Capital gains tax calculator
Selling a property or asset? Calculate your capital gains tax estimate in seconds with Finder's free calculator.
What is capital gains tax?
Capital gains tax (CGT) applies in Australia when you sell shares, an investment property or other asset at a profit. CGT doesn't apply to most personal property and items, such as your car or family home.
When you own an asset for 12 months or longer, you are entitled to a 50% discount off any capital gains tax you owe.
You can use Finder's simple capital gains tax calculator to estimate your capital gain (or loss). This will help you understand your CGT obligations, but please keep in mind it's just an estimate.
Finder's capital gains tax calculator
Disclaimer: The information provided by this calculator is only intended to provide an approximate estimate of the CGT you may need to pay. It is general in nature and does not constitute professional advice. The rules relating to CGT are complex and you should always seek professional advice in relation to your particular circumstances.
How to use the capital gains tax calculator
First you need to state whether you've owned the asset for more than 12 months (a yes or no question). If you've owned the asset for more than 12 months a 50% capital gains tax discount applies, effectively halving your tax payable.
Then you enter the purchase price (the price you paid for the asset) and then the price you sold it for.
Last, enter your taxable income for the current year. That's your income before tax.
Here's a simple example:
- You've owned an asset for five years (select yes for the first question). The 50% discount now applies.
- You bought the asset for $700,000.
- You sold it for $900,000
- Your taxable income is $85,000 a year.
- Your capital gain (profit) is $200,000.
- Your taxable capital gain with the 50% discount applied is $100,000.
- Your estimated capital gains tax obligation is $37,175.
That's just a simple estimate. You can click "How this calculator works" for more information about the assumptions built into the capital gains tax calculator.
Income tax and capital gains
Capital gains tax is not actually a separate tax charged on top of your income tax. Instead, the capital gain is added to your taxable income. This is why the calculator asks for your taxable income.
Aa large capital gain can push you into a higher tax bracket.
In the example above, if you earned $85,000 a year before tax your marginal tax rate is 32.5%. But when you add the $100,000 of taxable capital gains from the asset sale, this puts your income at $185,000. That puts you in Australia's highest marginal tax bracket with a rate of 45%.
Luckily, if the asset you're selling is an investment property you can reduce your capital gains tax further by subtracting certain costs. More on that below.
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How do you calculate capital gains tax on an investment property?
When selling an investment property you are able to deduct the costs of buying the property that weren't deductible on your annual tax return, like stamp duty and renovations. The total of your purchase price plus expenses you haven't deducted before is called your cost base.
Here's a simple example:
- You purchase an investment property for $500,000 and sell it for $750,000 six years later.
- You paid $25,000 in stamp duty and other costs, and spent $15,000 in renovations to the property.
- This $40,000 is added to the purchase price.
- Your cost base is now $540,000. Subtracting this from the sale price gives you a capital gain of $210,000.
- Applying the 50% discount gives you a taxable capital gain of $105,000. This amount is added to your income when you file your tax return that year.
Learn more about CGT when selling property
You can continue to claim any ownership expenses on your tax return in that financial year as well, such as mortgage interest payments, and you'll need to declare rental income too.
As you can see, CGT and property tax can be complicated, which is why keeping clear tax records for every year you've owned an asset is so important.
How can you reduce your capital gains tax?
There are 2 ways to approach a CGT reduction. You can try to reduce your CGT bill on the asset itself or you can try to minimise your overall taxable income (since your capital gain is simply added to your overall taxable income).
Here are some tips:
- Do you qualify for an exemption? Remember that you don't have to pay capital gains tax on your home. You can only claim this "principal place of residence" exemption on one place at a time.
- Can you increase your cost base? The more you spend to maintain the property, the less CGT you pay. You subtract your cost base from the selling price when you determine your capital gain. Obviously you don't want to spend more on the property just to reduce your tax bill. But you should definitely keep detailed records of every single property cost that you can add into your cost base (for example, your stamp duty and legal costs to purchase the property are part of your cost base).
- Hold the asset for 12 months. If the asset in question is an investment property, waiting at least 12 months before selling is a no-brainer. You will get a 50% discount on your CGT.
- Time the sale. If you know that your income will be lower next financial year, it might be worth timing the sale of the asset when your income is lowest, thereby reducing your total taxable income.
- Get an accountant. Above all, get expert help from a tax professional.
What is the 6 year rule for CGT?
Your main residence is exempt from CGT. If you move out of your own home and turn it into an investment property, and you then sell that property, you'll need to pay CGT on part of the profit – for the period that the property was producing an income.
However, for CGT purposes, you can continue treating a property as your main residence for up to 6 years if you used it to produce a rental income, known as the '6-year rule'; and indefinitely if you didn't rent it out or produce income.
During that 6-year period, you can't treat any other property as your main residence, except for a 6 month transitional period if you are moving house.
How does a capital loss affect you?
It's also possible to make a capital loss. This is where you sell the asset for less than you paid for it, after your costs to maintain the asset are taken into consideration. With a capital loss you obviously don't have to pay any capital gains tax because there is no profit.
There is an upside though. You can use a capital loss to offset future capital gains. Let's say you sold an asset for $20,000 less than the cost base three years ago. Then this year you sold another asset for a capital gain of $50,000. You can subtract the $20,000 loss from the gain and reduce your capital gain to $30,000.
There is no time limit on when you can use a capital loss to offset a gain. But you need to have detailed records to show you have made a capital loss in order to claim it.
How is CGT calculated for shares and super?
When a super fund sells an investment asset and makes a capital gain it is liable for capital gains tax. But this doesn't directly affect an ordinary person with a super fund. The fund itself takes care of this.
Self-managed super funds (SMSFs) also have to pay CGT. As with property, if you own an asset through an SMSF for more than 12 months there is a discount. With super the discount is a 33.3% rather 50%.
Capital gains tax also comes into effect when you sell shares. It works the same as with property. There's a 50% discount if you owned the shares for more than 12 months before disposing of them. If you make a capital loss you can use it to reduce future capital gains.
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Ask a question
Do you pay more CGT if selling two properties in the same financial year? Is it best to sell them in different years or it makes no difference?
Hi Nik,
With a personal tax inquiry like this you should speak to an accountant about your specific situation.
Kind regards,
Richard
Hi Nik,
Most properties are subject to CGT if they are purchased or renovated in any way after 20 September 1985. Your main residence (your home) is generally exempt from capital gains tax (CGT). However, it may apply if you rent out of it or use it for business.
Best,
Richard