To understand Capital Gains Tax, you must first understand what capital gains means. Put simply, Capital Gains are the difference between the buy and sell price of an asset i.e. profit. Capital gains tax (CGT) is the tax you pay on any capital gain (profit on an asset) you make and include on your annual income tax return. There is no separate tax on capital gains; it is merely a part of your income tax. You are taxed on your net capital gain at your tax rate.
Your net capital gain is:
your total capital gains for the year
your total capital losses (including any net capital losses from previous years)
any CGT discount and CGT small business concessions to which you are entitled.
There are many events that could take pace that will have a CGT effect, these are known as ‘Capital Gains Tax Events’. The most common Capital Gains Tax (CGT) event takes place when you dispose of an asset to another person – for example, if you sell the item or give it away (including to a relative) the disposal could mean that you are liable to pay Capital Gains Tax. As a rule of thumb, whenever you are changing ownership of an asset it is more than likely that the transaction will have some Capital Gains Tax consequences.
Also, it is important to know that if an Australian resident makes a capital gain or capital loss anywhere in the world (and deemed to be a possible Capital Gains Tax event) for any of their assets, domestic or international, then Capital Gains Tax calculations will also need to be added to your income tax return.
There are 2 main ways that a transaction can not incur Capital Gains Tax.
The first is on the basis that the capital gain/loss was made on an asset that was acquired prior to the Capital Gains Tax legislation. That is if it is before 20 September 1985 (pre-Capital Gains Tax).
There are other exemptions from Capital Gains Tax, but the other popular exemption applies if the asset being sold is deemed to be a person’s principal place of residence. As a rule, there is no Capital Gains Tax applicable on the sale of someone’s home, as long as the property is deemed to be the person’s principal place of residence, i.e. it is where they live, and is less that 2 hectares in size.
Do you need to pay Capital Gains Tax?
To work out whether you have to pay tax on your capital gains, you need to know:
• whether a Capital Gains Tax event has happened
• the time of the Capital Gains Tax event
• how to calculate the capital gain/loss
• whether there is any exemption or rollover that allows you to reduce or disregard the
• how to apply any capital losses
• whether the Capital Gains Tax discount applies, and
• whether you are entitled to any of the Capital Gains Tax concessions for small business.
The team of accountants and business advisors at The Quinn Group can assist you with a wide range of services to help you find out whether you need to pay Capital Gains Tax. For individually tailored information and advice for your Capital Gains Tax situation contact us on 1300 QUINNS or click here to submit an online enquiry.