How is capital gains tax calculated in Australia?
Capital Gains Tax (CGT) in Australia is calculated on the profit from selling an asset. You subtract the asset's cost base from its capital proceeds. If held over 12 months, individuals and trusts may apply a 50% discount to this gain, which is then added to your assessable income.
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How it works in practice
Understanding Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is not a separate tax but forms part of your income tax. It applies to the profit you make when you sell or dispose of an asset, like property, shares, or collectables, that you acquired after 19 September 1985. The gain is typically added to your assessable income in the income year the asset is disposed of, and then taxed at your marginal income tax rate.
How is CGT Calculated?
To calculate your capital gain, you first determine the 'capital proceeds' from the disposal (e.g., sale price) and subtract the 'cost base' of the asset. The cost base includes the purchase price, incidental costs of acquisition and disposal (like stamp duty, legal fees, agent commissions), and costs of ownership (like capital improvements). If the capital proceeds exceed the cost base, you have a capital gain. If the cost base is higher, you have a capital loss, which can be carried forward to offset future capital gains.
Applying the CGT Discount
For individuals and trusts who have owned an asset for more than 12 months, a 50% CGT discount can be applied to the net capital gain. This means only half of the capital gain is included in your assessable income. Companies are not eligible for this 50% discount. After applying any capital losses and discounts, the remaining net capital gain is added to your other income for the year and taxed at your personal marginal tax rates.
Important exceptions
The main residence (your home) is generally exempt from CGT. Assets acquired before 20 September 1985 (when CGT was introduced) are also exempt. Additionally, specific small business CGT concessions may allow eligible small businesses to reduce, defer, or disregard capital gains when disposing of active assets. Certain personal use assets and superannuation assets within the tax-free retirement phase may also be exempt.
What you should do now
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Identify the asset's disposal date to determine the relevant income year for CGT calculation.
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Calculate the 'capital proceeds' received from the asset's disposal, typically the sale price.
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Determine the 'cost base' of the asset, including purchase price, incidental costs, and capital improvements.
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Subtract the cost base from the capital proceeds to find your capital gain or loss.
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If it's a gain and you held the asset for over 12 months (and are an individual or trust), apply the 50% CGT discount, then include the resulting amount in your assessable income.
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