You’re likely to make a capital gain or capital loss when you sell or otherwise dispose of a rental property. If you create a net capital gain in an income year, you’ll generally be liable for capital gains tax (CGT). If you make a net capital loss you can take it forward and deduct it from your capital gains in later years.
A capital gain, or capital loss, is the difference between what it cost you to obtain and get better the property (the cost base), and what you receive when you dispose of it. Amounts that you’ve claimed as a tax deduction, or that you can claim, are disqualified from the property’s cost base.
If you acquired the property before CGT came into effect on 20 September 1985, you disregard any capital gain or capital loss. However, you may make a capital gain or capital loss from capital improvements made since 20 September 1985, even if you acquired the property before that date.
You’re not likely for goods and services tax (GST) when you sell a rental property and you can’t declare GST credits on any costs associated with buying or selling it, as the sale of existing residential premises is generally input taxed.
But if you build new residential premises for sale, you may be liable for GST on the sale and allowed to GST credits on construction and sale costs, even if the premises have been rented for a time before being sold .