Tax Tips

Capital Gains Tax (CGT)

 

Capital Gains Tax (CGT) is the tax you pay on any capital gain you include on your annual income tax return. It is not a separate tax, merely a component of your tax return. You are taxed on your net capital gain at your marginal tax rate.

 

Your net capital gain is:

  • your total capital gains for the year minus
  • your total capital losses for the year and any unapplied net capital losses from earlier years minus
  • any CGT discount and small business CGT concessions to which you are entitled

 

If your total capital losses for the income year are more than your total capital gains, then you have a capital loss for the year. This loss can be carried forward to later income years to be deducted from future capital gains. You cannot deduct capital losses or a net capital loss from your income. There is no time limit on how long you can carry forward a net capital loss. You do however have to apply your net capital losses in the order that you make them.

 

You need to separate the records of your CGT events into the following three categories:

  • Collectables (eg jewellery)
  • Personal Use Assets (eg a boat used for recreation)
  • Other CGT Assets (including Sale of Shares, Distributions from Managed Funds, Sale of Real Estate)

 

In calculating your capital gain, you will need to use one of the three following methods for each asset:

  • Indexation Method
  • Discount Method
  • 'Other' Method

 

Where you have owned the asset for at least 12 months, you may use either of the indexation method or the discount method. Use the method which gives you the better result.

 

If you bought and sold your asset within 12 months, you must use the 'other' method to calculate your capital gain.

 

If you use the discount method, do not apply the discount percentage until you have applied current year capital losses and unapplied net capital losses from earlier years.

 

TAX logic will advise you of which documents we require to perform your capital gains tax calculations and also perform the most appropriate calculation to maximise your benefit.