Capital Gains Tax (CGT) is the tax you pay on a capital gain. It is not a separate tax, just part of your income tax. The most common way you make a capital gain (or capital loss) is by selling assets such as real estate, shares or managed fund investments.
For CGT purposes, shares in a company or units in a unit trust (including a managed fund) are treated in the same way as any other CGT asset. You may have to pay tax on any capital gain you make on shares or units when a CGT event happens, such as when you sell them (unless you acquired them before CGT came in on 20 September 1985).
Profits on the sale of shares held in carrying on a business of share trading are included as ordinary income rather than as capital gains.
If you make a capital loss, you cannot claim it against income but you can use it to reduce a capital gain in the same income year. If your capital losses exceed your capital gains or you make a capital loss in an income year you don’t have a capital gain, you can generally carry the loss forward and deduct it against capital gains in future years.
If you’re an Australian resident, CGT applies to your assets anywhere in the world.
Acquiring and owning CGT assets
When you acquire a CGT asset, you need to start keeping records immediately because you might have to pay tax on it in the future. Your records will help ensure you don’t pay more tax than necessary. If you own the asset jointly with someone else, you’ll need to establish each owner’s share.
Selling an asset and other ‘CGT events’
When you sell an asset or give it to someone else it’s called a ‘CGT event’. This is the point at which you make a capital gain or capital loss. There are a number of other CGT events, for example, if a managed fund or other trust distributes a capital gain to you, it’s a CGT event.
CGT exemptions, rollovers and 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 buying or selling a shares and unit trusts, 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.