Your Mortgage's Capital Gains Tax Calculator can help give you an estimate of the CGT you may have to pay when you sell your investment property.
For this tool to work, you first need to state whether you’ve owned the property for more than 12 months. If you have owned the property for more than 12 months, a 50% CGT discount automatically applies.
You then need to enter how much you bought your property for, and how much you sold it for.
Last, you need to enter your current taxable income (your income before you pay tax). You can also enter the costs you incurred from the purchase and sale of the property, but this is an optional step.
Then, the calculator will estimate the capital gain based on purchase and sale price you indicated. That amount is then added to your current taxable income. From there, the calculator will estimate your CGT payable.
Here’s an example of how this works:
- You’ve owned your investment property for five years, so the automatic 50% CGT discount applies
- You bought your investment property for $550,000
- You sold your investment property for $600,000
- Your current taxable income is $95,000
- Your capital gain (profit) is $50,000
- Your taxable capital gain is $25,000 (with the 50% CGT discount applied)
- Your estimated capital gain tax payable is $9,750
What is a capital gain?
A capital gain is the profit you make from an investment.
For example, you buy a house for $450,000. Five years later, you sell it for $520,000. Your capital gain is $70,000.
What is capital gains tax?
Capital gains tax is the tax you pay on profits made from selling an asset, such as an investment property.
Capital gains tax is not a separate tax - it is actually part of your income tax because the capital gains you make are added to your assessable income in the year you sell the property. That’s why our calculator asks you for your taxable income.
CGT has to be reported to the Australian Taxation Office (ATO) and it needs to be paid when filing your tax return in the financial year of selling the property.
Can you be exempt from paying capital gains tax?
There are several instances where you may be exempt from paying CGT.
If you make a capital loss (you sell your property for less than what you originally bought it for) you don’t have to pay CGT because you didn’t make a capital gain.
You also don’t have to pay CGT on your principal place of residence (PPOR). Your property will qualify as a PPOR if it satisfies the following conditions:
You and your family reside in it
Personal belongings are inside the property
It is the address where your mail is delivered to
It is the address you use on the electoral roll
Services such as gas, phone, and power are connected to it
A special rule applies when you turn your main residence into a rental property. In such cases, you will still be exempt from paying CGT when you sell the property within six years of it being rented out. However, this will only be the case if you did not own another main residence during the time the property is rented out.
The six-year rule resets when you reoccupy the property as your main residence.
It is important to note that when your primary residence is also your principal place of business, you will be charged with CGT for the portion of the property that is set aside to produce income.
How to minimise capital gains tax?
The best way to minimise your CGT is to be organised and keep accurate records so you can claim for more in your cost base. Any capital costs you incur would be added to your cost base, which will substantially lessen the capital gains taxable.
You can also minimise your CGT by maintaining ownership of the property for 12 months. Doing so will automatically grant you with 50% discount.
What is a capital loss?
A capital loss is when you sell an asset or investment for less than what you bought it for, after your cost base (costs to maintain the asset) are taken into consideration.
If you make a capital loss, you will not be charged with any tax because you didn’t make a profit. The good thing here is that losses can be offset against capital gains. Net capital losses in a tax year may be carried forward indefinitely. However, these losses cannot be offset against your income.
To illustrate this: Let's assume that you made a capital loss of $20,000 last year. This year, you managed to record a capital gain of $25,000 on selling your property. When computing for your taxes this year, only $5,000 will be charged with CGT.
Given this advantage, you have to ensure that you keep all the relevant paperwork that would prove your capital loss during the previous years.