Capital gains tax (CGT) is the tax you pay on any capital gain that you make. There is no separate tax on capital gains, rather the capital gains tax forms part of your income tax when you include that capital gain on your tax return. You are taxed on your net capital gain at your marginal tax rate.
Your net capital gain is the difference between your total capital gains for the year and your total capital losses (from your business and other assets), less any relevant CGT discount or concessions. You must include the net capital gain you make in an income year in your assessable income for that year.
You make a capital gain or capital loss when certain events or transactions (called CGT events) happen. Most CGT events involve a CGT asset.
Some CGT events, such as the disposal of a CGT asset, happen often and affect many different taxpayers. Other CGT events are rare and affect only a few taxpayers, for example, events concerned directly with capital receipts and not involving a CGT asset.
The most common CGT assets are:
• land and buildings
• shares in a company
• units in a unit trust.
Less well known CGT assets include:
• contractual rights
• foreign currency
There are special rules that apply to depreciating assets. A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time you use it. Plant and equipment you use in your business are examples of depreciating assets.
You make a capital gain or capital loss from a depreciating asset only to the extent you have used the depreciating asset for a non taxable purpose (for example, for a private purpose).
Small business CGT concessions
A number of assets are exempt from CGT, including your home and car, and depreciating assets used solely for taxable purposes.
Individuals and small businesses can generally discount a capital gain by 50% if they hold the asset for more than one year. In certain circumstances a capital gain on a CGT event can be deferred, or ‘rolled over’, until another CGT event happens. There are a number of other CGT concessions specifically for small business.
Here at The Quinn Group, our dedicated team of Accountants, Lawyers and Financial Planners can assist you with queries relating to how Capital Gains Tax can affect your business, as well as other legal and accounting matters. Complete and submit the online enquiry form or call us on 1300 QUINNS (1300 784 667) +61 2 9223 9166 to arrange an appointment.