Are you thinking of selling a home or property? You have to pay Capital Gains Tax (CGT) on the sale based on your taxable income. This CGT applies in Australia whenever you sell an investment property, shares, or other assets at a profit. But it doesn’t apply to most personal property and items, such as your car or family home.
We have this Calculator to help you find out if you need to pay CGT and the amount you need pay.
Using the Capital Gains Tax Calculator
You will have to provide some information regarding your asset, as defined below:
- Purchase Price — The amount the asset was purchased for.
- Extent of Ownership — If you’ve had this asset for either > or < (greater or less than) 12 months.
- Sold Price — The amount the asset was sold.
- Taxable Income (current) — This is your current taxable income. This determines the tax bracket on which the asset’s capital gain will be taxed accordingly. The capital gains amount will be added to your existing income before tax (which means that a capital gains amount can push you into a higher tax level).
- Total Costs of Buying, Owning and Putting the Asset on Sale — How much you have generally spent into the asset prior the sale. For instance, if a property is your asset – this includes costs for renovations or marketing costs incurred for the sale of the property, that will form part of the final capital gains tax calculation.
After all the details on assets plus income have been inputted, just click Calculate to check how much Capital Gains Tax you will need to pay.
(Disclaimer: The information in this Calculator will only provide an estimate of the CGT you will have to pay. Please note that this is general information and does not indicate professional advice. All the rules about CGT are quite complicated so we suggest you should always consult professional advice relating to your circumstances).
Example: Calculating Capital Gains Tax
Let’s see how Capital Gains Tax is computed if you own shares. For instance, you’ve bought shares and they’ve accelerated in value. You need to calculate CGT as you are now selling your shares. CGT or Capital Gains Tax will be calculated depending on the length of time you owned the asset/shares, either:
- 100% of the capital gains amount; or
- 50% of the capital gains amount.
Let’s proceed with these examples:
*If you hold the shares for LESS than 12 months*
You will have to pay tax on the full amount of profit or simply the amount you’ve made on top of your initial investment. Every dollar made in earnings will be taxed accordingly based on your individual income tax bracket.
- Your salary is $150,000 per year with income tax bracket of 37% ($90,001 – $180,000).
- You earned a $15,000 capital gain on the shares you own for less than 12 months.
- You sell the shares and 100% of the $15,000 capital gain being will be taxed at 37%.
- You will pay a CGT amounting to $5,550 for the shares sold.
- Your net capital gain on your sold shares is $9,450.
*If you hold the shares for MORE than 12 months*
The ATO (Australian Tax Office) gives you a 50% discount on your capital gains tax if you held on to the shares for 12 months or more and the tax you are required to pay is only 50% of your gain from this.
- Your salary is $150,000 per year with income tax bracket of 37% ($90,001 – $180,000).
- You earned a $20,000 capital gain on shares you own for more than 12 months.
- You sell the shares and 50% of the $20,000 capital gain is taxed at the same rate, 37%.
- You will pay a CGT amounting to $3,700 for the shares sold.
- Your net capital gain on your sold shares is $16,300.
Australian income tax rates for 2020/21 (residents)
|Tax payable on this income
|$0 – $18,200
|$18,201 – $45,000
|19c for each $1 over $18,200
|$45,001 – $120,000
|$5,092 plus 32.5c for each $1 over $45,000
|$120,001 – $180,000
|$29,467 plus 37c for each $1 over $120,000
|$180,001 and over
|$51,667 plus 45c for each $1 over $180,000
What is Capital Gains Tax?
You are required to pay Capital Gains Tax or CGT when you make a profit from selling your investment property. But this tax does not apply to your own home which is your main place of residence.
Remember that this CGT is not a separate tax, but rather a part of your income tax. (The reason: the capital gains you make are normally added to your assessable income in the actual year that you sold your property).
Per the Australian Tax Office or ATO guidelines, the CGT was introduced to level the playing field among taxpayers. It was charged either on capital gains from the sale or disposal of any assets purchased or acquired from September 1985 onwards. This tax applies not only to properties, but also to other types of assets such as shares, goodwill, foreign currencies, licenses, leases, and contractual rights.
How much is Capital Gains Tax?
The cost of CGT on your shares can change, depending on the length of time you’ve held the investment. If you own the asset for less than a year, then you will have to pay 100% of the capital gain at your income tax rate. But if you own the asset for longer than that, you will have to pay 50% of the capital gain.
Capital gains are taxed exactly at the same rate as your taxable income, that is, if you earn $40,000 (at 32.5% tax bracket) per year and makes a capital gain of $60,000, you will pay income tax for $100,000 (at 37% tax bracket) and your capital gains will be taxed at the same rate, 37%.
How does CGT work on Shares?
The fastest way to check if you need to pay CGT on your shares is to know if your shares have made money over the period of time since you bought the shares. If you are selling shares at a price below what you paid for them, you are at a loss and you do not need to worry about capital gains tax. If the price of your shares has escalated since buying and now, you are selling, then you’re required to pay CGT.
What are the Assets Excluded from Capital Gains Tax?
Any asset you have acquired or purchased when Capital Gains Tax was first introduced (20 September 1985) will be subject to Capital Gains Tax or CGT, with some exceptions for personal-use assets such as the family home or your vehicle:
|Your family home
|Shares or similar investments
|A personal vehicle
|Depreciating assets used solely for taxable purposes, such as business equipment
|Leases, Licences, Foreign currency
|Any asset acquired before 20 September 1985
|Collectables and personal use assets above $10,000
Avoiding and Reducing Capital Gains Tax on Property
Several exemptions and concessions are being offered in the payment of Capital Gains Tax. Many strategies are designed to help decrease your total costs, too.
Here’s a list of some key strategies being implemented to avoid paying CGT:
1.Follow the exemption for primary residence.
If your primary residence or home is the property you’re selling, the gain you’ll get is not eligible for CGT. But such exemption could not be fully applied if such residence has generated income, in which case, a part of the capital gain made will be subject to tax.
2. Make the ‘short-term absence’ rule work.
As an additional exemption to the primary residence, how does the short-term absence rule work? It applies to a condition where you transfer and live out from your primary residence.
You may continuously consider that property as primary residence for an indefinite period, or forup to six years if you buy a property first as your main residence and later put it up for rent. Once you return to the rented property along the 6-year frame, the length of time is reset which means it is allowed as your primary residence for additional six years still.
3. Have an investment in superannuation.
The fact is these self-managed funds attract just a third of CGT’s discount while the normal tax rate here is just about 15%. This means the highest CGT rate is 10% and this is certainly smaller vs. majority of the individuals’ marginal tax rates. When a member of a super self-managed fund goes into a full retirement annuity or pension from the funds’ assets – the rate applicable drops into a zero.
4. Gauge the right timelines for your capital gain or capital loss.
A basic approach to lessen CGT is for you to pace the right timing when you generate a capital gain or loss. If you are anticipating a smaller income in the succeeding financial year there is, you may opt to delay the selling, to benefit from the lesser marginal bracket you will be in. (A lower marginal tax rate =lesser CGT)
A timing loss is an advantage, too. For example, a person who expects to earn from the capital gain for selling but then withholds the shares that are trading at an unrealised loss lower versus the CG, then this individual should outrightly sell the shares prior to the sale, thus, loss from capital gain will be deducted.
5. Take into account the partial exemptions.
If you hold a property for 12 months or more, it will cover a 50% CGT discount. You may be able to receive some exemption as well, if you live in the rental property later on.
Know that you’re still eligible for a CGT reduction if you use your main residence as a business entity as well.
When investing in affordable housing, you can also draw a 60% reduction in CGT provided it falls within specific housing criteria and the rent being charged is with a discount.
Capital losses can always be applied against capital gains, but not with your regular income.
It is suggested though to make sure that you consult a competent professional for some good advice to help you achieve the best results for your particular situation.