# Capital gains tax: What is it and how to calculate it?

Note – This post is written in context of real estate in Australia.

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There are many taxes that we must pay, and capital gains is just one that is levied in certain situations. Capital Gains Tax (CGT) is levied on the resulting difference between the amount you have paid for an asset (minus any legal fees) and the amount you have sold it for (minus legal fees). In simple terms, you are taxed on the profit you make from the property ownership, but CGT doesnâ€™t apply to every situation, and if you are selling your main residence, then CGT does not apply (unless the property is located on more than two hectares of land and you have not lived in the property continually).
How To Calculate CGT?
If you sold the property within a year of purchasing, the amount of gain that you have received from the sale of a property is added to your income taxable amount, and if you are a resident of Australia who has owned the property for more than a year, you are eligible for a 50% discount of CGT. If, for example, you lived in the property for 3 years, and sold it for \$100,000 more than you paid, then you would add to your taxable income the amount of \$50,000.

### Indexation Calculation Method

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It is possible to use the indexation CGT method if you are an Australian resident and bought the property before September 21, 1999. This method uses multiplier to your initial costs, and your initial costs are increased as a result, which reduces the amount of CGT to pay. This involves splitting the Consumer Price Index (CPI) at the time of sale into the CPI when you purchased the property, and it is rounded up to 3 decimal places. Check out the government website for the table of Australian historical CPI rates, which can help you to calculate the amount owed.