Why Organisation Matters for Capital Gains Tax

No one buys property thinking, “One day this paperwork will matter.” Yet years later, those forgotten documents can determine how much tax you pay when you sell. Organisation, it turns out, is a powerful financial tool.

If you sell a property, the Australian Tax Office (ATO) requires accurate records to determine whether capital gains tax (CGT) applies and, if so, how much. Without the right documentation, you may end up paying more tax than necessary or find yourself scrambling to reconstruct information years later.

Getting organised early can make a significant difference.

Records to Keep When Buying, Owning, and Selling Property

If you own property, you should keep records relating to its acquisition, ownership, and disposal.

Records from the time you acquired the property include documents such as the purchase contract, stamp duty, legal fees, settlement statements, and any survey or valuation fees. These form part of the property’s cost base and are critical when calculating CGT.

When the property is sold, you should retain documents relating to the disposal, including the sale contract, settlement statement, legal costs, and sales commission.

During the period you own the property, you should also keep records of ongoing costs such as interest on loans, council rates, land tax, insurance premiums, and repair expenses. In addition, records of capital improvements, such as extensions or structural additions, should be retained, as these may affect the property’s cost base.

The ATO generally requires these records to be kept for at least five years after you dispose of the property.

Properties Acquired Before 20 September 1985.

If you acquired a property before 20 September 1985, it is generally exempt from CGT. In these cases, CGT records are not required unless you later make capital improvements to the property.  However, even where a property is CGT-exempt, records of income derived from the property, such as rental income, must still be retained for income tax purposes.

Using Your Home to Produce Income

If part of your home is rented out or used for business purposes, you should keep records of expenses incurred during the period income was produced, as well as details of the proportion of the property used for income-producing purposes.

If you first begin using your home to produce income after 20 August 1996, you will need a record of the property’s market value at the time it was first used in this way. While it is best to obtain a professional valuation at that point, one can be arranged later if necessary.

Inherited Properties

If you inherit a dwelling that was the main residence of the deceased, any capital gain when you later dispose of the property may be exempt from CGT. Whether the exemption applies depends on factors such as when you inherited the property and how long you owned it before selling.

Until the CGT position is clear, it is important to keep records of relevant costs incurred by you, the previous owner, and the executor or trustee, as well as the market value of the property at the time of the deceased’s death. If a valuation exists, obtaining a copy can be particularly helpful.

Properties Transferred After a Relationship Breakdown

If a property is transferred to you following a relationship breakdown, you should obtain copies of records showing how and when your former spouse acquired the property, along with the property’s cost base at the time of transfer.

Where the property was your former spouse’s main residence, records showing how long it was used as their main residence and whether it produced income during their ownership period are also important. Without these records, you may be liable for CGT for periods that may otherwise have qualified for an exemption.

Why This Matters

Property transactions often occur years or decades apart. The challenge is that CGT calculations rely on historical information, not what can be remembered later.

Good record-keeping is not about paperwork for its own sake. It’s about protecting your financial position, maintaining flexibility, and ensuring that when decisions need to be made, you are not disadvantaged by missing information.