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Capital Gains Tax (CGT) was introduced in Australia in 1985 and specifically applies to any assett you’ve acquired since that time unless an exempt assett.
It applies to property, shares, leases, goodwill, licenses, foreign currency, contractual rights, and personal use assets purchased for more than $10,000.
When you sell an investment property and it makes a profit, you are required to pay CGT. It is important to note that CGT does not apply to your primary residence.
If you’ve bought and sold your property within 12 months, your net capital gain – the difference between the sum of your capital gains and the sum of your capital losses – is simply added to your taxable income, which, in turn, increases the amount of income tax you pay.
However, if you’ve owned the property for more than 12 months, calculating your final taxable income is a little bit more complicated than adding your net capital gain to your earned income.
There are two methods to calculating CGT for individuals who’ve owned their property for longer than 12-months: discount and indexation. Depending on eligibility, individuals may choose the method that is likely to lead to the lowest possible capital gain.
If you are curious about how Capital Gains Tax may affect you and your future sales, seek further information from the Australian Taxation Office or your local accountant.