capital gains tax in a nutshell

It may seem silly, but we’ve gotta say it…this doesn’t constitute tax advice and you should seek professional help before making any financial decisions.

Capital gains tax (CGT) is a tax imposed on the profits or gains made from the sale or disposal of certain assets, including real estate, shares, and other investments. When a taxpayer sells or disposes of an asset for more than its purchase price, they incur a capital gain, which is subject to taxation.

Key points regarding capital gains tax in Australia include:

1. Calculation of Capital Gains: The capital gain is calculated by subtracting the cost base (which includes the purchase price, acquisition costs, and certain other expenses) from the sale price or market value of the asset at the time of disposal.

2. Tax Rates: For individuals and trusts, capital gains are typically included in their assessable income and taxed at their marginal tax rate. However, individuals and trusts may be entitled to a CGT discount of 50% if they have held the asset for more than 12 months. For superannuation funds, the CGT discount is 33.33%.

3. Exemptions and Concessions: Certain assets may be exempt from CGT, such as a taxpayer's primary residence (subject to certain conditions), personal use assets under a certain value, and assets acquired before September 20, 1985. Additionally, small businesses may be eligible for various CGT concessions, including the small business CGT concessions.

4. Reporting and Compliance: Taxpayers are required to report capital gains and losses in their income tax return for the relevant income year. Capital gains tax events trigger specific reporting requirements, and taxpayers must keep records of relevant transactions and calculations to comply with CGT obligations.

5. Depreciating Assets: Capital gains tax also applies to the disposal of depreciating assets, such as plant and equipment used in a business, which have been depreciated for tax purposes over their useful life.

CGT is a complex area of taxation, and taxpayers are encouraged to seek professional advice or consult the Australian Taxation Office (ATO) for detailed information and guidance on their specific circumstances.