Capital Gains Tax
Capital Gains Tax (CGT) is a key consideration for any business or individual engaging in substantial asset transactions in Australia.
Whether you are dealing with shares, real estate, or business assets, understanding how to manage your CGT liabilities can significantly impact your financial outcomes.
Capital gains tax doesn’t have to be a burden. With HelloLedger, you gain an experienced partner who ensures that your investments are as profitable as possible after taxes.
Contact us today to learn how our tailored CGT strategies can benefit your investment or business portfolio.
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HelloLedger is here to guide you through the complexities of CGT and help you optimise your tax position.
Understanding Capital Gains Tax
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Whether you are dealing with shares, Capital Gains Tax in Australia is applied to the profit made from selling your investment at a higher price than what you paid for it. It's important to plan effectively to minimize CGT and enhance the returns on your investments.
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HelloLedger is here to guide you through the complexities of CGT and help you optimise your tax position.
Capital Gains on Investments
Shares
Calculating Gains
CGT is calculated on the difference between the sale price and the purchase price of shares, after adjusting for associated costs like brokerage fees.
Timing Strategies
Holding shares for more than 12 months typically qualifies for a 50% CGT discount for individuals and trusts, making timing a crucial consideration.
Principal Residence Exemption
Real Estate
The sale of your primary residence is usually exempt from CGT.
Property Investments
For investment properties, CGT is calculated on the net sale price minus the purchase cost and any improvements made during the ownership period. Like shares, holding for over 12 months may allow for a 50% discount.
Capital Gains on Business Assets
Business Sales
Small Business CGT Concessions
There are significant concessions available for small business owners, including a 15-year exemption, 50% active asset reduction, retirement exemption, and rollover relief. These can drastically reduce or even eliminate CGT liabilities.
Business Property
Active Asset
Properties used in a business, like offices or factories, can qualify for CGT concessions under the active asset test, potentially halving the capital gains exposed to tax.
CGT Exemptions and Reductions
Understanding exemptions and reductions is crucial for minimising CGT:
​Small Business Concessions
Qualifying small businesses can access several exemptions and reductions that can significantly lower CGT obligations.
Rollover Relief
In certain conditions, if you reinvest the proceeds from a sale into a new asset, you may defer the capital gains tax.
Main Residence Exemption
As noted, the sale of your main home is usually exempt from CGT, provided specific conditions are met.
Strategic CGT Planning with HelloLedger
Our approach to CGT involves a comprehensive review of your assets, meticulous planning around acquisition and disposal timing, and strategic use of exemptions and reliefs:
Pre-Sale Consultations
We assess potential CGT implications before you commit to selling an asset
Post-Sale Reporting and Compliance
Ensure accurate CGT calculations and timely reporting to the ATO.
Ongoing Advisory
Regular reviews of your investment portfolio to align with the most beneficial CGT strategies.
Capital Gains Tax FAQs
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What is Capital Gains Tax (CGT)?
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Capital Gains Tax (CGT) is a tax on the profit obtained from the sale of non-inventory assets that were acquired at a cost amount that is less than the amount realised on the sale. In Australia, CGT is part of the income tax system and is applied to the gain made from selling property, shares, or other investment assets.
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Are any assets exempt from CGT?
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Yes, certain assets are exempt from CGT, including your main residence, personal use assets such as a car, and depreciating assets used solely for taxable purposes, among others. Also, in some cases, assets acquired before 20 September 1985 are considered pre-CGT assets and are exempt from CGT.
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What is the CGT discount?
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The CGT discount allows individuals and trusts to reduce their capital gains by 50% if they have owned the asset for more than 12 months before selling. This discount is intended to encourage long-term investment. However, the rate differs for self-managed superannuation funds (SMSFs), which are eligible for a 33.33% discount on capital gains if the asset was held for over 12 months. It's important to note that companies do not receive a CGT discount regardless of how long they have held an assets.
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Who needs to pay CGT?
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Any individual, trust, or company that sells an asset and makes a gain needs to pay CGT. However, non-residents are only required to pay CGT on taxable Australian property.
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How is CGT calculated?
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CGT is calculated by subtracting the cost base (the cost of acquiring and holding an asset) from the capital proceeds (the amount received from the sale). If you’ve held the asset for more than 12 months, you may be eligible for a 50% discount on the gain for tax purposes.
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Can losses offset capital gains?
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Yes, capital losses can be used to offset capital gains in the same financial year. If your capital losses exceed your capital gains, you can carry the loss forward to offset gains in future years.
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What happens if I sell my main residence?
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​Generally, if you sell your home (main residence), you do not have to pay CGT thanks to the main residence exemption. However, there are some conditions, such as the length of time you lived there and whether you used part of it for business.
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How do I report CGT on my tax return?
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CGT events must be reported in your annual income tax return. The net capital gain (after applying any discounts and offsets) is added to your assessable income and taxed at your marginal tax rate.
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What should I do if I inherit an asset?
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If you inherit an asset, CGT is not payable upon inheritance, but it may apply when you later sell the asset. The cost base of the inherited asset usually depends on when the deceased acquired it and other factors.
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What are the implications of CGT for property developers?
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For property developers, the treatment of capital gains can vary significantly depending on whether the property is considered a capital asset or part of trading stock. If a property is held as a capital asset and then sold, the gain is typically subject to CGT. However, if the property is part of the trading stock (meaning it was bought and developed with the intention to sell), the profit from its sale is treated as ordinary income, not a capital gain, and is taxed accordingly without eligibility for CGT discounts. It's crucial for property developers to clearly establish the intent of property acquisition and development to ensure correct tax treatment.
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Are there any specific CGT rules for small businesses?
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Yes, small business owners may qualify for CGT concessions under certain conditions. These concessions can significantly reduce or even eliminate CGT liabilities on the sale of business assets.