To legally avoid or reduce Capital Gains Tax (CGT) in Australia, you can:
- Sell Your Primary Residence: The sale of your primary residence is generally CGT-exempt.
- Use the 6-Year Rule: If you rent out your home, you can claim a CGT exemption if you sell it within 6 years of moving out.
- Hold Investments for Over 12 Months: You can receive a 50% CGT discount on assets held for more than 12 months.
- Superannuation Contributions: Invest proceeds into your superannuation to defer or reduce CGT.
- Offset Capital Losses: Use capital losses from other investments to offset gains.
These strategies help minimise or avoid CGT legally.
What is the tax on selling house Australia?
The tax on selling a house in Australia depends on whether the property is your primary residence or an investment property.
1. Primary Residence (Main Home):
- If the property is your primary residence, it is generally exempt from Capital Gains Tax (CGT). This means you won’t pay tax on the profit from the sale.
2. Investment Property:
- For an investment property, Capital Gains Tax (CGT) applies to the profit from the sale.
- If you’ve owned the property for more than 12 months, you’re eligible for a 50% CGT discount, meaning only half the profit is added to your taxable income and taxed at your marginal tax rate.
- The CGT is paid as part of your income tax when lodging your annual tax return.
If you sell an investment property with a $100,000 capital gain after holding it for more than 12 months, only $50,000 is taxed at your marginal tax rate.
In summary, primary residences are exempt from tax, while investment properties are subject to CGT.
How does Capital Gains Tax work?
Capital Gains Tax (CGT) in Australia is a tax on the profit made from selling certain assets, such as property or shares. It is not a separate tax but is part of your income tax. Here’s how it works:
1. Capital Gain Calculation:
- Capital gain is the difference between the sale price and the original purchase price of the asset, minus any costs related to buying and selling (e.g., legal fees, stamp duty, and improvements).
- If the sale price is lower than the purchase price, you incur a capital loss, which can be used to offset future capital gains.
2. Taxable Event:
- CGT applies when you sell or dispose of an asset (such as property, shares, or other investments) that has increased in value.
3. 12-Month Rule and CGT Discount:
- If you’ve owned the asset for more than 12 months, you qualify for a 50% CGT discount. This means only half the capital gain is added to your taxable income and taxed at your marginal tax rate.
- If the asset is held for less than 12 months, no discount applies, and the full gain is taxed at your marginal rate.
4. Tax-Free Exemptions:
- Primary Residence: If the asset is your primary residence, it’s generally exempt from CGT.
- Personal Assets: Certain personal assets (e.g., cars, personal use items) are also exempt from CGT.
5. Paying CGT:
- The capital gain is added to your taxable income in the year you sold the asset and taxed at your marginal tax rate.
If you sell an investment property with a $200,000 gain after holding it for more than 12 months, only $100,000 is taxed. If you’re in the 30% tax bracket, you’d pay $30,000 in CGT.
CGT is a tax on the profit from selling assets. If held for more than 12 months, a 50% discount applies, and the taxable portion is added to your income. Primary residences are typically CGT-exempt.
What are short-term vs. long-term capital gains?
Short-term capital gains are held for less than 12 months, no discount, fully taxed.
Long-term capital gains are held for more than 12 months, eligible for a 50% discount.
