## Understanding property sales

Property sales (including subdivided land) that are part of a property development business will be treated as ordinary income.

In other instances, when you sell property that is not part of a property development business, even if it includes your family home, you need to understand when:

- the proceeds from the sale of the property are treated as ordinary income or a capital gain
- an activity is considered to be carrying on an enterprise for **ABN** and **GST** purposes.

### Income or capital

Your purpose when you enter into an arrangement to purchase, develop or sell the property determines if gains or losses are a capital gain or ordinary income.

Your purpose may:

- include holding the property to derive rental income and to sell for a profit (multiple purpose)
- occur several years after you acquired the property
- change throughout your ownership period.

#### Example: acquiring property to sell and rent (multiple purpose)

##### Scenario

Dean acquires a block of land with the intention to subdivide into smaller lots, develop properties for lease and potentially sell the properties in the future under the right market conditions. Dean is a savvy business person, who has run several businesses previously and is experienced in property development.

The loan application outlines the different possible uses for the property, including sale and leasing of the properties.

Upon completion, the properties are leased until an opportunity arises to sell at a price that maximises profits.

##### General principles

Dean may enter into a property development project with a dominant and secondary purpose.

The profit-making purpose by sale need not be the dominant purpose.

Land can still be trading stock where the land is held for more than one purpose (section 70-10 ITAA 1997).

For an asset to be trading stock there must be a 'substantial purpose' of sale at a profit.

The nature of Dean’s business and history of profit-making activities is taken into account.

End of example
For a more detailed example on acquiring properties for multiple purposes, see example 7 in our [Legal database](https://www.ato.gov.au/law/view/document?DocID=GUI/tax-consequences-land-sales&PiT=99991231235958).

The tax outcome depends on whether the disposal was:

- a simple realisation of the property – the gain or loss is a capital gain or loss
- a disposal undertaken as either part of a:

- business – the money received is assessable income of the business (see more about issues arising from being in a development [business](https://www.ato.gov.au/businesses-and-organisations/starting-registering-or-closing-a-business/starting-your-own-business/are-you-in-business))
- profit-making undertaking – the net profit is assessable income.

It's likely that any gain will be a profit for income tax purposes and not just a capital gain if your activities leading up to a sale look like either:

- a commercial transaction
- part of an arrangement to make a profit beyond the appreciation in the value of the land only.

#### Example: simple realisation of property

##### Scenario

Blewit purchases a large parcel of land which he uses to conduct a horse training business.

Due to personal health issues and increasing debt, Blewit decides to subdivide the land and sell the lots.

The subdivision works are minimal to meet council requirements.

A property developer is engaged by Blewit to help with the subdivision process and Blewit has minimal involvement with the subdivision process.

All lots of vacant land were sold.

##### General principles

Proceeds are assessable on capital account, unless it can be determined that Blewit is carrying on a business or undertaking a profit-making scheme.

Indicators that support activities amount to the mere realisation of a capital asset:

- minimal works to meet council requirements
- landowner’s minimal degree of involvement in the subdivision
- land wasn't purchased with an intention to resell at profit
- small scale and low complexity
- Blewit has no experience or history of property development.

End of example
For more detailed examples on whether the disposal of subdivided land is the simple realisation of the property, see examples 5 and 6 in our [Legal database](https://www.ato.gov.au/law/view/document?DocID=GUI/tax-consequences-land-sales&PiT=99991231235958).

If property is purchased as a capital asset, and there is a change in intention, the ultimate overall gain should be split between a capital gain and ordinary income.

It is only the net profit you make from your profit-making undertaking that will be assessable as ordinary income. Any capital gains will be assessed under the capital gains tax (CGT) rules.

### GST consequences

You may have GST obligations and entitlements if you sell property:

- with the intention of making a profit
- while carrying on a business
- as part of a business or commercial transaction.

Where the gain or loss on the sale is considered to be ordinary income for income tax purposes, the sale will be:

- part of an enterprise for GST purposes
- included in calculating your [turnover for GST](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/registering-for-gst) registration purposes
- subject to GST if you exceed the [GST registration threshold](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/registering-for-gst) or are otherwise already registered for GST.

Where the gain or loss on the sale is considered a capital gain, you may still have GST consequences on the sale if you:

- used the land in an enterprise you were carrying on – the sale of the property will be a sale undertaken as part of that enterprise
- are registered or required to be registered for GST – your sale may be subject to GST.

If your gain or loss is capital because you merely realised the property value and didn't use the land in an enterprise, your sale will **generally not be subject to GST**.

If you are required to pay GST, you can claim a credit for any GST included in the price you pay for things you purchased to make the sale. You must be registered for GST to claim a credit.

## Factors to consider

When you acquire the property as a home, farm or other capital asset, your purpose and the steps you take to sell the property determines whether the gain for income tax purposes is either:

- a capital gain
- ordinary income from a profit-making undertaking.

The following factors will help you work out the tax treatment:

- [type of entity making the sale ](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Thenatureoftheentityundertakingtheoperat)
- [types of activities you're involved in](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Thenatureandscaleofotheractivitiesundert)
- [costs incurred prior to the sale](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Thecostsincurredpriortothesale)
- [complexity and steps undertaken](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Thecomplexityandstepsundertaken)
- [parties and phases involved](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Themannerinwhichtheoperationortransactio)
- [your relationship to other parties involved in the sale ](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Yourrelationshiptootherpartiesinvolvedin)
- [your purpose in buying the land](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Yourpurposeinbuyingtheland)
- [timing and steps undertaken for the sale](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/tax-consequences-on-sales-of-property#Thetimingandstepsundertakenforthesale)

This information is a guide only and provides additional detail in general terms for each of the factors in [Taxation Ruling 92/3](https://www.ato.gov.au/law/view/document?DocID=TXR/TR923/NAT/ATO/00001&PiT=99991231235958) *Income tax: whether profits on isolated transactions are income*.

When considering the income tax and GST implications of your property sale, it is important to **weigh all the factors** together and not consider them in isolation.

### The type of entity making the sale

To help determine if the property sale was commercial in nature and what the tax consequences are, consider the:

- type of entity involved in your property sale
- reasons for undertaking it.

Regardless of your structure, you are more likely to be carrying on a commercial business deal when you:

- engage a developer to carry out a development activity for a fee
- share in the profits from the sales with the developer.

A property sale is more likely to be a **capital gain** if you:

- are an individual and the sale was driven by personal reasons - for example, a simple land subdivision and sale of part of land you no longer need
- don't have a history as a developer
- own or control a business and it doesn't carry out any land dealing or development activities.

A property sale is more likely to be **ordinary income** if a business entity (such as a partnership, trust, company) is established, acquires property with the intention of making a profit and enters into a property development.

### The types of activities you're involved in

The types of activities you are involved in (not including the property sale in question) can help to determine if the activity was part of a profit-making undertaking.

The sale of the property is more likely to be a **capital gain** if you:

- aren't engaged in business, or your business activities aren't related to property development or property transactions
- haven't previously been involved in commercial property transactions or developments in any capacity
- originally acquired the land primarily for investment purposes only, such as to earn rental income.

The sale of the property is more likely to be **ordinary income** if you:

- have had previous commercial property transactions
- operate a business related to property development, construction, or sale
- originally acquired the land with an intention to undertake development activities.

#### Example: property renovation (flipping)

##### Scenario

Amanita decides to purchase a property and before doing so, thoroughly researches the real estate market, attends investment seminars and engages a real estate agent to canvass where best to buy and resell property.

The property purchased by Amanita has good resale potential as it is in an attractive location but requires renovation.

Amanita moves into the property and completes the renovations within 15 months and sells the property at a profit.

Using the proceeds from the sale, Amanita purchases another property that requires renovation and repeats these activities.

##### General principles

Amanita is carrying on a property renovation business.

Property renovation business or profit-making activity factors can include (but are not limited to):

- regularity, repetitiveness and continuity
- size and scale
- level of planning and organisation are carried on in a business-like manner
- activities are carried on for the purpose of making a profit.

Properties are regarded as trading stock (even when lived in for a short period).

Main residence exemption won't apply to assets held as trading stock.

End of example
For more detailed examples on property flipping, see examples 3 and 4 in our [Legal database](https://www.ato.gov.au/law/view/document?DocID=GUI/tax-consequences-land-sales&PiT=99991231235958). For further information see [Are you in the business of renovating properties? ](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/are-you-in-the-business-of-renovating-properties)

### The costs incurred prior to the sale

The costs incurred can help to determine if the activity was commercial in nature.

The sale of the property is more likely to be a **capital gain** if:

- the development cost is low compared to the value of the undeveloped land
- you were exposed to minimal financial risk in undertaking the activities leading to the sale.

The sale of the property is more likely to be **ordinary income** if:

- the development cost is significant compared to the value of the undeveloped land for example, attributable to building on the land
- you were exposed to significant financial risk in undertaking the activities leading to the sale for example, mortgaging the land to finance the activity.

#### Example: one-off profit-making activity

##### Scenario

Claude's home has a big backyard which has been difficult to maintain. He decided to undertake extensive research on subdividing and building (including speaking with multiple local real estate agents).

Claude engaged a project developer to subdivide the land and build a house with the intention of making a profit from the sale of the development.

The development was funded by a bank loan and Claude expected the sale of the new house to pay the loan out in full.

Claude sold the new house and made a profit from the sale.

Claude held the subdivided block of land for more than 12 months before the sale.

##### General principles

Claude has engaged in a one-off profit-making development activity because the transaction was more complex than a mere realisation through selling the vacant lot and was undertaken in a businesslike manner to make a profit.

Once the backyard was subdivided and got its own title, it became a separate asset.

Claude will need to include both the net profit and any capital gain from the sale of the development in his assessable income.

To the extent that Claude makes a capital gain, it will be reduced by amounts from the sale already included (being the net profit) in Claude’s assessable income. The 50% CGT discount will then apply.

GST registration will be required if Claude entered into a profit-making activity and exceeded the GST registration turnover threshold.

End of example
For more detailed examples on one-off development activities, see example 2 in our [Legal database](https://www.ato.gov.au/law/view/document?DocID=GUI/tax-consequences-land-sales&PiT=99991231235958).

### The complexity and steps undertaken

The complexity and steps carried out to prepare the land for sale can help to determine if the activity was commercial in nature.

The sale of the property is more likely to be a **capital gain** if:

- it is a single transaction
- it is the sale of an unimproved block
- the cost of development is low compared to the value of the undeveloped land.

The sale of the property is more likely to be **ordinary income** if:

- the land was purchased for the purpose of subdivision and sale – an indication of this is if you sought approvals soon after the land was acquired
- the land sale involved significant improvements – for example, to improve its condition to maximise profit, or the construction of houses, other buildings, roads or other community services
- the overall project involved the purchase and development of neighbouring blocks
- the development activity was subject to a decision by a government authority to rezone the land, that you or related parties lobbied for
- the costs of development are significant compared to the value of the undeveloped land.

### The parties and phases involved

In determining if the sale of property is commercial in nature, it is necessary to consider whether the sale occurred in phases over a period of time, involved multiple parties or a series of transactions.

The sale of property is more likely to be a **capital gain** if:

- it is a straightforward one-off transaction between you and a purchaser
- the only element of the arrangement is an agreement to transact and sell land in its existing state
- there are no other parties involved in finalising the sale (except for real estate agents and conveyancers)
- if you were approached by a third party to facilitate a sale, rather than actively marketing the property.

The sale of property is more likely to be **ordinary income** if:

- you transacted with multiple parties (such as architects, property developers and consultants) through various agreements to prepare the property for eventual sale
- the sale relied on a number of additional steps and was significantly more complex than a standard residential sale
- you engage a developer to carry out a development activity for a fee.

### Your relationship to other parties involved in the sale

Your relationship with others involved in the sale can help to determine if the activity is commercial in nature and treated as ordinary income.

The sale of the property is more likely to be a **capital gain** if the:

- type of parties involved were limited to those such as real estate agents, conveyancers and surveyors
- arrangement is non-commercial and more in the nature of a family dealing (such as selling a granny flat previously used by a family member).

The sale of the property is more likely to be **ordinary income** where professional third-party experts (such as architects, developers and consultants) act on your instructions, their business activities are taken to be your activities.

### Your purpose in buying the land

The purpose for entering an arrangement to develop and sell land may occur several years after the land was acquired. The purpose may change throughout the ownership period.

If you purchased the land for sale and didn't use it for any other purpose, the transaction was commercial in nature and ordinary income.

The sale of the property is more likely to be a **capital gain** if the land was purchased:

- exclusively for private purposes, such as your family home or holiday home, and was held for a significant period
- as a rental investment property that was held for a significant period
- as a farm for the purposes of carrying out farming activities.

The sale of the property is more likely to be **ordinary income** if the land was purchased:

- to be developed
- for land banking (holding for future development).

#### Example: residential suburban block development

##### Scenario

After 17 years of living in their home, Mr Block decided to subdivide the land for development which involved demolishing the house and building 3 townhouses:

- one townhouse to live in
- one townhouse to rent out
- a third townhouse to be sold at a profit.

Mr Block hired professionals to design the townhouses, obtain the permit and subdivide the land.

The development was funded by a bank loan and the property was used as security.

The townhouses were completed in 14 months.

However, Mr Block fell ill and had to move into a nursing home. To fund this move, Mr Block sold all 3 townhouses and made a substantial profit.

##### General principles

Mr Block is not carrying on a business of property development.

The gain from the sale of the townhouse built with the intention to sell is ordinary income, from a profit-making undertaking or scheme.

The gain from the 2 townhouses not built with the intention to sell is not part of a profit-making undertaking and is the realisation of the capital value of those assets.

In relation to GST:

- Mr Block is required to register for GST because he is carrying on an enterprise and meets the turnover test
- the sale of the townhouses built with the intention to rent and sell will be taxable supplies made as part of Mr Block's enterprise
- Mr Block is entitled to GST credits for construction costs of the townhouse built to sell but is not entitled to GST credits for construction costs of the other 2 townhouses.
- Mr Block is entitled to an [adjustment](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/managing-gst-in-your-business/reporting-paying-and-activity-statements/making-adjustments-on-your-activity-statements/types-of-adjustments?page=3#ato-Changesincreditablepurpose) to claim GST credits for the taxable supply of the townhouse intended for rent.

End of example
For more detailed examples on residential suburban developments, see our [Legal database](https://www.ato.gov.au/law/view/document?DocID=GUI/tax-consequences-land-sales&PiT=99991231235958).

### The timing and steps undertaken for the sale

The length of time you own the land can help to determine if the property sale is commercial in nature and treated as ordinary income.

The sale of the property is more likely a **capital gain** if the land is owned for a significant period and used, for example, as a house or farm. This is evidence you acquired the land for those purposes.

The sale of the property is more likely to be **ordinary income** if the land was owned for a short period before being sold.

## Evidence to determine intent and purpose

Even when a property sale involves your family home, you need to keep evidence of the sale process.

Written records are the best evidence of your purpose and intention and are much more valuable than what you can remember in hindsight.

## Further assistance

This information provides general examples that illustrate principles described in:

- [Taxation Ruling 92/3](https://www.ato.gov.au/law/view/document?DocID=TXR/TR923/NAT/ATO/00001&PiT=99991231235958) *Income tax: whether profits on isolated transactions are income*
- [Miscellaneous Taxation Ruling 2006/1](https://www.ato.gov.au/law/view/document?src=hs&pit=99991231235958&arc=false&start=1&pageSize=10&total=493&num=0&docid=MXR%2FMT20061%2FNAT%2FATO%2F00001&dc=false&stype=find&tm=phrase-basic-MT%202006%2F1) *The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number*.

See additional [Examples of tax consequences on sales of land including small-scale land subdivision](https://www.ato.gov.au/law/view/document?DocID=GUI/tax-consequences-land-sales) on our Legal database.

For more information about property see:

- [Subdividing land ](https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/land-vacant-land-and-subdividing/subdividing-land)
- [Are you in the business of renovating properties?](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/are-you-in-the-business-of-renovating-properties)
- [GST and property ](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/property/gst-and-property)

If your circumstances are not fully covered here or you are unsure how it applies to you, [contact us](https://www.ato.gov.au/about-ato/contact-us) or seek professional advice. You may also [apply for a private ruling](https://www.ato.gov.au/about-ato/ato-advice-and-guidance/ato-advice-products-rulings/private-rulings/applying-for-a-private-ruling).

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## Calculating your car expense deductions and keeping records

You use either of 2 methods to calculate deductions for car expenses:

- [Cents per kilometre method](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/cars-transport-and-travel/motor-vehicle-and-car-expenses/expenses-for-a-car-you-own-or-lease#Centsperkilometremethod)
- [Logbook method](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/cars-transport-and-travel/motor-vehicle-and-car-expenses/expenses-for-a-car-you-own-or-lease#Logbookmethod)

Use the calculator to work out your deduction for either method.

[Work-related car expenses calculator](https://www.ato.gov.au/calculators-and-tools/work-related-car-expenses)
If you are claiming car expenses for more than one car, you can use a different method for each car. You can also change the method you use in different income years for the same car.

### Cents per kilometre method

To calculate your deduction using this method, multiply the number of work-related kilometres you travel in the car by the rate per kilometre for that income year.

'Work-related kilometres' are the kilometres your car travels in the course of earning your assessable income.

Use the rate for the income year for which you are claiming a deduction:

- 2024–25 and 2025–26: use 88 cents per kilometre
- 2023–24: use 85 cents per kilometre
- 2022–23: use 78 cents per kilometre
- 2020–21 and 2021–22: use 72 cents per kilometre
- for rates in earlier years, see [Prior year tax return forms and schedules](https://www.ato.gov.au/forms-and-instructions/prior-year-tax-return-forms-and-schedules).

You can claim a maximum of 5,000 work-related kilometres per car.

You need to [keep records](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/cars-transport-and-travel/motor-vehicle-and-car-expenses/expenses-for-a-car-you-own-or-lease#Keepingrecordsforcentsperkilometremetho1) that show how you work out your work-related kilometres.

If you and another joint owner use the car for separate income-producing purposes, you can each claim up to 5,000 work-related kilometres.

The cents per kilometre rate covers all car expenses, including:

- decline in value
- registration
- insurance
- maintenance
- repairs
- fuel costs.

You can’t add any of these expenses on top of the rate when you work out your deduction using this method.

#### Example: car deduction using cents per kilometre

Once per week, Johan makes a 27-kilometre round trip in his own car from his head office in the city to meet with clients. In addition, once per month he makes a 106-kilometre round trip to visit clients at another location.

When Johan consults his diary at the end of the 2024–25 income year, he works out he was at work for 47 weeks, but he missed one weekly meeting with clients as he was sick. He also determines that, although he was on leave for 5 weeks during the income year, he still made 12 × 106-kilometre round trips to visit clients.

He works out his work-related kilometres as:

Number of weekly trips **multiplied** **by** distance of weekly trip **equals** total weekly trip kilometres

46 × 27 km = 1,242 km

Number of monthly trips **multiplied** **by** distance of monthly trip **equals** total monthly trip kilometres

12 × 106 km = 1,272 km

Total weekly trip kilometres **plus** total monthly trip kilometres **equals** total trip kilometres

1,242 km + 1,272 km = 2,514 km

Johan works out his deduction for the 2024–25 income year as:

2,514 km × 0.88 = $2,212

End of example
#### Keeping records for cents per kilometre method

If you use the cents per kilometre method, you don't need receipts.

You do need to be able to show that you own the car and how you work out your work-related kilometres. For example, you could record your work-related trips:

- in a diary
- using the [myDeductions](https://www.ato.gov.au/online-services/online-services-for-individuals-and-sole-traders/ato-app/using-mydeductions/mydeductions) tool in the ATO app.

### Logbook method

To calculate your deduction using the logbook method, you need to:

- [keep a logbook](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/cars-transport-and-travel/motor-vehicle-and-car-expenses/expenses-for-a-car-you-own-or-lease#Keepingalogbook) that shows your work-related trips for a continuous period of at least 12 weeks (your logbook is valid for up to 5 income years)
- [keep receipts or other records of your car expenses](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/cars-transport-and-travel/motor-vehicle-and-car-expenses/expenses-for-a-car-you-own-or-lease#Keepingrecordsofcarexpensesforlogbookmet)
- use your logbook to [calculate the deductible portion of your car expenses](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/cars-transport-and-travel/motor-vehicle-and-car-expenses/expenses-for-a-car-you-own-or-lease#Howtocalculateyourdeductionusingalogbook).

#### Keeping a logbook

Your logbook must:

- cover at least 12 continuous weeks and be broadly representative of your travel
- include the destination and purpose of every journey, the odometer reading at the start and end of each journey, and the total kilometres travelled during the period
- include odometer readings for the start and end of the logbook period.

Your logbook is valid for 5 years. However, if your circumstances change (for example, if you change jobs or move to a new house), and the logbook is no longer representative of your work-related use, you will need to complete a new 12-week logbook.

In each of the 4 years following the first year, you need to keep:

- odometer readings for the start and end of the full period you claim
- your work-related use percentage based on the logbook.

If you are using the logbook method for 2 or more cars, keep a logbook for each car and make sure they cover the same period.

You can keep an electronic logbook using the [myDeductions](https://www.ato.gov.au/online-services/online-services-for-individuals-and-sole-traders/ato-app/using-mydeductions/mydeductions) tool in the ATO app, or keep a paper logbook.

You must retain your logbook and odometer records for 5 years after the end of the latest income year that you rely on them to support your claim.

#### Keeping records of car expenses for logbook method

You can claim running costs and decline in value of your car.

You must keep:

- receipts for your fuel and oil expenses, or a record of your reasonable estimate of these expenses based on the odometer readings for the start and end of the period for which you are claiming
- receipts for other expenses for your car – for example, registration, insurance, lease payments, services, tyres, repairs, electricity expenses and interest charges
- a record of the purchase price of the car and how you work out your claim for the decline in value of your car, including the effective life and method you use.

#### Electric cars - records of electricity expenses

If your car is electric, instead of keeping receipts for fuel and oil, you must keep:

- receipts for electricity from commercial charging stations
- evidence that shows you incur electricity costs to charge your car at home, such as an electricity bill and how you calculated the direct cost of charging your car
- odometer readings for the start and the end of the period that you are claiming.

Alternatively, you can use the electric vehicle (EV) home charging rate of 4.2c per kilometre to make a reasonable estimate of your home charging expenses based on your odometer readings. If you choose to use this rate but you also used commercial charging stations to charge the car during the income year, you must disregard your commercial charging station costs. They can't be claimed as a separate deduction.

If your car can accurately report the percentage of its total charge based on the type of charging location (home versus commercial stations), you can use the EV home charging rate to calculate the cost of your home charging. You can also claim your commercial charging station costs. You do this by adjusting the total number of relevant kilometres by the home charging percentage and then multiplying those kilometres by the EV home charging rate and then adding your commercial charging station costs. You must still keep all of the records listed above if you calculate your charging costs in this way.

##### Example: home charging percentage can be accurately determined

Bill owns an electric car which he uses for work purposes. Bill charges his electric car at home and at commercial charging stations.

For the 2024-25 income year, Bill has:

- a valid logbook
- the odometer reading for his car at the start and the end of the income year
- an electricity bill for his home showing he incurred electricity expenses
- receipts for his commercial charging station expenses which total $172.

Bill's car generates a report detailing the annual percentage of total charge that relates to home charging. The report shows that Bill charges his electric vehicle 75% at home during the 2024–25 income year.

Bill travelled a total of 10,000 km in the 2024–25 income year. His home charging kilometres are determined by applying the home charging percentage to the total kilometres travelled.

Bill calculates his home charging kilometres as:

Total kilometres **multiplied by** home charging percentage **equals** home charging kilometres

10,000km × 75% = 7,500km

To calculate his total home charging expenses, Bill multiplies the home charging kilometres by the EV home charging rate:

7,500km × 4.2c/km = $315

Bill calculates his total charging expenses as:

Home charging expenses **plus** commercial charging expenses **equals** total charging expenses

$315 + $172 = $487

To calculate his deduction for charging his car during the 2024-25 income year, Bill will multiply his total charging expenses ($487) by his work-related use percentage from his logbook.

End of example
#### Hybrid cars - records of fuel, oil and electricity expenses

If your car is a hybrid, you must keep all the following:

- receipts for your fuel and oil
- receipts for commercial charging stations
- evidence that shows you incur electricity costs to charge your car at home, such as an electricity bill and how you calculated the direct cost of charging your car
- odometer readings for the start and the end of the period that you are claiming.

From 1 July 2024, you can use the EV home charging rate if the car you own and use for work is a plug-in hybrid electric vehicle (PHEV). For more information on how to calculate your home charging expenses for your PHEV using the EV home charging rate and the records you need to keep, see [PCG 2024/2DC](https://www.ato.gov.au/law/view/document?DocID=DPA/PCG20242DC1/NAT/ATO/00001) *Electric vehicle home charging rate - calculating electricity costs when a vehicle is charged at an employee's or individual's home*.

You can't claim capital costs, such as the purchase price of your car, the principal on any money borrowed to buy it, or improvement costs (for example, adding paint protection or tinted windows).

#### How to calculate your deduction using a logbook

1. Work out the total number of kilometres you travelled during the logbook period.
2. Work out the number of kilometres you travelled for allowable work-related trips during the logbook period.
3. Divide the work-related kilometres (2) by the total kilometres (1), then multiply by 100. This is your work-related use percentage.
4. Add up your total expenses for the period that you are claiming.
5. Multiply your work-related use percentage (3) by your car expenses (4). This is the amount you claim as a deduction.


## How capital gains or losses apply

When you sell or dispose of a rental property you may make a capital gain or loss.

A capital gain or loss is the difference between what it cost you to obtain and improve the property (the cost base) and the amount you receive when you dispose of it.

If you make a:

- net capital gain in an income year, you'll generally be liable for capital gains tax (CGT)
- net capital loss, you can carry it forward and deduct it from your capital gains in later years.

Use our calculator or steps to [calculate your CGT](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/calculating-your-cgt).

To see how to enter your capital gains or losses when completing your tax return in myTax, watch our video on [how to complete myTax when you have sold a rental propertyExternal Link](https://tv.ato.gov.au/ato-tv/media?v=bi9or7odtggh5r).

You may be entitled to a part of full [main residence exemption](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/eligibility-for-main-residence-exemption) if you lived in the property before renting it out, see [Treating your former home as main residence](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/treating-former-home-as-main-residence).

You will be entitled to a part main residence exemption if you [rented out part of your home](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home/using-your-home-for-rental-or-business).

For a summary fact sheet with common scenarios about CGT and eligibility for the main residence exemption, go to the ATO Publication Ordering Service to download [Capital gains tax and the main residence exemption](https://iorder.com.au/publication/publicationdetails.aspx?pid=75488-04.2025).

If you are a co-owner of the property, you'll make a capital gain or loss in accordance with your ownership interest in the property.

The application of CGT depends on when you acquired the property:

- If you acquired the property before 20 September 1985 then it will only apply to certain capital improvements made after that date.
- If you acquired the property after 20 September 1985, then it will apply to the entire property.

**Watch:** Selling your rental property

**Media:** Selling your rental property

[https://tv.ato.gov.au/ato-tv/media?v=bd1bdiubfs6pgxExternal Link](https://tv.ato.gov.au/ato-tv/media?v=bd1bdiubfs6pgx) (**Duration:** 2:46)

**Watch:** Selling a rental property that was your home

**Media:** Selling a rental property that was your home

[https://tv.ato.gov.au/ato-tv/media?v=bd1bdiubfs6pgqExternal Link](https://tv.ato.gov.au/ato-tv/media?v=bd1bdiubfs6pgq) (**Duration:** 3:17)

For a summary fact sheet with common scenarios about the CGT on sale of property, go to the ATO Publication Ordering Service to download [Capital gains tax on the sale of property](https://iorder.com.au/publication/publicationdetails.aspx?pid=75443-04.2025).

## Working out your costs

The [cost base and reduced cost base](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/calculating-your-cgt/cost-base-of-asset) of a property include the amount you paid for it together with some incidental costs associated with acquiring, holding and disposing of it (such as legal fees, stamp duty and real estate agent’s commissions).

It does not include amounts that you have claimed or could claim as a tax deduction.

When you sell your rental property, the time of the event (the time at which you make a capital gain or loss) is when you enter into the contract, not when you settle.

### Example: capital gains on the sale of a co-owned rental property

Karl and Louisa bought a residential rental property in November 2016 for a purchase price of $750,000.

They incur costs of purchase, including stamp duty and legal fees, of $30,000.

After purchase they improved the property by constructing a fence for $6,000.

Over the 7 years of ownership of the property, they claimed $5,000 in decline in value deductions and $35,000 in capital works deductions. (If they had purchased the property after 9 May 2017 then there would be no deductions for the decline in value of any second-hand depreciating assets.)

In June 2025, they entered into a contract to sell the property, and in November 2025 it was sold for $900,000. Their costs of sale, including legal fees, were $10,000.

**A + B + C + D − E - F = Cost base**

Where:

- A is the purchase price
- B is the costs of the purchase
- C is the cost of property improvements
- D is the costs of sale
- E is the capital works deductions
- F is the total amount of decline in value deductions claimed over the period of ownership of the rental property

$750,000 + $30,000 + $6,000 + $10,000 − $35,000 − $5,000 = $756,000

The capital gains outcomes are:

Proceeds = $900,000

**Proceeds − Cost base = Capital gain outcome**

$900,000 − $756,000 = $144,000

As the property has been owned for more than a year, Karl and Louisa can apply  the 50% discount and reduce the capital gain to $72,000.

Karl and Louisa owned the property jointly. This means that they each have a capital gain of $36,000 which they will need to put in their tax return for the year in which the contract to sell the property was made, being the 2024–25 year.

End of example
For more information on working out your costs, see [Rental properties guide](https://www.ato.gov.au/forms-and-instructions/rental-properties-2025).

## Capital expenses

Expenses you incur when purchasing, acquiring, selling, or disposing of your rental property are capital expenses. You may be able to include capital expenses when calculating the 'cost base' of your property. This can help you reduce the amount of CGT you pay when you sell your property.

Capital expenses include:

- conveyancing costs paid to a conveyancer or solicitor
- title search fees
- valuation fees (when it is a private valuation conducted by your solicitor)
- stamp duty on the transfer of the property
- initial repairs.

### Example: capital expenses

Stephen recently purchased a rental property that needed repairs before the tenants moved in. He paid tradespeople to:

- repaint dirty walls
- replace broken hardwired light fittings
- repair doors on 2 bedrooms.

The house was also treated for damage by white ants.

Because Stephen incurred these expenses to make the property suitable for rent (not while he was using the property to generate rental income), these expenses are capital expenses and are added to the cost base of the property.

End of example
## GST on rental properties

Generally, the sale of existing residential premises is input taxed, that is, the sale price doesn't include GST. This means:

- you can't claim GST credits on any costs associated with buying or selling
- GST does not apply to the rental payments you receive.

However, if you [build new residential premises](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/property/property-development-building-and-renovating/building-and-construction-residential-premises) for sale, you may:

- be liable for GST on the sale ([at settlement](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/property/gst-at-settlement))
- need to [register for GST](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/property/gst-and-property) depending on your turnover.

If you do need to register for GST, you may also be entitled to GST credits on construction and sale costs, even if the premises have been rented for a period before being sold.

For more information, see [GST and residential property](https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/property/gst-and-residential-property).

## Foreign resident capital gains withholding

Foreign resident capital gains withholding (FRCGW) may apply when selling your rental property to a foreign resident.


## Automatic exit

### Individuals

We will automatically remove you from PAYG instalments if you:

- are eligible to claim the senior and pensioners tax offset in your tax return
- report business and investment income of less than $4,000 (for residents, or $1 for non-residents) in your tax return
- have a tax debt of less than $1,000 (after adjustments for PAYG instalments and voluntary payments) in your tax assessment
- have a calculated PAYG instalment rate of 0.0%
- have an estimated (notional) tax liability of less than $500
- are under 18 and your tax return shows Division 6AA income less than the lowest marginal threshold, or
- lodge a final tax return or non-lodgment advice, or your tax agent lodges a 'further return not necessary'.

We will also remove a taxpayer from PAYG instalments if we are advised they are deceased.

### Trusts

We will automatically remove a trust from PAYG instalments if it:

- has an estimated (notional) tax liability of less than $500
- reports instalment income of less than $4,000 in its tax return
- has a tax debt of less than $1,000 (after adjustments for PAYG instalments and voluntary payments) in its tax assessment, or
- has a calculated PAYG instalment rate of 0.0%.

### Companies and super funds

We will automatically remove a company or super fund from PAYG instalments if all of the following apply:

- it has a calculated PAYG instalment rate of zero or an estimated (notional) tax liability of less than $500
- it has instalment income (excluding capital gains) in its most recent income tax assessment of less than $2 million
- it is not the head company of a consolidated group.

## Exiting yourself

You can exit PAYG instalments if you are no longer earning business or investment income.

You can't exit PAYG instalments if you have:

- become bankrupt and are in a debt agreement (under Part IX of the *Bankruptcy Act 1966*) or personal insolvency agreement (under Part X of the Act)
- a tax debt of less than $500 that would have been more than $500 after including PAYG instalments for the year
- received a refund that would have been a debt of more than $500 after including PAYG instalments for the year.

### Individuals, including sole traders

You can make a request to exit PAYG instalments using your myGov account linked to the ATO's Online services.

[Sign in to myGov (individuals and sole traders)](https://onlineservices.ato.gov.au/default.aspx?PageName=HomePage)
Select **Tax** > **Manage** > **Tax registrations > Cancel**. This option will only be available when you become eligible to exit PAYG instalments.

You can also ask to exit through your registered tax agent or you can phone us on **13 28 61**.

### All businesses

You can request to exit PAYG instalments using Online services for business.

[Log in to Online services for business](https://onlineservices.ato.gov.au/business/)
You can also ask to exit through your registered tax agent, or you can phone us on **13 28 66**.

## Re-entering PAYG instalments

If you lodge a tax return with income or tax above the [entry thresholds](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/payg-instalments/starting-payg-instalments), we will contact you about re-entering PAYG instalments.

You can [re-enter PAYG instalments voluntarily](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/payg-instalments/starting-payg-instalments) if your circumstances change or you want to plan ahead for your income tax.


## Body corporate administrative fund fees and charges

You may be able to claim a deduction for body corporate fees and charges you pay. Not all body corporate fees are deductible in full in the income year you incur them.

Body corporate fees are a cost you pay to the body corporate or strata to manage the property and maintain common areas. Strata title body corporates are constituted under the strata title legislation of the various states and territories.

These fees and charges may go towards payments to:

- cover the cost of day-to-day expenses to maintain and manage the building – for example, insurance premiums, maintenance of gardens and management of the body corporate itself
- a special purpose fund, for a specific expense – for example, roof repairs and building insurance.

Regular payments you make to body corporate administration funds or general purpose sinking funds for ongoing administration and general maintenance are considered to be payments for the provision of services by the body corporate. You can claim an immediate deduction for these regular payments at the time you incur them.

You can’t claim a deduction for a special levy you are required by the body corporate to pay to fund a particular capital improvement. You may be able to claim a [capital works deduction](https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/capital-expenses#ato-Capitalworks) for the cost of capital improvements or repairs of a capital nature once the work is completed. The cost must also be charged to either the special purpose fund or the general purpose sinking fund, if a special contribution has been levied.

For a summary fact sheet of what you can and can't claim, go to the ATO Publication Ordering Service to download [Rental property body corporate fees and chargesExternal Link](https://iorder.com.au/publication/publicationdetails.aspx?pid=75375-04.2025).


## Are you an Australian resident for tax purposes?

If you're an Australian resident for tax purposes, you need to declare all income earned both in Australia and overseas on your Australian tax return (even if you've already paid tax on it overseas).

If you've paid foreign tax on income in another country, you may be entitled to an Australian foreign income tax offset.

Generally, you are an Australian resident for tax purposes if you:

- have always lived in Australia or you have come to Australia and live here permanently
- have been in Australia continuously for 6 months or more, and for most of that time you worked in the one job and lived at the same place
- have been in Australia for more than 6 months of the year, unless your usual home is overseas and you do not intend to live in Australia
- go overseas temporarily and you do not set up a permanent home in another country
- are an overseas student who has come to Australia to study and are enrolled in a course that is more than 6 months long.

There are 4 statutory tests to determine your residency:

- Resides test
- Domicile test
- 183-day test
- The commonwealth superannuation test.

You can also use our [Work out your residency status for tax purposes](https://www.ato.gov.au/calculators-and-tools/tax-return-work-out-your-tax-residency) tool to help work out your [residency](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency).

For information about foreign and temporary residents, see [Foreign and temporary residents](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency/foreign-and-temporary-residents).

## Part-year Australian resident

If you are an Australian resident for part of the year, your [tax-free threshold](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/coming-to-australia/tax-free-threshold-for-newcomers-to-australia) will be less than the full tax-free threshold of $18,200 that applies to Australian residents.

If you became or ceased to be an Australian resident for tax purposes during the income year, you will receive the [part-year tax-free threshold](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/living-overseas-and-becoming-a-foreign-tax-resident) and resident tax rates will apply to your income.

Part-year residents have a tax-free threshold of at least $13,464. The remaining $4,736 of the full tax-free threshold is pro-rated according to the number of months during the income year you were a resident for tax purposes.

When you complete your individual income tax return, you must include the:

- date that you became or stopped being an Australian resident for tax purposes
- number of months that you were an Australian resident.

We will work out your tax-free threshold using the information you provide.

For more information on lodging your tax return early, see [Lodge your tax return before leaving Australia](https://www.ato.gov.au/individuals-and-families/your-tax-return/how-to-lodge-your-tax-return/lodge-your-tax-return-before-leaving-australia).

## Dual residents

You're a dual resident if you're a resident of both:

- Australia for domestic income tax law purposes
- another country for the purpose of that other country’s tax laws.

Where Australia has a [double tax treaty](https://www.ato.gov.au/about-ato/international-tax-agreements) with a foreign country, a treaty tie breaker test would usually determine which country has the right to tax Australian and foreign sourced income.

For more information about working out your residency, see [Work out your residency status for tax purposes](https://www.ato.gov.au/calculators-and-tools/tax-return-work-out-your-tax-residency).

## Australian resident for tax purposes and foreign income

If you're an Australian resident for tax purposes and you:

- are also a [temporary resident](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/your-tax-residency/foreign-and-temporary-residents#ato-Temporaryresidents)

- most of your [foreign income](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/income-you-must-declare/foreign-and-worldwide-income) isn't taxed in Australia
- we tax some of your income from actual work you do overseas while you are a temporary Australian resident (see [Exempt foreign employment income](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/income-you-must-declare/foreign-and-worldwide-income/tax-exempt-income-from-foreign-employment))
- receive foreign income

- income may be taxed in both Australia and the country from where you received it
- tax paid in another country on your foreign income may entitle you to an [Australian foreign income tax offset](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/tax-offsets/claiming-a-foreign-income-tax-offset)
- receive income from a country that Australia has a tax treaty with

- you can ask the tax authorities in that country to reduce their withholding tax or to exempt you from paying tax in that country
- done by supplying a [tax relief form](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/certificate-of-residency-and-overseas-tax-relief-form) or a [certificate of residency](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/certificate-of-residency-and-overseas-tax-relief-form).


## Assets acquired before 20 September 1985

Assets you acquired before 20 September 1985 are exempt from CGT.

You declare the sale or disposal of pre-CGT assets in your tax return. At the CGT exemptions and rollovers question, select **Capital gains disregarded as a result of the sale of a pre-CGT asset**.

## Real estate

Most [property](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax) is subject to CGT.

This includes:

- vacant land
- business premises
- rental properties
- holiday houses
- hobby farms.

If you acquired property before 20 September 1985, any [property improvements or additions](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/property-improvements-and-additions) you make after that date may be subject to CGT.

Your main residence is generally exempt from CGT.

## Your main residence – home

[Your main residence](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/your-main-residence-home) (your home) is exempt from CGT.

However, CGT may apply if:

- you rent out part of it
- you use it for business
- it is on more than 2 hectares of land
- you are a foreign resident and you don't satisfy the requirements of the [life events test](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/foreign-residents-and-capital-gains-tax/main-residence-exemption-for-foreign-residents#ato-Lifeeventstest) at the time the 'CGT event' happens.

For a summary fact sheet with common scenarios, go to the ATO Publication Ordering Service to download [Capital gains tax and the main residence exemptionExternal Link](https://iorder.com.au/publication/publicationdetails.aspx?pid=75488-04.2025).

## Granny flat arrangements

CGT does not apply when an eligible [granny flat arrangement](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/granny-flat-arrangements-and-cgt) is created, varied or terminated.

## Cars and motorcycles

Your car or motorcycle is exempt from CGT.

A car is defined as a motor vehicle that carries a load of less than 1 tonne and fewer than 9 passengers.

## Shares and units

CGT applies to [shares, units and similar investments](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/shares-and-similar-investments) when a 'CGT event' happens. This includes when you sell them or receive a distribution (other than a dividend) from a managed fund.

## Exchange traded funds

When you sell or dispose of exchange traded funds (ETFs) the units are subject to CGT. This includes any units received from a distribution reinvestment plan (DRP). You need to include them as part of the cost base when you [calculate your capital gain or loss](https://www.ato.gov.au/individuals-and-families/investments-and-assets/shares-funds-and-trusts/exchange-traded-funds#CalculatingCGTonETFunitdisposals).

## Managed investment trusts

Distributions from [managed investment trusts](https://www.ato.gov.au/individuals-and-families/investments-and-assets/shares-funds-and-trusts/managed-investment-trusts) (MIT) can include capital gains and non-assessable payments, which are relevant for CGT purposes. The trustee should advise you if any CGT discounts apply.

## Crypto assets

You need to [work out and report CGT](https://www.ato.gov.au/individuals-and-families/investments-and-assets/crypto-asset-investments/how-to-work-out-and-report-cgt-on-crypto) when you dispose of crypto asset investments.

If your crypto is a [personal use asset](https://www.ato.gov.au/individuals-and-families/investments-and-assets/crypto-asset-investments/crypto-asset-as-a-personal-use-asset), capital gains or losses from disposing of it may be exempt from CGT. Crypto is a personal use asset if it is kept or used mainly to purchase items for personal use or consumption.

## Personal use assets

A capital gain on a personal use asset is subject to CGT if it cost you more than $10,000 to acquire the asset.

Capital losses on personal use assets are ignored. This means you can't use a capital loss on a personal use asset to reduce capital gains on other assets (including other personal use assets).

Personal use assets are CGT assets that you keep for your personal use or enjoyment.

They include:

- boats
- furniture
- electrical goods
- household items
- an option or right to acquire a personal use asset
- a debt resulting from
- a CGT event involving a CGT asset kept for your personal use
- making a private loan to a family member or friend.

The following are not classed as personal use assets:

- collectables – these may be subject to CGT
- your main residence, which is generally exempt from CGT
- cars, which are exempt from CGT.

If you dispose of personal use assets individually that would usually be sold as a set, you get the exemption only if you acquired the set for $10,000 or less.

## Collectables

A collectable is subject to CGT unless:

- you acquired the collectable for $500 or less
- you acquired a share in the collectable for $500 or less before 16 December 1995
- you acquired a share in the collectable when the collectable had a market value of $500 or less.

Collectables include:

- artwork
- jewellery
- antiques
- coins or medallions
- rare folios, manuscripts or books
- postage stamps or first day covers.

If you make a capital loss on a collectable you can only deduct it against capital gains from collectables, not from other capital gains.

If you dispose of collectables individually, that would usually be disposed of as a set, they are exempt only if you acquired the set for $500 or less after 16 December 1995.

## Intangible assets

Intangible assets may be subject to CGT.

They include:

- leases
- goodwill
- licences
- contractual rights.

A number of [CGT events](https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/cgt-events), other than disposal, can happen to these assets. For example, granting a lease is a CGT event.

## Foreign currency

Foreign currency is subject to CGT. You make a capital gain or loss on fluctuations in the foreign currency exchange rate.

Foreign currency is subject to [foreign exchange gains and losses](https://www.ato.gov.au/forms-and-instructions/guide-to-capital-gains-tax-2025/about-capital-gains-tax/does-capital-gains-tax-apply-to-you#ato-CGTandforeignexchangegainsandlosses). A capital gain or loss arises from the acquisition or disposal of foreign currency when there is a fluctuation in the exchange rate.

This applies to foreign currency held as cash and CGT assets denominated in a foreign currency (such as an overseas rental property).

## Depreciating assets

CGT does not apply to [depreciating assets](https://www.ato.gov.au/businesses-and-organisations/assets-and-property/capital-gains-tax-for-business-assets/depreciating-assets-and-cgt) used solely for taxable purposes.

This includes:

- business equipment
- items in a rental property.

Gains or losses ([balancing adjustments](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/general-depreciation-rules-capital-allowances/disposing-or-ceasing-to-use-a-depreciating-asset)) made on these assets are treated as assessable income or claimed as deductions.

However, if you have used a depreciating asset for private purposes, CGT may apply.

## Specific exemptions such as awards and payouts

The following are exempt from CGT:

- a decoration awarded for valour or brave conduct (unless you paid or exchanged property for it)
- assets used solely to produce exempt income or some types of non-assessable, non-exempt income
- compensation or damages received for any
- wrong or injury you suffered at work
- wrong, injury or illness you or your relatives suffered
- winnings or losses from gambling, a game or a competition with prizes
- reimbursement payment of your expenses under the following
- Unlawful Termination Assistance Scheme
- Alternative Dispute Resolution Assistance Scheme
- M4/M5 Cashback Scheme
- a scheme established under legislation by an Australian Government agency, a local government body or a foreign government agency (except a payment for the loss, destruction or transfer of an asset)
- the transfer of a super interest in one small super fund (a complying fund that has no more than 6 members) to another because of a relationship breakdown between spouses or former spouses
- rights created or ended in a superannuation agreement (as defined in the *Family Law Act 1975*)
- a CGT event happening to the segregated current pension asset of a complying super fund
- some payouts under a general insurance policy, life insurance policy or annuity instrument, such as payments from the maturity of a life insurance policy
- a payment for surrender of an insurance policy where you are the original beneficial owner of the policy
- shares in a pooled development fund
- shares of certain profits, gains or losses arising from disposal of investments by [certain venture capital and early stage venture capital limited partnership entities](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/venture-capital-and-early-stage-venture-capital-limited-partnerships)
- a financial arrangement where gains and losses are calculated under the [taxation of financial arrangements (TOFA) rules](https://www.ato.gov.au/businesses-and-organisations/corporate-tax-measures-and-assurance/taxation-of-financial-arrangements-tofa/tofa-elections/election-for-the-tofa-rules-to-apply)
- gifts made through a will to a deductible gift recipient beneficiary.


## Employee or independent contractor traits

The following table outlines each indicium and some features that may point towards or against a finding of employment. No single indicium is determinative and they should not be applied as if they are a checklist. Analysis of the indicia must be done by reference only to the legal rights and obligations that arise from the contract you enter into with your worker. Conduct and work practices are not relevant, unless they are, among other things, sufficient to vary the contractual terms agreed to.

Table: Employee and independent contractor indicium and traits

Employee

Independent contractor

[Control](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/control-over-work): your business has the legal right to control how, where and when the worker does their work.

[Control](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/control-over-work): the worker can choose how, where and when their work is done, subject to reasonable direction by you.

[Integration](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/independence): the worker serves in your business. They are contractually required to perform work as a representative of your business.

[Integration](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/independence): the worker provides services to your business. The worker performs work to further their own business.

[Mode of remuneration](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/basis-of-payment): the worker is paid either:

- for the time worked
- a price per item or activity
- a commission.

[Mode of remuneration](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/basis-of-payment): the worker is generally contracted to achieve a specific result, and is paid when they have completed that result, often for a fixed fee.

[Ability to subcontract or delegate](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/ability-to-delegate-or-subcontract): there is no clause in the contract allowing the worker to delegate or subcontract their work to others. The worker must perform the work themselves and cannot pay someone else to do the work for them.

[Ability to subcontract or delegate](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/ability-to-delegate-or-subcontract): there is a clause in the contract allowing the worker the right to delegate or subcontract their work to others. The clause must not be a sham and must be legally capable of exercise.

[Provision of tools and equipment](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/equipment-tools-and-other-assets): your business:

provides all or most of the equipment, tools and other assets required to complete the work; or the worker provides all or most of the tools, but your business provides them with an allowance or reimburses them for expenses incurred.

[Provision of tools and equipment](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/equipment-tools-and-other-assets): the worker provides all or most of the equipment, tools and other assets required to complete the work, and you do not give them an allowance or reimbursement for the expenses incurred.

The work involves the use of a substantial item that your worker is wholly responsible for.

[Risk](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/commercial-risks): the worker bears little or no risk. Your business bears the commercial risk for any costs arising out of injury or defect in their work.

[Risk](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/employee-or-independent-contractor/difference-between-employees-and-independent-contractors/commercial-risks): the worker bears the commercial risk for any costs arising out of injury or defect in their work.

Generation of goodwill: your business benefits from any goodwill arising from the work of the worker.

Generation of goodwill: the worker’s business benefits from any goodwill generated from their work, not your business.


## Property

The following schemes relate to SMSFs and property.

### Residential property purchased through illegal SMSF schemes

These schemes often target first home buyers wanting to enter the Australian property market to purchase a house and land package.

These schemes may be structured differently, but typically involve the:

- set up or use of an SMSF
- rollover of a member's super benefits from an existing fund to the SMSF
- SMSF investing in a property trust (an unrelated unit trust) for a fixed period and rate of return, being a contributory fund with other investors
- on-lending of money by the property trust to individuals to help them purchase real property, secured by mortgages over the property.

Once the investment is in place, the member gains access to money from a third-party entity to help finance the purchase of residential property under an arrangement commonly referred to as a 'loan'. Depending on the scheme, this money is used for:

- all or part of the deposit
- the balance of the purchase price
- costs related to the purchase.

In some cases, the money is also used to help consolidate the member's personal debts to help them secure a home loan.

In return for a high fee paid by the fund, the scheme promoter commonly helps by:

- establishing the SMSF and the property investment
- organising the purchase of the property, including the payment of the deposit and home loan.

These schemes are established and promoted to look like a genuine SMSF investment to help individuals purchase a home.

However, they often contravene one or more of the super laws, which may give us reason to view the SMSF as:

- a 'sham' and not a legitimate super fund
- providing a member with a current day benefit
- set up and maintained in a way that doesn’t comply with the sole purpose test.

The arrangement may also involve the:

- [illegal early access of super](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/early-access-to-super/illegal-early-access-to-super) benefits by members
- giving of financial assistance to a member using the resources of the fund
- provision of a 'loan' to a member to help them buy a home (if a genuine 'loan', will be an in-house asset of the fund).

To determine whether a scheme gives rise to a contravention of the super laws, we will take a 'look-through' approach and consider the arrangement as a whole.

If SMSF monies are used to help purchase a house for a member or a relative to live in through investments in other entities, this may be treated as illegal early access of super benefits. The amount may be included in the member's assessable income and taxed at their marginal rate, With the potential for tax shortfall penalties to also apply.

The trustee will have contravened one or more of the super laws and serious penalties may apply. The trustee may be:

- personally liable to pay an administrative penalty
- disqualified from acting as trustee.

If trustees are involved in a scheme like this, they should make a voluntary disclosure, see [SMSF early engagement and voluntary disclosure service](https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-regulation-and-compliance/smsf-compliance/smsf-voluntary-disclosure-service). We will take this into account when determining any penalties that may apply.

If you're approached by promoters or think you're involved in a scheme you can [report it](https://www.ato.gov.au/about-ato/tax-avoidance/understanding-tax-schemes/report-schemes-and-promoters) to us confidentially.

### Related-party property development ventures

Property development in associated joint venture structures may result in substantial profits for the SMSF, especially if related group entities provide most of the services without adhering to arm's length market values. This results in profits disproportionately attributed to the SMSF compared to the capital contributed.

Whilst an SMSF can invest directly or indirectly in property development ventures, extreme care must be taken.

Some arrangements can result in significant income tax and superannuation regulatory risks, potentially including the application of the NALI provisions and breaches of regulatory rules about related party transactions.

In May 2023, we published a Taxpayer Alert (TA) on these types of arrangements and how we are actively reviewing them.

For more information, see:

- [TA 2023/2](https://www.ato.gov.au/law/view/document?DocID=TPA/TA20232/NAT/ATO/00001) *Diverting profits of a property development project to an SMSF, through use of a special purpose vehicle, involving non-arm’s length arrangements*.
- SMSF Regulator's Bulletin [SMSFRB 2020/1](https://www.ato.gov.au/law/view/document?src=hs&pit=99991231235958&arc=false&start=1&pageSize=10&total=2&num=1&docid=SRB%2FSRB20201%2FNAT%2FATO&dc=false&stype=find&tm=phrase-basic-SMSFRB%202020%2F1) *Self-managed superannuation funds and property development*.

### Residential property purchased in a member's name

This is where an SMSF is set up to help members buy residential property in their personal name. These schemes often target first home buyers wanting to enter the property market.

### Legal life interest of property

This happens when an SMSF member or other related entity grants a legal life interest over commercial property to a SMSF. This means the rental income diverted to the SMSF is taxed at a lower rate without full ownership of the property ever transferring to the SMSF.


## Simplified depreciation rules

You can choose to use the simplified depreciation rules if you have a small business with an aggregated turnover of less than:

- $10 million from 1 July 2016 onwards
- $2 million for previous income years.

Aggregated turnover is based on the [annual turnover](https://www.ato.gov.au/about-ato/using-our-website/definitions) of your business and that of any business entities that are your affiliates or connected with you.

Simplified depreciation rules for small business include:

- an [instant asset write-off](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business#Instantassetwriteoff10) for assets that cost less than the relevant limit
- a general [small business pool](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business#Smallbusinesspool), which has simplified calculations to work out the depreciation deduction.

There were 3 temporary tax depreciation incentives available to eligible small businesses using the simplified depreciation between the 2019–20 and 2022–23 income years:

- [temporary full expensing](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/temporary-full-expensing)
- [increased instant asset write-off](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/instant-asset-write-off)
- [backing business investment](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/backing-business-investment-accelerated-depreciation)

## Instant asset write-off

Using [instant asset write-off for eligible businesses](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/instant-asset-write-off), small business owners can immediately write off the business portion of the cost of an asset that costs less than the relevant limit amount for the year the asset is first used or installed ready for use.

For an asset for which a small business has claimed an immediate deduction under the simplified depreciation rules in a prior income year, it can also immediately deduct an amount included in the [second element](https://www.ato.gov.au/forms-and-instructions/depreciating-assets-guide-2024/depreciating-assets-effective-life-cost-and-decline-in-value/cost-of-a-depreciating-asset) (cost addition) of that asset's cost, where the amount is:

- the first deductible amount of second element cost incurred after the end of the income year in which the asset was written off
- less than the relevant limit amount for the income year it is being claimed.

For the 2023–24 and 2024–25 income years the relevant limit amount is $20,000.

If your businesses uses the simplified depreciation rules, the instant asset write-off limit **does not** apply for assets you started to hold, and first used (or had installed ready for use) for a taxable purpose from 7:30 pm AEDT on **6 October 2020 to 30 June 2023**. These businesses must instead immediately deduct the business portion of the asset's cost under [temporary full expensing](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/temporary-full-expensing).

## Small business pool

For income years ending on or before October 2020 and after 1 July 2023, you:

- pool the business portion of most higher cost assets (those with a cost equal to or more than the relevant instant asset write-off limit) and claim

- a 15% deduction in the year you start to use them or have them installed ready for use
- a 30% deduction each year after the first year
- deduct the balance of the small business pool at the end of the respective income year if the balance at that time (before applying the depreciation deductions) is less than the instant asset write-off limit.

For income years ended between 6 October 2020 and 30 June 2023, small business owners using simplified depreciation must deduct the balance of the [small business pool](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/small-business-pool-calculations) under [temporary full expensing](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/temporary-full-expensing) at the end of the respective income year.

## Using simplified depreciation

If you choose to use the simplified depreciation rules, you must:

- use them to work out deductions for all your depreciating assets except those specifically excluded
- apply the entire set of rules, not just individual elements (such as the instant asset write-off)
- only claim a deduction for the portion of the asset used for business or other taxable purposes and not for the portion for private use.

A small number of assets are [excluded](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/assets-and-exclusions) from the simplified depreciation rules and a [car limit](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/instant-asset-write-off#Exclusionsandlimits) applies to the cost of passenger vehicles.

## If you stop using simplified depreciation

If you choose to stop using the simplified depreciation rules or become ineligible to use them, you must work out deductions for your depreciating assets using the [general depreciation rules](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/general-depreciation-rules-capital-allowances). For income years ending between 6 October 2020 to 30 June 2023, you may be eligible to claim deductions under either temporary full expensing or backing business investment incentives.

If you choose to stop using the simplified depreciation rules or become ineligible to use them for an income year, in that and later income years you can't:

- add more assets to the pool which you started to use, or had installed ready for use, during the income year
- claim an instant asset write-off for any new assets under these rules.

For depreciating assets which are allocated to your small business pool you:

- continue to claim a 30% deduction for each year, following the allocation year, until the pool balance falls below the instant asset write-off limit
- then deduct the remaining pool balance.

For income years ending between 6 October 2020 and 30 June 2023 you deduct the balance of your small business pool under temporary full expensing.

To notify the Commissioner of your choice, lodge your tax return and [keep your records](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business#Bookkeepingandrecordkeeping) for the required period of time. You aren't required to lodge any other form to notify of your choice.

### Lock out rule

From 7:30 pm AEST 12 May 2015 to 30 June 2025 the ‘lock out’ rule is suspended to allow small businesses that have chosen to stop using the simplified depreciation rules to take advantage of temporary full expensing and the instant asset write-off.

Previously, the 'lock out' rule prevented small businesses from re-entering the simplified depreciation system for 5 years if they had opted out.

### Using simplified depreciation rules again

If you have stopped using the simplified depreciation rules, and then start using them again, you must adjust the opening [pool balance](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/depreciation-and-capital-expenses-and-allowances/simpler-depreciation-for-small-business/small-business-pool-calculations) for any depreciating assets that you have started using or installed ready for use since last using these rules.

Your new opening pool balance will be your previous closing balance plus the business portion of the value of any depreciating assets not previously added to the pool.

## Bookkeeping and record keeping

Modern bookkeeping systems generally calculate depreciation, but make sure you have chosen the right settings to apply the simplified depreciation rules.

In line with the [record-keeping](https://www.ato.gov.au/businesses-and-organisations/preparing-lodging-and-paying/record-keeping-for-business) requirements for taxpayers generally, you must keep records for 5 years of:

- how you worked out your opening pool balance
- any change in how much you use the asset in your business
- any assets you dispose of.


## ETP caps

There are 2 caps:

- ETP cap – this is

- indexed each year
- reduced by any earlier ETPs paid in the same income year and by any earlier ETPs for the same termination, regardless of when they are paid.
- Whole-of-income cap – this is

- $180,000
- reduced by any other taxable payments (such as salary and the taxable components of any earlier ETPs) received by the employee in the same income year.

The cap which applies depends on the type of payment. For example, a genuine redundancy payment and a 'golden handshake' may be subject to different caps.

For more information on the ETP caps, see [ETP cap amount](https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/employment-termination-payments#ato-ETPcapamount).

## Which cap to apply

Which cap applies depends on the type of payment.

The ETP cap applies to 'excluded payments'. These include:

- genuine redundancy and early retirement scheme payments that exceed the [tax-free limit](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/when-a-worker-leaves-your-business/taxation-of-termination-payments/redundancy-and-early-retirement). Only the amount in excess of the limit is subject to the cap.
- non-genuine redundancy payments that would have been for a genuine redundancy had the employee not reached their retirement age or age-pension age
- invalidity payments. Only the amount not included in the [tax-free component](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/when-a-worker-leaves-your-business/taxation-of-termination-payments/tax-free-component-of-etps) is subject to the cap.
- [compensation payments](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/when-a-worker-leaves-your-business/taxation-of-termination-payments/applying-the-etp-caps#Compensationpayments) principally for personal injury, unfair dismissal, harassment or discrimination
- death benefit ETPs.

The lesser of the ETP cap and the whole-of-income cap should be applied to all other 'non-excluded payments'. These include:

- golden handshakes and gratuities
- [non-genuine redundancy payments](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/when-a-worker-leaves-your-business/taxation-of-termination-payments/redundancy-and-early-retirement#Redundancy)
- payments in lieu of notice
- payments for unused sick leave or unused rostered days off.

In the majority of cases, the whole-of-income cap will be less, so it will apply to these payments.

The only exception is if you make [multiple payments](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/when-a-worker-leaves-your-business/taxation-of-termination-payments/working-out-the-whole-of-income-cap-amount#Multiplepayments) to the employee for the same termination. The ETP cap is reduced by the other payments – even if they occur in different income years – and could then be lower than the whole-of-income cap.

### Categorising payments

In some circumstances, a non-excluded payment, such as unused sick leave, may be classified as excluded and subject only to the ETP cap. You need to categorise each payment as excluded or non-excluded based on the following factors:

- the employment conditions – for example, what you're reasonably required to pay under the industrial agreement or employment contract for that termination type
- whether the payment is extra, discretionary or separate to what is reasonably required for that particular type of termination.

[This example](https://www.ato.gov.au/businesses-and-organisations/hiring-and-paying-your-workers/engaging-a-worker/when-a-worker-leaves-your-business/taxation-of-termination-payments/working-out-the-whole-of-income-cap-amount#ExampleSingleETPwithexcludedandnonexclud) shows how a payment for unused sick leave may be classified as an excluded payment. Other non-excluded payments may be classified as excluded in similar circumstances.

### Compensation payments

Payments that are made mainly to compensate an employee for a genuine dispute from personal injury, unfair dismissal, harassment or discrimination are excluded from the whole-of-income cap.

A payment does not need to be made as a result of proceedings before a court to be deemed as compensation. The employee or employer should keep evidence to show that a genuine dispute existed.

#### Example 1: Compensation for unfair dismissal

Julie’s employment was terminated by her employer. Julie has evidence that she was unfairly dismissed because of her strong union affiliation and disputes her termination by engaging a lawyer to act on her behalf.

The lawyer negotiates a $20,000 out-of-court settlement with Julie’s employer for unfair dismissal.

Although Julie’s complaint did not go to court, there was a genuine dispute between Julie and her employer that resulted in compensation for her unfair dismissal. Her payment of $20,000 is a compensation payment. It will be subject to the ETP cap and excluded from the calculation of the whole-of-income cap.

End of example

#### Example 2: Compensation for harassment and discrimination

Monica’s employment was terminated in September 2023 because of alleged poor work performance. Monica feels that she was unfairly dismissed, believing that her dismissal was actually as a result of a harassment claim she lodged against her manager. She takes court action against her employer and receives a payment of $150,000. Monica has other taxable income of $100,000.

As the payment is a result of the termination of her employment and made to compensate her for harassment and discrimination, it is subject to the ETP cap and excluded from the whole-of-income cap.

The ETP cap for 2024–25 is $245,000. Therefore, the entire $150,000 of her compensation payment will receive concessional tax treatment, regardless of her other income.