Understanding the capital gains tax
No matter where you are in the Whitsunday Shire – whether Airlie Beach, Proserpine, Cannonvale or Bowen – if you're hoping to start investing, you'll end up crossing the path of the capital gains tax (CGT). Whenever you stand to make a profit from a particular asset, the CGT won't be far behind.
Here's a brief rundown of what you need to know about it.
What is the CGT?
The CGT, as its name indicates, is a tax on the profit (or loss) made from selling an asset. For instance, if you bought a house for $300,000 15 years ago, and sell it for $600,000 today, this would be a capital gain of $300,000, which you would be taxed on. Essentially, it's the difference between how much you paid for an asset originally, and the price you ultimately sold it for.
Although the CGT is referred to as such, contrary to popular belief, it's not a separate tax. It simply serves as part of your income tax.
Does the CGT only apply to property investment?
Although the CGT tends to be most widely associated with successful property investment, it applies to many assets. So any shares that you sell, or any units in a managed fund that you dispose of, would also come under the purview of the CGT.
Is my family home subject to the CGT?
Although most types of real estate – including land and hobby farms – come under the CGT, your family home is a rare exception. You can claim the principal place of residence exemption in order to bypass any CGT on selling your home. You and your family must have lived in the home to qualify, and it must have been your address for the electoral roll. It also needs to have have services like a phone line connected, and contain your personal belongings.
In order to claim for the full exemption, the land has to be less than two hectares, and it must have been your family home for the full period that you owned it. There are also some concessions if you've moved house or are travelling.
What other exemptions and concessions are there?
Other types of assets not covered by the CGT include vehicles and collectables, as well as other assets for personal use. There are also various concessions for small businesses, such as the small business 15-year exemption, which takes out CGT for selling a business asset owned for 15 years when you're retiring.
Be sure to have a close look at the various concessions that are offered to see if you apply. It's a complex area and engaging a tax professional makes sense to ensure you get it right.