Capital gains tax basics: the questions to ask your accountant before you buy

Capital gains tax arrives at the end of the story: you sell an investment property, and the gain is assessed in that financial year. So it feels like a future problem. It is not. Several of the things that determine the eventual bill are decided on the day you buy — and they are very hard to change afterwards.

We are not tax advisers and this article does not tell you what to do. It tells you what to ask, so that the conversation with your accountant happens before the purchase rather than after the sale.

What CGT is, in one paragraph

When you dispose of an asset such as an investment property, the difference between what it cost you (the cost base) and what you received for it is a capital gain or loss. A net capital gain is added to your assessable income for that year and taxed at your marginal rate. Some concessions may apply depending on your circumstances, and the rules have detail we are deliberately not summarising here — that is your accountant’s job.

Question 1: Who should own it?

The name on the contract determines whose income the gain is added to. An individual, a couple in particular proportions, a trust, a company or a self-managed super fund are all different — for tax, for asset protection, for borrowing and for what happens later. Changing ownership after settlement generally means a new transfer, with its own costs. Ask before you sign.

Question 2: Does the holding period change the outcome?

Ask your accountant how the length of time you hold the property may affect the way a gain is treated. The answer depends on the ownership structure and your circumstances, and it is one of the reasons the exit plan should be discussed at the entry.

Question 3: What counts in the cost base — and what records do I need?

The cost base is more than the purchase price. Certain acquisition costs, ownership costs and improvement costs may be included, and some things you might expect to include may not be. Your accountant will tell you which is which — but only if the records exist. Ask what to keep, and start a file from the first day: contracts, stamp duty, legal fees, inspection reports, invoices for capital improvements, and depreciation schedules.

Question 4: How does depreciation interact with CGT?

If you claim depreciation deductions while you own the property, ask your accountant how that interacts with the cost base when you sell. The two are connected, and understanding the connection changes how you look at the annual numbers.

Question 5: Year three versus year ten — what does the picture look like?

Ask your accountant to sketch two scenarios: a sale after a few years and a sale after a decade, using assumptions you both agree are reasonable. The point is not to predict the future. It is to see how the same purchase can produce very different after-tax outcomes depending on the exit, and to make sure your plan and your tax position are pointing the same way.

Why we insist on this conversation

At TNC Group, property is a component of the strategy — not the whole strategy. The Strategise and Plan steps include putting your accountant in the room before you buy, so the tax questions are answered by the right professional at the right time. We coordinate that conversation; we do not replace it.

Want the professionals lined up before the search? Book a free 15-minute call — book here — or visit www.tncgroup.com.au.

General information only. This is not tax, financial or legal advice. Speak to a registered tax agent or accountant about your situation.