Capital gains tax (CGT) is the tax you pay on any capital gain you include on your annual income tax return. It is not a separate tax, merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate or if you are a company at the corporate tax rate of 30%.
You make a capital gain or a capital loss if a CGT event happens. You can also make a capital gain if a managed fund or other trust distributes a capital gain to you. For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset – for example, if you sell an asset for more than you paid for it, the difference is your capital gain.
You make a capital loss if the reduced cost base of your CGT asset is greater than your capital proceeds. The capital loss is the difference between the capital proceeds and the reduced cost base. Generally, you can disregard any capital gain or capital loss you make on an asset if you acquired it before 20 September 1985 (pre-CGT).
CGT events are the different types of transactions or events that may result in a capital gain or capital loss. Many CGT events involve a CGT asset – for example, a sale of shares. Some relate directly to capital receipts (capital proceeds).The range of CGT events is wide. Some happen often and affect many people and businesses while others are rare and affect only a few. The most common CGT event happens if you dispose of a CGT asset to someone else - for example, if you sell it or give it away, including to a relative.
A CGT event also happens when:
- an asset you own is lost or destroyed (the destruction may be voluntary or involuntary)
- shares you own are cancelled, surrendered or redeemed • you enter into an agreement not to work in a particular industry for a set period of time
- a trustee makes a non-assessable payment to you from a managed fund or other unit trusts
- a company makes a payment (not a dividend) to you as a shareholder
- a liquidator or administrator declares that shares or financial instruments you own are worthless
- you grant an option to someone to buy an asset that you own
- you dispose of a depreciating asset that you used for private purposes, or
- you stop being an Australian resident.
There are many exemptions and rollovers that can apply to a capital gain. Common exemptions and rollovers include:
- an asset you acquired before 20 September 1985 • cars, motorcycles and similar vehicles
- compensation you received for personal injury
- disposing of your main residence
- a collectable – for example, an antique or jewellery – if you acquired it for $500 or less
- a personal use asset acquired for $10,000 or less – for example, items such as boats, furniture, electrical goods and household items used or kept mainly for personal use or enjoyment. Land and buildings are not personal use assets
- disposing of an asset to which the small business 15-year exemption applies
- the exchange of shares and units you own in a company or trust that is taken over, if certain conditions are met, and
- shares in a company or interests in a trust where there has been a demerger and certain conditions have been met.
If you are a small business, there are certain CGT concessions that can reduce or eliminate gains on the sale of business assets. To find our more CLICK HERE.
If you require assistance, please contact us on (02) 8264-0755
All representations and information on this site is general in nature and should not be relied upon as advice. If you require specific advice please contact us.