Capital Gains Tax is not a separate tax, but rather part of the income tax liability of anyone in the commercial property market. Capital Gains Tax is the difference between the original price paid for a property and how much it was sold for.
To work out how much Capital Gains Tax to pay, the gross sale price is deducted from the cost base, which is the sum of the original property cost, less any incidentals, and costs for ownership, title, and improvements. If the proceeds from the sale of property is greater than the total amount of the cost base, the difference amount is capital gain.
Alternatively, if the cost base is more that the sale proceeds, the difference is a capital loss. While any capital losses can’t be offset against other taxable income, it can be offset against the capital gains on other property disposals that were incurred during the same tax year. If there are insufficient capital gains from other property sales, the capital losses can be rolled forward to offset against any future capital gains.
Any commercial property that was acquired before Capital Gains Tax was introduced on September 20 in 1985, generally won’t have any liability. There are also some options available to legally reduce the amount of Capital Gains Tax paid. For example, if the property has been owned by an individual or a trust for over 1 year, the capital gain amount can be discounted by 50.0%, whereas certain superannuation funds can have their capital gains discounted by 33.33%.
When looking to acquire commercial property, keep records of all transactions, and build potential tax liabilities into the planning. That makes it easy to ascertain the ultimate tax position for when the property is eventually sold, as well as verifying that position for the Australian Taxation Office.