What is the capital gains tax discount in Australia?
The capital gains tax (CGT) discount in Australia allows eligible individuals and trusts to reduce their capital gain by 50% before it's included in their assessable income. This applies to assets held for more than 12 months.
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How it works in practice
Understanding Capital Gains Tax (CGT) Discount
Capital Gains Tax (CGT) is levied on the profit made from selling an asset, such as a property or shares, that you've owned for investment purposes. In Australia, the CGT discount is a significant tax concession designed to reduce the taxable portion of these gains for individuals and trusts.
How the 50% Discount Works
If you are an individual or a trustee of a trust, and you hold a capital gains tax (CGT) asset for at least 12 months, you are generally eligible for a 50% discount on any capital gain made from its sale. This means that only half of your net capital gain is added to your assessable income and taxed at your marginal income tax rate. This discount is applied after you have offset any capital losses against your capital gains.
Important exceptions
The CGT discount does not apply to companies. It also doesn't apply to capital gains arising from certain events, such as those related to collectables, personal use assets, or some foreign exchange gains. Furthermore, for non-residents, the 50% discount may not apply to certain Australian property assets or where the asset was acquired during a period of non-residency. Complex rules apply to superannuation funds and some specific trusts.
What you should do now
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Determine if your asset is a CGT asset and if it qualifies for the discount (held over 12 months).
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Calculate your total capital gain by subtracting the cost base from your selling price.
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Offset any capital losses you have against your capital gains to arrive at a net capital gain.
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If eligible, apply the 50% CGT discount to your net capital gain.
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Include the remaining discounted capital gain in your assessable income for the relevant tax year.
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