Capital Gains Tax Explained?

As the Australian tax time gets closer, you’ll often hear about Capital Gains Tax (CGT). Basically, if you buy a property, shares or other assets for a set price and sell it at a different price. The difference in the amount, either results in capital gains or losses. If you receive more from the assets you sell, you are basically making a capital gain and vice versa. Your capital gains tax is not a separate tax, but a part of your income tax.

We bring you some information about the basics of CGT:

• What is a CGT event?

  
  A CGT event is triggered when an individual either sells or transfers shares or investment property to someone else. Moreover, the CGT explains the point of time when an individual has incurred a profit or loss for the relevant income year.
  
  

• How to work out capital gain or loss?

  
  For a quick estimate on calculating your capital gains and losses, simply subtract the selling price from its original cost, including other expenses such as stamp duty, legal fees, etc. The amount you calculate is your gain or loss.
  
  If you hold an asset for more than 12 months and make a profit on selling it, you have made a capital gain, assuming you have not made other capital losses. Furthermore, if you dispose of or sell any assets that you have held for less than 12 months, you’ll be required to pay the full capital gain.
  
  

• When to pay Capital Gains Tax?

  
  As mentioned earlier, capital gains tax is not a separate tax. It is a part of your income tax, which means it is payable as a part of your income tax for the relevant year. For example, paying your CGT for the FY2022, as you sold your property or assets for the year 2021 – 2022.
  
  

• When to not pay Capital Gains Tax?

  
  If you have made a capital loss in the current financial year of 2022, you can either use it to offset other capital gains you have made for the income year. However, if you have not made any gains for the following income year, you can carry your losses forward, reducing it from any capital profits you make in the next financial year or in a few years.
  
  

• What essential financial information do I need to calculate my losses or gains?

  
  Ensuring you organise and keep your records up to date will help you make correct calculations on your losses and gains. You may need the following:
  
  
  
  • Receipts for associated expenses with the sale or disposal of the CGT item.
  • Initial contracts of the sale.
  • Valuations.
  • Expense records
  
  
  

• What happens when you sell an inherited asset?

  
  One of the most commonly asked questions is about assets that are inherited. Usually, a CGT event is triggered when an individual sells an inherited asset.
  
  If the asset was purchased after the CGT law was introduced on 20th September 1985, then the individual who inherited the asset is required to calculate the cost base, which could depend on the following:
  
  The original cost of the property or share, purchased by the deceased person.
  The market value of the property or share, at the time of the death.
  
  Additionally, if the asset was purchased before the law was introduced on 20th September 1985, then the individual who has inherited the asset is said to have acquired it at the time of the death of the person who passed the inheritance. The cost base of the asset will be equivalent to the market value of the asset at that point in time.
  
  

• Still have questions?

  
  If you have recently made a sale on an asset and have more questions on your capital gains or losses, we can help you work out your CGT in minutes. Simply book an appointment with one of our accountants at your nearest location.