Property investment, just like any other business, has its own rules. Failure to understand how they work can lead to costly slip-ups, which could have been avoided. Issues regarding property investment taxation are sometimes confusing. Unfortunately, ignorance does not feature when it comes to dealing with the taxman. Capital gains tax or CGT is a form of tax that few people know about. Even those who know about it do not pay much attention until they are caught unawares. This tax can eat up almost every penny you have made from your property investment, leaving you in a miserable state. To protect yourself, try to understand how it works and stay safe. You may speak to a tax professional if you don't understand the concept.
Capital gains tax is a charge on the proceeds from the sale of property investment. Its principles are quite easy. The person required by the taxman to pay this tax is the property owner, a trustee or a representative of the investor. Group property owners or companies are not obligated to pay the capital gains tax. Instead, they have a special category for companies called, chargeable gains.
Every property owner that is under obligation to pay capital gains tax must declare the same in the annual tax return assessment forms. If you fail to declare your property investment in these forms, a report must be made to the tax authorities before the closure of the government year to avoid penalties. Payers of capital gains tax are entitled to a certain percentage of relief and discounts. To access these benefits, full disclosure of the capital gains made from the property disposal must be made.
Exemptions
The government of Australia has CGT legislations aimed at encouraging property investment in the country. However, there are certain rules that are tied to the legislation. A property owner is not liable to pay capital gains on a permanent residential property. A property investment becomes a permanent residence automatically if you have lived in it for a period of not less than five years. The five years must, however, not be sequential. You only need to make sure the absence interludes do not exceed three years. This basically means that you can have two permanent residences at the same time by living in them on alternate years. You do, however, need to be cautious here so as not to surpass the three-year time limit of absence.
A limitation to this exemption rule is if you are married. The law states that a married couple cannot have two residences at the same time unless they have separated.
Another exemption is if the gains from the sale of the property investment are used in purchasing or initiating another investment project within 2 years after the disposal of the property. If you manage to beat the deadline, then you will automatically be exempted from paying the capital gains tax on property investment. In simple terms, this tax is not there to punish you but to induce property investment. Unfortunately many get stung because they do not take heed or lack understanding and they are caught unawares.
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