The Australian Tax office charges you taxes whenever you buy something. This includes buying property. A variety of taxes can impact the cost of your home. However, the ATO is primarily interested in the Capital Gains Tax.
What is the capital gains tax?
Capital gains taxes are levied on investment properties during the selling process. It is calculated by subtracting the sum of the purchase price, the holding cost, stamp duty and other fees associated with the purchase from the amount you sold the property for. This capital gain is divided by the number of years you owned your property. The ATO will add this amount to your regular income and will tax it according to tax guidelines. Therefore, selling a property for a large profit can increase the amount of taxes you owe.
What other things do I need to know?
In addition to the capital gains tax, homeowners also need to consider land taxes and the local stamp duty fees. Any transaction involving the sale or rental of property can accrue tax liabilities. Renovating your home can cause extra land and stamp duties and increase your capital gains tax by increasing the value of your home. The ATO taxes the following property types:
- Residential and rental properties
- Vacant land
- Vacation homes
- Commercial properties
While purchasing a home incurs tax liabilities, first-time homeowners may be exempt from fees or taxes.
Borrowers do not often consider tax liabilities before purchasing a home. If you plan to buy a home, you need to consult with a mortgage broker. At Mortgage House, our team of brokers can help you secure a loan that takes factors in tax liabilities.
