John bought an investment property 5 years ago for $500,000 and sells it today for $650,000. He is not eligible for the main residence exemption. What is his capital gain for tax purposes?

Q: What is the correct answer to: John bought an investment property 5 years ago for $500,000 and sells it today for $650,000. He is not eligible for the main residence exemption. What is his capital gain for tax purposes?

The correct answer is $75,000. Option B ($75,000) is correct because it properly applies the 50% CGT discount available to individual taxpayers under Division 115 of the Income Tax Assessment Act 1997. John's gross capital gain is $150,000 ($650,000 - $500,000). Since he held the investment property for more than 12 months and is not eligible for the main residence exemption, he qualifies for the 50% CGT discount. Therefore, his taxable capital gain is $150,000 × 50% = $75,000.

Q: What background knowledge is needed for this Finance Taxation question?

Capital Gains Tax in Australia applies to assets acquired after 19 September 1985. For investment properties, the capital gain equals the disposal proceeds minus the cost base (purchase price plus acquisition costs). Individual taxpayers who hold assets for more than 12 months qualify for the 50% CGT discount under Division 115 of the Income Tax Assessment Act 1997. This discount reduces the taxable portion of the capital gain by half. The main residence exemption doesn't apply to investment properties. Companies and trusts have different CGT treatment, with companies not eligible for the discount and trusts having complex distribution rules.

Q: What is a good way to remember the answer to this Finance Taxation question?

Remember 'HOLD-50': if you HOLD an investment property for more than 12 months, you get a 50% discount on your capital gain. Think of it as a reward for being patient - the tax office gives you half off your capital gains tax bill for holding onto your investment for over a year. When you see CGT questions, immediately check if the holding period exceeds 12 months and if it's an individual taxpayer. If both conditions are met, apply the HOLD-50 rule: calculate the gross gain, then cut it in half for the taxable amount.

Q: What exam tip applies to this Finance Taxation question?

Always check the holding period first. If over 12 months and individual taxpayer, apply 50% discount. Calculate: Sale price minus purchase price equals gross gain, then multiply by 0.5 for taxable gain.

Q: How does this Finance Taxation concept apply in Australian real estate practice?

Sarah, a property investor, purchased a rental property in Melbourne for $800,000 in January 2020 and sold it in March 2025 for $1,100,000. As her accountant, you calculate her gross capital gain as $300,000. Since she held the property for over 12 months as an individual investor, she qualifies for the 50% CGT discount, reducing her taxable capital gain to $150,000. This saves her approximately $22,500 in tax (assuming a 30% marginal rate) compared to if the discount didn't apply.

Question

Finance TaxationCGTMEDIUM

John bought an investment property 5 years ago for $500,000 and sells it today for $650,000. He is not eligible for the main residence exemption. What is his capital gain for tax purposes?

Answer Options

A

$150,000

B

$75,000

C

$130,000

D

$325,000