Capital gains tax (CGT) is the tax you pay on the profit you make when you sell, or otherwise dispose of, an asset such as an investment property, shares or crypto. It is not a separate tax: the net capital gain is added to your assessable income for the year and taxed at your marginal rate.
How a Capital Gain Is Worked Out
In simple terms:
Capital gain = sale price, less the cost base
The cost base is more than the purchase price. It can include stamp duty, legal and conveyancing fees, buyer's agent fees, the cost of capital improvements, and selling costs such as agent commission. Keeping good records over the years you own the asset reduces the gain you pay tax on.
Discounts and Exemptions
- CGT discount: individuals who hold an asset for more than 12 months can generally reduce the taxable gain by a discount.
- Main residence exemption: your home is generally exempt, with partial exemptions if it was rented out or used to earn income for part of the time.
- Capital losses can offset capital gains, and unused losses carry forward to future years.
The exact rules, rates and conditions are set by the ATO and can change. Check the current rules at ato.gov.au or with your accountant before you sell.
Why CGT Matters for Investment Loans
CGT affects investment strategy and lending decisions:
- Timing a sale across tax years can change how much tax you pay
- Negative gearing strategies often rely on capital growth, which is taxed when you sell
- Selling to reduce debt leaves less cash than the sale price suggests once CGT is paid
- Moving out of your home and renting it out can change its CGT position
Final Thoughts
CGT is a tax question, so get advice from a registered tax agent. A NIK Finance broker can then help structure the lending around your plan, whether that is keeping the property, refinancing it or releasing equity.