Capital Gains Tax – What Is It?
Capital Gains Tax (CGT) is an amount of tax that is required that you pay on any capital gain you make. The gain is deemed to be additional income that you have received during that particular year and is included and assessed on your annual income tax return.
Capital Gains Tax is not a separate tax, it is calculated out as a component of your income tax. So depending upon your level of income tax, the Capital Gains Tax is calculated based on your capital gain at your marginal tax rate.
"Your net capital gain is:
your total capital gains for the year
minus
your total capital losses (including any net capital losses from previous years)
minus
any Capital Gains Tax discount and Capital Gains Tax small business concessions to which you are entitled." Source:ATO
Your annual income tax will be assessed for Capital Gains Tax if you make a capital gain or capital loss during the period within which a Capital Gains Tax event happened.
You should also bear in mind that you can also be assessed for Capital Gains Tax if a managed fund or other trust distributes a capital gain to you.
For most Capital Gains Tax events, your capital gain can be calculated by working out the difference between the capital proceeds you have received and the cost base of your Capital Gains Tax asset – for instance, you will usually be liable to pay Capital Gains Tax if during a Capital Gains Tax event you received more for an asset than you paid for it.
Alternatively, you would make a capital loss in the event that your reduced cost base is greater than your capital proceeds. In most instances, when making a capital loss Capital Gains Tax should not apply during that years income tax assessment.
If your total capital losses for the year are more than your total capital gains, the difference is your net capital loss for the year. This can be carried forward to later income years where it can be deducted from any future Capital Gains Tax events.
Unfortunately, you cannot use these losses to deduct capital losses or a net capital loss from your income. They can only be carried forward and deducted against future Capital Gains Tax.
Capital Gains Tax – Can You Be Exempt?
Capital Gains Tax legislation hinges upon whether you have used the property as your main residence or not.
Under normal circumstances, if the property is your main residence then you should be Capital Gains Tax exempt.
Have you heard of the 6 Year Rule?
The Australian Government has a 6 year rule that exempts some property owners from having to pay Capital Gains Tax. 
Put simply certain property owners are allowed to rent out their main residence, receive rent, claim deductions and, when it comes time to sell, there are certain circumstances where they often won’t have to pay Capital Gains Tax.
There are some conditions...
"The property must have been your main residence. If you move out of the property and rent it out, you can continue to claim an exemption from Capital Gains Tax for up to six years after you move out. If you do not rent it out, you can claim a Capital Gains tax exemption for it for an indefinite period." Source: ATO
This Capital Gains Tax exemption is not available to every property owner, there are certain stipulations that will be explained a lot clearer in the Real Estate Newsletter.
What About Capital Gains Tax On Investment Properties?
If the property has been used as an investment then in most cases Capital Gains Tax will apply.
In our newsletter we answer your most pressing questions about property, such as:
1. Does Capital Gains Tax apply to you?
2. How to calculate your Capital Gain or Capital Loss?
3. How does it all work?
I’ll cover things like indexation method, discount method and the ‘other’ method and make it simpler to understand the confusion around ‘cost base’ and ‘reduced cost base’.
I know it sounds confusing but these methods and terminologies can be broken down to a simple explanation of Capital Gains Tax.