Capital gains tax catches a lot of people out, usually because they think of it as a separate, occasional tax rather than something woven into their regular income tax return. Whether you're selling an investment property, shares, or a business, understanding the basics before you sell can save a significant amount of tax.
What is capital gains tax?
Capital gains tax, or CGT, isn't a standalone tax — it's part of your income tax. When you sell an asset such as an investment property, shares, or a business for more than you paid for it, the profit (the capital gain) is added to your assessable income for that year and taxed at your marginal rate. If you sell for less than you paid, you make a capital loss instead, which can be used to offset gains in the same year or carried forward to offset future gains.
What is the 50% CGT discount?
If you're an individual or a trust and you've held the asset for more than 12 months before selling, you generally only need to include 50% of the capital gain in your taxable income — effectively halving the tax on the gain. Companies don't get this discount, which is one of several reasons the structure you use to hold an investment property or shares matters well before you buy, not after you sell.
Is my main residence exempt from CGT?
Generally yes — the main residence exemption means most people pay no CGT when they sell the home they've lived in. The exemption can be reduced, however, if part of the property was used to produce income, such as renting out a room or running a business from a dedicated home office beyond incidental use, so it's worth understanding how those arrangements affect the exemption before assuming the whole gain is tax-free.
What about moving out and renting my home?
The "six-year rule" can allow you to treat a former home as your main residence for CGT purposes for up to six years after you move out and rent it, provided you don't treat another property as your main residence during that time. This is a valuable but easy-to-miss concession worth discussing with your accountant before you decide whether to sell or keep renting it out.
Are small business owners eligible for any CGT concessions?
Yes — small businesses that meet turnover or net asset value tests may qualify for the small business CGT concessions, which can substantially reduce or, in some cases, eliminate tax payable on the sale of active business assets. These concessions can be particularly valuable when a business owner sells up at retirement, but eligibility rules are detailed and time-sensitive, so they need to be reviewed well before a sale contract is signed, not after.
What records are needed to calculate a capital gain?
You'll need the original purchase contract and settlement statement, records of any capital improvements made over the years, and the costs associated with both buying and selling — agent commissions, legal fees, and stamp duty. All of these form part of the asset's cost base, which is subtracted from the sale price to work out the taxable gain, so poor record keeping directly translates into paying more tax than necessary.
When should I get advice on CGT?
Before you sign a contract to sell, not after settlement. Once a sale is finalised, most of the planning opportunities — timing the sale across financial years, structuring concessions, or offsetting a gain against a loss elsewhere — are no longer available. A conversation with your accountant while you're still negotiating gives you the most options.
The Metier Group helps Perth individuals and business owners plan ahead of asset sales so CGT is calculated correctly and no available concession is missed. Learn more about our tax accounting services, or contact us before your next sale.