Calculating a capital gain

Here is an example of calculating a capital gain.

If Fred bought an investment property for $400,000 and paid $20,000 in purchase costs, such as stamp duty, legal fees and inspection fees, the total cost of buying the property is $420,000. This is the cost base.

If Fred then sold this property for $500,000 with $30,000 of selling expenses, such as agent fees and advertising, the net sale proceeds would be $470,000.

The capital gain in this example would therefore be $50,000.

This is calculated by reducing the net sale proceeds of $470,000 by the cost base of $420,000.