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[MoreMore Insights] What is Capital Gains Tax?

CGT (Capital Gains Tax) refers to the selling price when selling the property minus the purchase price when buying the property, and the difference in this part shall be taxed. If the selling price minus the purchase price is a positive number, it is capital gains, and a negative number is capital loss.

If it is a capital gain, this part should be taxed. If it is a capital loss, it can be used to offset the tax paid on the capital gain of other products. However, it should be noted that only the capital gains of other products can be deducted, and the taxes payable on other ordinary income cannot be deducted. If no other products generate capital gains, the capital losses will be used to offset the capital gains of the next year.

How to Calculate.

Unlike stamp tax and consumption tax, capital gains tax is not a separate tax, but a component of your personal income tax. Its calculation method is:

Selling price – Purchase price – Purchase expenses – Holding expenses = Taxable income.

When calculating, the owner can directly deduct the purchase price from the sale price. If it is a positive number, the expenses for purchasing, holding and selling of the property, such as legal fees, stamp duty, brokerage commission and management fees, will be further deducted. The final amount is the taxable income. The Australian government has listed some deductible expenses, including measurement, valuation, accounting and advertising expenses at the time of sales.

What are the Assets not Included in CGT?

Primary residential property (conditions to be met);

Private cars (vehicles that can carry 9 people and less);

Personal belongings below $10,000;

Assets depreciated for tax reasons (e.g. furniture or decoration in rented houses)

Withholding Tax

If the seller is an overseas owner, that is, a non-Australian company or a non-Australian permanent resident, the buyer must deduct 12.5% of the property price and pay it to the Australian government as withholding tax when the property price exceeds $750,000. Overseas owners (sellers) can declare tax to the Australian government and ask for a tax refund.

How to Reduce Capital Gains Tax?

As an Australian tax resident, except in the name of the company, all capital gains will be taxed if the house is held for less than 12 months. If the assets are held for more than 12 months, you can enjoy a 50% capital gains tax discount, and the self managed super funds can enjoy a 33.3% discount. The time calculation is based on the date of the sale and purchase contract, not the settlement day.

When selling the property that was once used as the primary residence and later used for rent, the taxpayer can apply the 'temporary vacancy rule' and 'market value rule' to reduce the capital gains tax payable when calculating its capital gains tax.

Each year, the Australian government may have different tax policies. You may also consult professionals before the sales of the property to avoid tax omission or overpayment.

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