Capital Gains Tax is basically the tax you pay when you make a capital gain, or when you sell an asset after its value increases over time. If you’re just getting into the property industry and have been hearing the acronym “CGT” a lot, it simply means Capital Gains Tax.
The term ‘asset’ can mean shares of stock, vacant land, business premises, holiday homes, and (very commonly in the property industry) rental property. Whenever an asset is disposed (sold), the fees that go with buying (e.g. stamp duty) and selling (e.g. agent’s fees) are added to the cost base, and the resulting amount is held against the asset’s original purchase price.
When the amount is higher than the original purchase price, then we have a capital gain… and the CGT applies.
There are, however, some special situations that exempt you from paying a capital gains tax. The main exception is that the CGT does not apply to the sale of your own home. What’s more, holding a property for more than a year will give you a 50% discount on any CGT you need to pay.