Capital Gains Tax
Capital gains tax is the term used to describe the liability to pay tax on the profit made through the sale of an
income-producing asset that was acquired before 20 September, 1985.
Since September, 1999 investors have had the option to make no allowance for inflation and pay on half of their personal tax rate on any capital gain
made on property acquired before 21 September, 1999.
Important Factors
Two factors of particular importance with regard to the application of capital gains tax are:
- Adopting the correct structure.
- Timing of acquisition and disposal.
- Land recently completed.
(See our page on
"Investment" regarding the structure for puchase.)
With regard to timing, this is important in terms of the year in which capital gains will be assessed; and the timing of
the sale of the property will determine the adjustment applicable to the cost of the asset. Just one more
reason why investors should always work in close collaboration with their accountant.
Principal place of residence
Capital gains tax does not apply to a person's principal place of residence. In other words, the tax does not apply
to the profit made on the sale of the family home (so long as the home has not been used as
part of some income-producing enterprise). However, they may be "grey" areas in determining the extent of the
exemption. If the home has been used in relation to a home-based business, advice should be sought from
a qualified accountant.
Where more than one home is owned and used, only one can be nominated as the "principal place of residence".
Keep good records
On sale, the net gain is added to the investor's taxable income in the year of the sale. It is most important that the net gain be identifiable, and
record should be kept of all expenses.
Expenses that may be claimed include:
- Cost of acquiring the property.
- Stamp duty.
- Titles office registration fees.
- Legal costs.
- Valuation costs.
- Mortgage insurance.
- Estate agency commission.
- Advertising costs.
Any client of Real Choice Mortgages who is contemplating the purchase of an investment property
is advised to seek the assistance of an accountant. Your
Real Choice Mortgages personal lending manager will collaborate with
both your accountant and your lawyer, to ensure that you have access to the loan product that best suits your purpose.
