It’s time to talk about a topic that can confuse people – investment properties and capital gains tax. But don’t worry, Stellar Accounts are here to help as your investment property and capital gains tax accountants.
What is Capital Gains Tax?
Capital Gains Tax is tax on any profit you receive from the sale of a property that you use to generate income from. Generally, this is a property you have received rental income from or used as place of business.
Calculating Capital Gains Tax
If you own a property, that has been rented on a long or short-term basis and you sell it, how is Capital Gains Tax calculated? In short, the purchase price and any associated purchase costs (solicitor fees, stamp duty etc) is taken away from the sales price plus any costs associated with sale (real estate fees, solicitor fees) as well as any capital works you may have completed on the property during the time you owned it. This gives a profit or loss figure.
Purchase Price of Property – $300,000
Solicitor fees and other associated costs of purchase – $5,000
Total Purchase Price – $305,000
Sales price – $350,000
Capital Works – $10,000 and Other Associated costs – $20,000 (added on to purchase)
Total Sales Price – $330,000 ( the associated costs are taken away from the sales price as they are expenses)
Therefore the profit is $25,000.
This profit is then added to other income earnt during the year and you are then taxed at ordinary income tax rates.
There is no special tax rate for capital gains, it gets added to other income earnt and taxed accordingly.
So for example, if you earn $50,000 from your job and you add the $25,000 capital gains from the sale of property, you are then taxed on $75,000 for the year. However, if you make a loss on the sale, that becomes known as a capital loss. It cannot be applied to assessable income and will then sit there until you have any future gains on capital.
Capital Gains Tax and Renting Part of your House
Capital Gains Tax is exactly the same in this situation, but now it is calculated on that percentage of the house that you earn income from.
If you rent the room out or a granny flat and it’s assessed that it is 25% of total property, when selling that house, 25% of the gain will then be added to any other income for the year and you are taxed on that.
NOTE: Highly recommend you chat to an accountant that specialises in investment properties to get the best advice and to provide you with examples and the correct figures. Contact Deb at Stellar Accounts on 0428 887 104 to find out more.
Investment Properties and Capital Gains Tax
For more help on navigating the world of investment property and tax, you can also join our online Facebook group Aussie Tax for Airbnb Hosts and Investment Property Owners here.
Stellar Accounts is Brisbane’s leading small and new business accounting firm. We have a reputation for simplifying your accounting, tax and bookkeeping needs so you don’t need to stress or worry.
With more than 20 years’ experience across a wide array of industries – our clients (typically small and medium sized businesses) – gain a distinct advantage over their competitors because we keep them in the loop of the latest information and regulatory requirements. Call us on 0428 887 104.
Check out our blog for the latest news – including tips and tricks for better managing your business or personal financials.