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What is Capital Gains Tax?

Capital Gains Tax (CGT) is a tax on the profit realised on the sale of a non-inventory asset. The most common capital gains are realised from the sale of stocks, bonds, precious metals, real estate, property or collectable assets.

Over $500

If you have sold any such assets (and the value was over $500), you will need to report this in your Income Tax Return. The Australian Taxation Office counts Capital Gains or Losses as income.

Keep Documentation

As per normal tax-deductible purchases, keeping all relevant documents relating to the purchase and sale of your asset is necessary. The purchase price and associated expenses will be your ‘cost base’, which will assist in reducing overall Capital Gain (your profit).

Discounts & Exemptions

Discounts may be available if you owned the asset for at least 12 months - saving 50% in payable tax. Also, some assets are exempt from CGT, while others are excluded from the GCT discount.

How much tax will I pay?

CGT is not a different or separate tax. When you have made a Capital Gain (a profit) you will see this amount added to your Taxable Income.

Important to note is that any asset you have purchased or acquired since CGT was first introduced (20 September 1985) will be subject to CGT, with some exceptions for personal-use assets such as the family home or your personal vehicle.

Methods to Calculate Capital Gains

A. Indexation - Calculation Method

  • You may use this method for assets acquired before 11.45am AEST on 21 September 1999.
  • The indexation method allows you to increase the Cost Base of the Asset by applying an indexation factor based on CPI up to September 1999
  • Then subtract this amount from your proceeds.
  • This method may be used if it is a better result than the Discount Method.

B. Discount - Calculation Method

  • Allows you to discount your capital gain
  • You can choose this method for an asset owned for 12 months or more if it produces a better result than the indexation method.
  • Subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by 50%

C. Other Method

  • When you have bought and sold an asset within 12 months
  • You are not eligible to claim the Discount.
  • Subtract the Cost Base from the proceeds. 

Capital Gains Tax Example

Jill works as a Designer her taxable income is $65, 000. Jill sold shares she held for over 12 months.

  1. The original purchase price of these shares was $2,500.
  2. The brokerage on Purchase was $30 and the Brokerage on the Sale of the Shares was $30.
  3. Jill’s Shares were sold for $5000.

Jill can reduce the proceeds by the original purchase price and the cost of brokerage.
Capital Gain is $5,000 - $2,560 = $2,440

Jill will be eligible to receive a discount of 50% therefore her Assessable Capital Gain will be:

$2,440 x 50% = $1,220 this would add to Jill’s Assessable income.

$65, 000 + $1,220 = $66,220  Adjustable Taxable income.

What to do if you realise a Capital Loss?

When the sale of an asset has resulted in a Capital Loss than this Loss is to be reported in your Income Tax Return. The Loss will be carried forward each Financial Year until it can be applied to reduce a future Capital Gain.

How we Prepare you for Greatness

  • Guaranteed Maximise Returns – as always our pledge to all our customers is to claim every possible and legitimate deduction available
  • All-year advice and representation with the ATO including the best tax practices and ATO insights reducing the likelihood of penalties or audits
  • Peace of mind that your investments are working effectively as possible from a tax position
  • Of course, preparing your tax return with a professional is a tax deduction in itself

Come see why thousands of like-minded Queensland investors entrust ITP Qld to best prepare their Capital Gains and Losses and maximise their return, every year. Do you still have questions? Contact an ITP Consultant today.