When it comes to staying on top of your finances, it’s important to be aware of the regulations, tax deductions and tax exemptions that apply to your unique situation. Capital Gains Tax is one of the more complicated and misunderstood areas of tax law, and its impact on your annual tax return can be remarkable. At TaxReturn.com.au, our team of accountants strive to educate every one of our clients in the loop when it comes to Australian tax rules. So, read on and consider lodging your next tax return online.
Put simply, Capital Gains Tax, or CGT, is a tax that applies when a Capital Gains tax event happens to a capital asset. Every Capital Gains tax event will be calculated using its outcome within the income year that the event occurred. There is no true, regular rate of Capital Gains Tax.
Capital Assets and Capital Gains Tax Exemptions
Since the CGT was implemented on 20 September 1985, all assets are subject to capital gains tax, with specific tax exemptions. If you hold an asset and use it for taxable purposes or to generate income, it is a capital gains tax asset.
This includes assets such as real estate, shares, units, leases, licenses, foreign currencies, collectables and personal use assets above a certain value.
Capital gains tax rate is applied depending on time held. Assets held for 12 months or more as classified as long-term assets, while those held for 12 months of less are considered short-term.
However, there are a range of tax exemptions that apply to certain assets such as:
- Main residential properties;
- Cars or motorcycles;
- Depreciating assets for businesses/rentals; and/or
- Assets acquired before 20 September 1985.
Of course, there are exceptions to these tax exemptions or concessions that may apply to your situation. In this case, it’s best to speak with a tax professional before your next tax return.
For example: did you know that if you rent out any space of your residential home, like through Airbnb, you will lose some portion of your Capital Gains Exemption? This is because the home has now been utilised to incur income.
Capital Gains Tax Events
Each capital gains tax event is influenced by:
- Whether a capital gain or loss has arisen and how it is calculated;
- Any exceptions applicable;
- How and when the event occurs;
- Any changes to the cost base of the asset as a result of the event; and
- How it was calculated.
Event types are grouped in the following 12 categories:
- Hire purchase and similar agreements
- End of a CGT asset
- Bringing a CGT asset into existence
- Special capital receipts
- Cessation of residency
- Other CGT events
The type of CGT event that your situation falls under impacts how your capital gains tax rate is calculated. Where multiple CGT events occur, you typically apply the rules closest to your situation.
For specific information on each category, view the ATO website.
Results of Capital Gains Tax Events
A Capital Gain is made when the end termination value is above the original cost of the asset. However, a Capital Loss is made when this termination value is below the original cost of said asset. Most commonly, CGT events involve the sale or disposal of a capital asset.
Impact on Your Tax Return
You are required to report all capital gains and losses in your annual income tax return, paying tax on your capital gains. There are measures you can take to reduce or minimise the amount of capital gains tax you owe, including claiming your capital losses gains your capital gains.
Let Us Help You
The particulars of Australian capital gains tax regulations can be complex. Let the professionals help you to make the best choices for your situation. The team at TaxReturn.com.au are experienced, registered and local – meaning you’re sure of support right when you need it.
Contact us today to begin your tax return online or over the phone with one of our tax accountants. It’s quick and simple!