What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on any capital gains that arises from the disposal of an asset acquired after 19 September 1985.
It is part of your income tax and should not be considered as a separate tax.
Capital Gains Tax applies to all your assets, wherever they are in the world, if you are an Australian resident.
What properties are subject to CGT?
Any asset(s) acquired after 19 September 1985 is subjected to CGT unless specifically exempted.
The main ones are:
- real estate: house or unit,
- shares (listed or unlisted),
- options and units in unit trusts,
- restrictive covenants,
- rights under an ‘employment contract’, or
- granting of an easement.
CGT exemptions, rollovers and concessions
However, certain assets are exempt from CGT:
- main residence,
- collectibles which cost less than $500 eg. jewelery,
- personal use assets which cost less than $10,000,
- compensation for personal injury,
- shares in a Pooled Development Fund,
- plant and equipment (the gain or loss is assessed as a revenue gain or deduction), or
- trading stock (including land entered into a development).
If you are going through a marriage break-up, a roll-over provision will apply if a CGT property is transferred to or from your spouse or former spouse.
In this case, no CGT will apply until another event happens.
Also individual or small business generally can get 50% discount if they hold the asset for more than one year.
How to calculate capital gain or capital loss?
Capital gain arises only if the amount you receive from the disposal of an asset exceeds the cost base when you acquired it.
In other words, you only need to pay a Capital Gain Tax if you sold the asset for more than you paid for it.
To work out whether you get a net capital gain or a capital loss, you will need to:
- add up all capital gains for the year from all your assets,
- deduct any total capital losses and net capital losses from the previous years,
- deduct any CGT discounts or concessions you maybe entitled to, and
- the total you get is your net capital gain subject to tax.
If the total is negative, then you have incurred a capital loss. If the total is positive, then you have incurred a capital gain and will need to lodge a Capital Gain Tax.
It is important to keep records when you acquire a CGT asset to help with the preparation of CGT calculations in the future.
Working out your net capital gain tax is a complex area.
So, experienced advice is required to determine what items are to be included in the calculation.
We can help
At Geelong Tax Services, our highly knowledgeable and experience staff will help you calculate your Capital Gains Tax.
Contact us to start your process, or to seek advice for your personal financial situation.