CGT on Rental Properties (2024)

142 Questions

What is the formula to calculate capital loss?

Cost - Termination value

In Method 1, why is CGT Event K7 applied?

Because a deduction was denied for the decline in value of the depreciating assets

What is the net capital gain after applying the discount in Method 1?

$7,464

What is the adjusted cost base in Method 2?

$425,072

What happens when new depreciating assets are purchased for a rental property acquired after 9 May 2017?

The decline in value of these assets can be claimed

How is the decline in value of the new assets calculated?

Using the diminishing value method

What is the effective life of the Hot Water System – Gas?

12 years

What is the claim for the dishwasher in the 2020 year?

$238

Why is it important to keep calculations for CGT?

In case of an audit by the ATO

What is the purpose of Method 2?

To treat the property and depreciating assets as one CGT asset

What is the minimum period for which an asset must be held to apply the Discount Method?

365 consecutive days

The Discount Method applies to companies.

False

What is the discount percentage for resident individuals under the Discount Method?

50%

The acquisition and disposal dates of a property are the dates the ______________________ is entered into.

contract

What type of housing does not qualify as affordable housing?

All of the above

The additional affordable housing capital gain discount applies to CGT events occurring before 30 December 2020.

False

What is the purpose of the affordable housing certificate?

To show the number of days the dwelling was used to provide affordable housing

Match the following methods with their application:

Discount Method = Assets held for at least 365 consecutive days Indexation Method = Assets purchased before 21/09/1999 and held for 12 months or more Other Method = Assets held for less than 12 months

The number of days an asset has been held includes the acquisition and disposal dates.

False

To be eligible for the extra discount, the taxpayer must meet which of the following conditions?

The taxpayer used their property to provide affordable housing for a minimum of 3 years

The taxpayer is eligible for the 50% CGT discount on the property if they used their property to provide affordable housing for a minimum of 2 years.

False

What is the minimum number of days the taxpayer must use their property to provide affordable housing to be eligible for the extra discount?

1,095 days

The CGT discount is increased by up to _____% for capital gains made by a resident individual who sold a property that was used to provide affordable housing for at least 3 years.

Match the following residents with their CGT discount entitlement:

Foreign or temporary resident individual = Not entitled to the 50% CGT discount for assets acquired after 8 May 2012 Australian resident individual = Entitled to the 50% CGT discount for assets acquired on or before 8 May 2012

The taxpayer is entitled to the 50% CGT discount for assets acquired after 8 May 2012 if they are a foreign or temporary resident.

False

What is the purpose of the affordable housing certificate?

To claim the extra discount

If an MIT has an ownership interest in the property, the tenant and their associates do not have an interest of more than _____% of the MIT.

What is the condition for the taxpayer to be eligible for the extra discount?

The taxpayer used their property to provide affordable housing for a minimum of 3 years and received an annual affordable housing certificate from the CHP

The taxpayer is eligible for the extra discount if they used their property to provide affordable housing for a minimum of 2 years and received an annual affordable housing certificate from the CHP.

False

When you sell or dispose of a rental property, you may make a:

Capital gain or loss

If you make a net capital gain in an income year, you are exempt from capital gains tax (CGT).

False

When is an exemption or partial exemption from CGT applied to a rental property?

In certain circumstances, such as when the property was purchased before CGT, used as a main residence, inherited, or transferred under a court order.

The reduced cost base will always be less than or equal to the _______________.

cost base

Match the following circumstances with the potential CGT exemptions or partial exemptions:

Property purchased before CGT = Exemption Property used as a main residence = Partial exemption Property inherited and was the main residence of the deceased = Partial exemption Property transferred under a court order = Exemption

Any capital gain or loss on the disposal of a rental property is calculated in the same manner as any other assets, without any adjustments.

False

What happens when the proceeds received for the disposal of the asset is less than the cost base but greater than the reduced cost base?

Any capital gain or loss is disregarded.

When a property is owned by more than one person, how is any capital gain or loss made?

According to each person's ownership interest

A capital loss is made if the depreciating asset's cost is less than its termination value.

False

What happens to the closing pool balance if the taxable use percentage of the asset’s termination value exceeds the closing pool balance?

It is reduced to zero and the excess is included in assessable income

What is the purpose of keeping calculations for CGT?

To offset capital losses against capital gains

A capital gain is made if the depreciating asset's termination value is more than its ______________________.

cost

What happens to a capital loss if there is no capital gain in the same year?

It is carried forward to the next year

A capital gain may qualify for the CGT discount if conditions for the CGT discount are satisfied.

True

What is the difference between the asset’s cost and its termination value that is attributable to the estimated use for a non-taxable purpose?

A capital gain or capital loss

If a depreciating asset is allocated to a low-value pool, items allocated to a low-value pool at ______________________% are excluded from the CGT regime.

100%

What is the formula to calculate the capital loss if the asset was not used wholly for a taxable purpose?

(cost - termination value) x (1 - taxable use fraction)

Match the following terms with their definitions:

Capital gain = Made if the depreciating asset's termination value is more than its cost Capital loss = Made if the depreciating asset's cost is more than its termination value

What is included in the second element of the cost base?

All of the above

Travel expenses incurred before 1 July 2017 to undertake initial repairs can be included in the cost base.

False

What is the purpose of the third element of the cost base?

The third element of the cost base includes costs associated with owning a CGT asset, such as rates, land taxes, repairs, and insurance premiums, that are not deductible for income tax purposes.

The fourth element of the cost base includes capital costs associated with ______________________ the value of the asset or to install or move it.

increasing or preserving

Match the following costs with the correct element of the cost base:

Costs of transfer = 1st Element Stamp duty or other similar duty = 2nd Element Costs of advertising or marketing = 3rd Element

What is excluded from the second element of the cost base?

Expenses claimed as an income tax deduction

The CGT discount applies to companies.

False

What is the condition for including costs in the third element of the cost base?

The asset must have been acquired on or after 21 August 1991, and the costs must not be deductible for income tax purposes.

Costs of a conveyancer or similar are included in the ______________________ element of the cost base.

1st

What is included in the fourth element of the cost base?

Capital costs that relate to installing or moving an asset

Who can undertake a market valuation for GST margin scheme purposes?

Only a professional valuer

A market valuation may be undertaken by a person without formal valuation qualifications for any purpose.

False

What is the definition of market value?

The price agreed between a willing, but not overanxious, buyer with a willing, but not overanxious, seller.

The cost base of a CGT asset is made up of _______ elements.

What is the 1st element of the cost base of a CGT asset?

Cost (or deemed cost) of acquiring the asset

The valuation process should be adequately documented to ensure the objectivity of the report.

True

Match the following elements with their descriptions:

1st element = Cost (or deemed cost) of acquiring the asset 2nd element = Incidental costs of acquiring the asset 3rd element = Non-deductible costs of owning assets 4th element = Cost of any capital improvements made on or to the asset 5th element = Capital costs of maintaining a right over or title to the asset

What is the purpose of documenting the valuation process?

To ensure the objectivity of the report and to ensure the ATO accepts the resulting value as a market value.

What is the purpose of the CGT Discount Worksheet?

To calculate the discount for the number of days of Australian residency

The indexation method can be used to calculate a capital gain if the asset is owned for less than 12 months.

False

What is the indexation factor used for?

To increase the cost base of a CGT asset to account for inflation

The indexation factor is calculated to ______________________ decimal places.

What is the capital proceeds if you receive foreign currency from a CGT event?

The converted value of the foreign currency to Australian currency

The market value substitution rule applies to all CGT events.

False

What is the test to determine if a fair market value has been arrived at?

Comparing it with the open market price

If you give away or sell an asset for less than its worth, your capital proceeds equal the ______________________ of the asset at the time of the CGT event.

market value

Match the following elements with their description:

Indexed Cost Base = The cost base increased by an indexation factor to account for inflation Capital Proceeds = The amount received or entitled to receive from a CGT event Cost Base = The original price of the CGT asset

The courts consider whether the parties behaved in a manner similar to arm's length transactions when determining the market value of an asset.

True

What is the total capital gain calculated using Method 2?

$14,928

If the taxpayer is audited, the ATO will not need to see the calculations.

False

What is the adjustment made for the decline in value claimed in Method 2?

-$6,222

The capital gain on the sale of the property is exactly the same as shown above, resulting in a total capital gain of $______________.

$20,083

Match the following items with their cost:

Dishwasher = $1,200 Hot Water System – Gas = $1,100 Stamp Duty = $13,015 Settlement Costs and other costs = $1,181

If the taxpayer uses the property to provide affordable housing for at least 3 years, they are eligible for the 50% CGT discount.

True

What is the net capital gain after applying the discount in Method 1?

$7,464

When new depreciating assets are purchased for a rental property acquired after 9 May 2017, what can be claimed?

Decline in value

What is the purpose of the new rule introduced from 7.30pm on 9 May 2017?

To restrict taxpayers from claiming deductions for second-hand assets

If a property is not available for rent up until the date of sale, the decline in value can still be claimed for the entire period.

False

What happens when a depreciating asset is stopped being used or is sold?

A balancing adjustment event occurs, and a capital gain or capital loss is calculated using the UCA concepts of cost and termination value

For certain second-hand assets purchased with a residential rental property after _______________, new rules apply.

1 July 2017

Match the following CGT events with their descriptions:

K7 = A capital gain or capital loss is calculated using the UCA concepts of cost and termination value = A CGT event happens if a depreciating asset has been used wholly or partly for non-taxable purposes

What is the result of selling a depreciating asset that was previously used in a residential rental property?

A capital gain or capital loss is calculated using the UCA concepts of cost and termination value

The ATO accepts a more practical approach of treating the property and the depreciating assets as one and reducing the cost base of the property by any decline in value claimed.

True

What is the purpose of treating the property and the depreciating assets as one?

To reduce the cost base of the property by any decline in value claimed.

A CGT event (CGT Event K7) happens if a depreciating asset has been used wholly or partly for _________________ purposes.

non-taxable

What is the result of a balancing adjustment event occurring for a depreciating asset?

A capital gain or capital loss is calculated using the UCA concepts of cost and termination value

What is excluded from the fourth element of the cost base?

Expenditure that has been claimed as a deduction for income tax purposes

The reduced cost base includes costs of owning, such as interest and rates.

False

What is the purpose of adjusting the reduced cost base for building cost write-off?

To exclude the amount that has been claimed for building cost write-off from the reduced cost base.

For assets purchased on or after 7.30 pm on 13 May 1997, expenditure does not form part of any element of the cost base or reduced cost base to the extent that the taxpayer has claimed, or may be able to claim, a deduction for income tax purposes in any ____________________.

year

Match the following elements of the cost base with their descriptions:

First element = Acquisition costs Fourth element = Capital expenditure to preserve or defend the title or rights to the asset Fifth element = Capital costs to establish, preserve or defend the title or rights to the asset

What happens to the cost base and reduced cost base if the taxpayer needs to register for GST?

The cost base and reduced cost base are reduced by the net input tax credit.

GST credits can be claimed on costs associated with buying or selling existing residential premises.

False

What is the purpose of the fifth element of the cost base?

To include capital expenditure to preserve or defend the title or rights to the asset.

The reduced cost base has the same elements as the cost base, except for the ____________________ element.

third

What is the effect of claiming a deduction for building cost write-off on the reduced cost base?

The reduced cost base is decreased by the amount claimed.

What happens when the market value of the depreciating assets is less than the closing adjustable value?

Method 1 is more beneficial to the taxpayer

If a property was acquired under a contract that was entered into after 9 May 2017, a deduction will be allowed for the depreciating assets purchased with the property.

False

What is the assumption made about the market value of the depreciating assets on sale in Method 1?

The market value of the depreciating assets on sale is the closing adjustable value.

In Method 2, the cost base of the property must be reduced by the amount of _________ that has been claimed for the depreciating assets.

decline in value

What happens to any depreciating assets purchased after the purchase of the property if Method 2 is used?

They are not included in the cost of the property and will need to be added to the cost base as improvements

CGT Event K7 applies to the disposal of the depreciating assets in Method 2.

False

Why is Method 2 a more practical approach?

Because it eliminates the need to determine the market value of the depreciating assets on the date of sale.

Match the following methods with their application:

Method 1 = Treating the property and depreciating assets as separate assets Method 2 = Treating the property and depreciating assets as one asset

If the market value of the depreciating assets is equal to the _________, the result is the same as Method 1.

closing adjustable value

When calculating a capital gain, the cost base will only be adjusted to exclude the amount that has been claimed for building cost write-off for expenditure on capital works where either:

The asset was purchased on or after 7.30 pm on 13 May 1997 or the expenditure on capital works was incurred after 30 June 1999

If a taxpayer has neglected to claim a deduction for building cost write-off, and the time limit to amend the relevant tax returns has not expired, they are not required to make any cost base or reduced cost base adjustments.

False

What is the purpose of treating the sale of depreciating assets separately to the sale of the property when a rental property is sold?

To calculate the balancing adjustment on each of the depreciating assets in the property, under the capital allowance provisions, and therefore the capital gain or loss on the sale of the property.

The value of the depreciating assets on the sale of the property should be based on the ________ of the separate assets at the time.

market value

Match the following column 1 with column 2:

1st = NO 2nd = YES 3rd = YES 4th = NO unless expenditure incurred after 30 June 1999 5th = YES

What happens when a taxpayer is eligible to claim a deduction for the building cost write-off but has neglected to do so, and the time limit to amend the relevant tax returns has not expired?

They are required to make any cost base or reduced cost base adjustments as if the claim had been made

If a claim for capital works deductions was omitted because the taxpayer did not have sufficient information to determine the amount and nature of the construction expenditure, they are required to exclude the amount of such deductions from the cost base of the CGT asset.

False

What is the purpose of apportioning the purchase and sale price of the property on a reasonable basis between the property and the depreciating assets when a rental property is sold?

To calculate the balancing adjustment on each of the depreciating assets in the property, under the capital allowance provisions, and therefore the capital gain or loss on the sale of the property.

Which document will contain the capital works deductions (Div 43) that the owner may have been entitled to claim over the period of ownership?

Quantity surveyor's report

When a rental property is sold, there is only one method to calculate any capital gain or loss arising.

False

The closing adjustable value of the depreciating assets does not necessarily equate to their ____________, but it is often used as a reasonable estimate.

market value

Why is the value of the depreciating assets assigned in the depreciation schedule prepared by a quantity surveyor used as the purchase price of the depreciating assets?

Because it is a reasonable estimate

What is the purpose of keeping records for buying, owning, and selling a property?

To calculate capital gain or loss and for CGT purposes

The date of acquisition of a property under a court order, binding financial agreement, or an award as a result of a marriage breakdown will be required to determine whether the new owner must consider the original owner's use of the property. This date is known as the date of _______________________.

transfer

Match the following documents with their uses in calculating capital gain or loss:

Quantity surveyor's report = Capital works deductions and depreciating assets Depreciation reports from tax returns = Initial repairs, landscaping, and expenses of ownership First bank statement for mortgage = Breakdown of costs such as transfer of land fees History of use of the property = Main residence exemption and period of absence

The method of acquisition of the property has no impact on the calculation of capital gain or loss.

False

What is the minimum period for which records for buying, owning, and selling a property need to be kept?

5 years after disposal of the property

When calculating capital gain or loss, the market value of the assets is the same as the _______________________.

closing adjustable value

If a property was acquired from a deceased estate, what needs to be determined to establish the cost base of the property?

Date of death and use of the property by the deceased

If the property was acquired pre-CGT, it is exempt from CGT and records do not need to be kept.

True

What type of document provides information about conveyancing/legal fees and other costs on the sale of a rental property?

Settlement Statement

The taxpayer may not need to provide any additional information to calculate the capital gain or loss on the sale of a rental property.

False

What is the purpose of the valuation of a rental property?

To determine the proceeds if the property is sold, transferred or gifted in a non-arm’s length transaction at below market value.

The cost of construction is required in addition to the purchase documents for _______________.

land

Which document shows the ownership breakdown of the property?

Certificate of Title

The settlement statement provides the sale price of the property and the settlement date.

True

What is the purpose of the Conveyancer/Lawyer Invoice and Statement of Adjustments?

To provide information about conveyancing/legal fees and other costs on the sale of a rental property.

The date of signing of the Contract of Purchase/Sale is important, especially where the property was sold within _______________ of purchasing it.

12 months

Match the following documents with their purpose:

Settlement Statement = Provides information about conveyancing/legal fees and other costs on the sale of a rental property Contract of Purchase/Sale = Provides details such as the purchase/sale price, property information, and the date the contract was signed Certificate of Title = Shows the ownership breakdown of the property Conveyancer/Lawyer Invoice = Provides information about conveyancing/legal fees and other costs on the sale of a rental property

Which document provides the purchase price of the property and the settlement date?

Settlement Statement

Study Notes

CGT on Rental Properties (2024)

Section 01 – The Basics

Capital gain or loss: Difference between cost base and amount received when disposing of a rental property
Capital gain: Liable for Capital Gains Tax (CGT)
Capital loss: Can be carried forward to offset future capital gains
Exemptions or partial exemptions from CGT may apply in certain circumstances, such as:
- Property was purchased before CGT
- Property was used as a main residence for part of the ownership period
- Property was inherited and was the main residence of the deceased
- Property was transferred under a court order as a result of a relationship breakdown

Calculation of Capital Gains and Losses

Formulas for calculating capital gains or losses:
- Reduced cost base: Always less than or equal to the cost base
- Proceeds received for disposal of asset is less than the cost base but greater than the reduced cost base, capital gain or loss is disregarded

Methods of Calculating a Capital Gain

Three methods:
- Discount Method: Applies to assets held for 12 months or more
- Indexation Method: Applies to assets purchased before 21/09/1999 and held for 12 months or more
- Other Method: Applies to assets held for less than 12 months

Discount Method

Applies to assets held for at least 365 consecutive days (366 days for a leap year)
Discount percentage is applied to the capital gain made
Discount percentage:
- 50% for resident individuals
- 50% for trusts
- 331/3% for complying super funds
Additional CGT discount of up to 10% for Australian resident individuals who invest in affordable housing

Affordable Housing CGT Discount

Applies to CGT events occurring on or after 30 December 2020
Calculation: (CGT discount percentage ÷ 5) × (Affordable housing days ÷ Total ownership days)
Eligibility criteria:
- Taxpayer must be eligible for the 50% CGT discount
- Taxpayer used the property to provide affordable housing for at least 3 years (1,095 days)
- Taxpayer's property rental was managed by a registered community housing provider
- Taxpayer has an affordable housing certificate from the CHP for each income year

Reduction of Discount for Foreign or Temporary Residents

Discount percentage for individuals is reduced to 0 for any period the taxpayer is a foreign or temporary resident
Assets acquired after 8 May 2012: Foreign and temporary resident individuals are subject to CGT on taxable Australian property and are not entitled to the 50% CGT discount
Assets acquired on or before 8 May 2012: May apply a discount to capital gain using two methods (pro rata or market value)

Indexation Method

Applies to assets acquired before 11.45am EST on 21 September 1999 and held for 12 months or more
Indexed cost base: Cost base increased by an indexation factor, which allows for inflation
Indexation factor: Calculated using the CPI for the quarter ending 30 September 1999 and the CPI for the quarter expenditure was incurred

Other Method

Applies to assets held for less than 12 months
Capital gain or loss: Capital proceeds less the cost base

Capital Proceeds

What you receive or are entitled to receive from a CGT event
Includes:
- Money
- Value of property received or entitled to receive
- Market value of asset at the time of the CGT event (if not arm's length transaction)

Cost Base

Made up of 5 elements:
- Cost (or deemed cost) of acquiring the asset
- Incidental costs of acquiring the asset and/or disposing of the asset
- Non-deductible costs of owning assets acquired on or after 21 August 1991
- Cost of any capital improvements made on or to the asset
- Capital costs of maintaining a right over or title to the asset### CGT Elements
The fifth element of the cost base includes capital expenditure to preserve or defend ownership or rights to the asset
- Examples: paying a call on shares, damages paid to a potential purchaser after contract repudiation
Exclusions from the fifth element: expenditure that has been claimed as a deduction for income tax purposes in any year (for assets purchased after 13 May 1997)

Reduced Cost Base

The reduced cost base is used to calculate capital losses
It has the same elements as the cost base, except for the 3rd element (costs of owning)
Elements of the reduced cost base are not indexed
The reduced cost base does not include costs that have been (or can be) allowed as deductions, regardless of when the asset was purchased

GST and Cost Base Items

Sale of existing residential premises is input taxed, so no GST credits can be claimed
The cost base and reduced cost base are reduced by any net input tax credits (GST claimed) in relation to the asset

Building Cost Write-Off and Capital Gains

The construction cost of a building and structural improvements form part of the first or fourth element of the cost base or reduced cost base
If a building cost write-off has been claimed as a deduction, it may affect the capital gain or loss calculation
Expenditure claimed as a building cost write-off is excluded from the cost base or reduced cost base, depending on when the asset was purchased and when the expenditure was incurred

Depreciating Assets and Capital Gains

When a rental property is sold, the sale includes the sale of the building and depreciating assets
To calculate the capital gain or loss, the sale of the depreciating assets must be treated separately from the sale of the property
The value of the depreciating assets is not listed separately on the purchase or sale contract, but can be determined from a depreciation schedule prepared by a quantity surveyor
The balancing adjustment on each depreciating asset must be calculated, and the capital gain or loss on the sale of the property must be calculated separately

CGT and Depreciating Assets - CGT Event K7

A CGT event (CGT Event K7) occurs if a balancing adjustment event occurs for a depreciating asset
A capital gain or loss is calculated using the UCA concepts of cost and termination value, not those found in the CGT provisions
A capital gain or loss may arise if the asset is not used wholly for a taxable purpose

CGT Concessions

A capital gain from the disposal of a depreciating asset may qualify for the CGT discount if conditions are satisfied

Documents Required to Calculate CGT

Settlement statements for the purchase and sale of the property
Details of depreciating assets purchased and sold with the property
Details of capital works deductions claimed
Conveyancer/lawyer invoice and statement of adjustments for the purchase and sale of the property
Additional expenses incurred on the sale of the property
Contract of purchase/sale
Cost of construction (if applicable)
Certificate of Title
Valuations (if necessary)
First bank statement for mortgage (if applicable)
Quantity surveyor's report### Determining Capital Gain on Sale of Rental Property
When selling a rental property, two methods can be used to calculate the capital gain or loss:
- Method 1: Treat the house and depreciating assets as separate assets
- Method 2: Treat the house and depreciating assets as one asset
Both methods result in the same outcome if the market value of the assets is equal to the closing adjustable value

Method 1: Depreciating Assets Treated as Separate Assets

Calculate capital proceeds by subtracting the value of depreciating assets from the total capital proceeds
Calculate the cost base by subtracting the value of depreciating assets from the purchase price and adding costs on purchase and sale
Calculate the capital gain by subtracting the cost base from the capital proceeds
Apply the 50% discount if applicable

Method 2: Property and Depreciating Assets Treated as one CGT Asset

Calculate the cost base by reducing the purchase price by the amount of decline in value claimed for the depreciating assets
Calculate the capital gain by subtracting the cost base from the capital proceeds
Apply the 50% discount if applicable

Rental Properties Acquired after 9 May 2017

No deduction is allowed for depreciating assets purchased with the property
Either method of calculation can be used
If using Method 1, CGT Event K7 applies to the disposal of the depreciating assets, resulting in a capital loss
If using Method 2, the decline in value of new depreciating assets purchased for the rental property can be claimed

Records and Calculations

Keep records for buying, owning, and selling the property for at least 5 years after disposal
If the property was acquired pre-CGT, it is exempt from CGT, and records do not need to be kept unless capital improvements were made
Calculations must be accurate and thorough, as the ATO may audit and require evidence of calculations

CGT on Rental Properties (2024)

Section 01 – The Basics

Capital gain or loss: Difference between cost base and amount received when disposing of a rental property
Capital gain: Liable for Capital Gains Tax (CGT)
Capital loss: Can be carried forward to offset future capital gains
Exemptions or partial exemptions from CGT may apply in certain circumstances, such as:
- Property was purchased before CGT
- Property was used as a main residence for part of the ownership period
- Property was inherited and was the main residence of the deceased
- Property was transferred under a court order as a result of a relationship breakdown

Calculation of Capital Gains and Losses

Formulas for calculating capital gains or losses:
- Reduced cost base: Always less than or equal to the cost base
- Proceeds received for disposal of asset is less than the cost base but greater than the reduced cost base, capital gain or loss is disregarded

Methods of Calculating a Capital Gain

Three methods:
- Discount Method: Applies to assets held for 12 months or more
- Indexation Method: Applies to assets purchased before 21/09/1999 and held for 12 months or more
- Other Method: Applies to assets held for less than 12 months

Discount Method

Applies to assets held for at least 365 consecutive days (366 days for a leap year)
Discount percentage is applied to the capital gain made
Discount percentage:
- 50% for resident individuals
- 50% for trusts
- 331/3% for complying super funds
Additional CGT discount of up to 10% for Australian resident individuals who invest in affordable housing

Affordable Housing CGT Discount

Applies to CGT events occurring on or after 30 December 2020
Calculation: (CGT discount percentage ÷ 5) × (Affordable housing days ÷ Total ownership days)
Eligibility criteria:
- Taxpayer must be eligible for the 50% CGT discount
- Taxpayer used the property to provide affordable housing for at least 3 years (1,095 days)
- Taxpayer's property rental was managed by a registered community housing provider
- Taxpayer has an affordable housing certificate from the CHP for each income year

Reduction of Discount for Foreign or Temporary Residents

Discount percentage for individuals is reduced to 0 for any period the taxpayer is a foreign or temporary resident
Assets acquired after 8 May 2012: Foreign and temporary resident individuals are subject to CGT on taxable Australian property and are not entitled to the 50% CGT discount
Assets acquired on or before 8 May 2012: May apply a discount to capital gain using two methods (pro rata or market value)

Indexation Method

Applies to assets acquired before 11.45am EST on 21 September 1999 and held for 12 months or more
Indexed cost base: Cost base increased by an indexation factor, which allows for inflation
Indexation factor: Calculated using the CPI for the quarter ending 30 September 1999 and the CPI for the quarter expenditure was incurred

Other Method

Applies to assets held for less than 12 months
Capital gain or loss: Capital proceeds less the cost base

Capital Proceeds

What you receive or are entitled to receive from a CGT event
Includes:
- Money
- Value of property received or entitled to receive
- Market value of asset at the time of the CGT event (if not arm's length transaction)

Cost Base

Made up of 5 elements:
- Cost (or deemed cost) of acquiring the asset
- Incidental costs of acquiring the asset and/or disposing of the asset
- Non-deductible costs of owning assets acquired on or after 21 August 1991
- Cost of any capital improvements made on or to the asset
- Capital costs of maintaining a right over or title to the asset### CGT Elements
The fifth element of the cost base includes capital expenditure to preserve or defend ownership or rights to the asset
- Examples: paying a call on shares, damages paid to a potential purchaser after contract repudiation
Exclusions from the fifth element: expenditure that has been claimed as a deduction for income tax purposes in any year (for assets purchased after 13 May 1997)

Reduced Cost Base

The reduced cost base is used to calculate capital losses
It has the same elements as the cost base, except for the 3rd element (costs of owning)
Elements of the reduced cost base are not indexed
The reduced cost base does not include costs that have been (or can be) allowed as deductions, regardless of when the asset was purchased

GST and Cost Base Items

Sale of existing residential premises is input taxed, so no GST credits can be claimed
The cost base and reduced cost base are reduced by any net input tax credits (GST claimed) in relation to the asset

Building Cost Write-Off and Capital Gains

The construction cost of a building and structural improvements form part of the first or fourth element of the cost base or reduced cost base
If a building cost write-off has been claimed as a deduction, it may affect the capital gain or loss calculation
Expenditure claimed as a building cost write-off is excluded from the cost base or reduced cost base, depending on when the asset was purchased and when the expenditure was incurred

Depreciating Assets and Capital Gains

When a rental property is sold, the sale includes the sale of the building and depreciating assets
To calculate the capital gain or loss, the sale of the depreciating assets must be treated separately from the sale of the property
The value of the depreciating assets is not listed separately on the purchase or sale contract, but can be determined from a depreciation schedule prepared by a quantity surveyor
The balancing adjustment on each depreciating asset must be calculated, and the capital gain or loss on the sale of the property must be calculated separately

CGT and Depreciating Assets - CGT Event K7

A CGT event (CGT Event K7) occurs if a balancing adjustment event occurs for a depreciating asset
A capital gain or loss is calculated using the UCA concepts of cost and termination value, not those found in the CGT provisions
A capital gain or loss may arise if the asset is not used wholly for a taxable purpose

CGT Concessions

A capital gain from the disposal of a depreciating asset may qualify for the CGT discount if conditions are satisfied

Documents Required to Calculate CGT

Settlement statements for the purchase and sale of the property
Details of depreciating assets purchased and sold with the property
Details of capital works deductions claimed
Conveyancer/lawyer invoice and statement of adjustments for the purchase and sale of the property
Additional expenses incurred on the sale of the property
Contract of purchase/sale
Cost of construction (if applicable)
Certificate of Title
Valuations (if necessary)
First bank statement for mortgage (if applicable)
Quantity surveyor's report### Determining Capital Gain on Sale of Rental Property
When selling a rental property, two methods can be used to calculate the capital gain or loss:
- Method 1: Treat the house and depreciating assets as separate assets
- Method 2: Treat the house and depreciating assets as one asset
Both methods result in the same outcome if the market value of the assets is equal to the closing adjustable value

Method 1: Depreciating Assets Treated as Separate Assets

Calculate capital proceeds by subtracting the value of depreciating assets from the total capital proceeds
Calculate the cost base by subtracting the value of depreciating assets from the purchase price and adding costs on purchase and sale
Calculate the capital gain by subtracting the cost base from the capital proceeds
Apply the 50% discount if applicable

Method 2: Property and Depreciating Assets Treated as one CGT Asset

Calculate the cost base by reducing the purchase price by the amount of decline in value claimed for the depreciating assets
Calculate the capital gain by subtracting the cost base from the capital proceeds
Apply the 50% discount if applicable

Rental Properties Acquired after 9 May 2017

No deduction is allowed for depreciating assets purchased with the property
Either method of calculation can be used
If using Method 1, CGT Event K7 applies to the disposal of the depreciating assets, resulting in a capital loss
If using Method 2, the decline in value of new depreciating assets purchased for the rental property can be claimed

Records and Calculations

Keep records for buying, owning, and selling the property for at least 5 years after disposal
If the property was acquired pre-CGT, it is exempt from CGT, and records do not need to be kept unless capital improvements were made
Calculations must be accurate and thorough, as the ATO may audit and require evidence of calculations

Learn about the basics of Capital Gains Tax (CGT) on rental properties, including how to calculate capital gains and losses, and how to report them on your tax return.

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