Easy Guide To Capital Gains Tax for Australian Citizens

Easy Guide To Capital Gains Tax for Australian Citizens

As the tax time nears every year in Australia, you will get to hear the word ‘Capital Gain Tax’. Today’s guide will introduce you to CGT and its various crucial aspects. You will also learn that when to lodge your Capital Gains Tax and pay it subsequently. So, without wasting time anymore, let’s get started.


A clear understanding of Capital Gains Tax

During different phases of your life, you must have bought some assets, shares or properties, right? So, when you sell any of these assets, you will definitely find a difference between the purchase and selling price. If the selling price is less than the purchase price, then, it is referred to as a capital loss. On the flip side, if the selling price is more than the buying price, then, it is referred to as a capital gain.  The tax which is levied on your capital gain is conventionally known as Capital Gains Tax. 


CGT Event: A comprehensive introduction

A CGT event refers to the selling or transferring of a potential asset to another person. The asset can either be in the form of an investment property or share etc. A CGT event to be precise marks the point when a capital loss or gain was incurred on the pertinent asset. There are a couple of other CGT events as well. These include when a fund already manages to allocate a CGT to you in which you own substantial units.  Do you need furthermore pieces of information on this matter? Then, always feel free to visit the official site of the Australian Taxation Office.  


The amount of CGT payable

The sum of Capital Gains Tax you’re going to pay will vary based on certain factors. These include marginal tax rate, the duration for which you’ve owned the asset and your potential capital losses. Make sure that you evaluate your marginal tax rate impeccably. This is because your pertinent capital gain is going to be added to your assessable income. This task has to be completed in the financial year in which you’re filing your tax return Perth


Consequences of making potential capital losses

A capital loss occurs when you get less than what you had paid. So, the situation which has triggered your potential capital loss cannot be undone. Hence, to the best of suggestions, you can optimize your capital loss to reduce your pertinent capital gain. Make sure you do it in the same financial year to reap the maximum of its benefits. 


Optimize your capital losses against your capital gains

Are your capital losses much bigger than your capital gains? Then, you can quite effectively carry your capital loss forth. Subsequently, you can deduct the capital loss against any CGTs you will make in the forthcoming years. This strategy also applies to those who have incurred a capital loss in a financial year in which they did not make any capital gains. 


Assets that are subject to CGT in Australia

Before you pay your CGT, you need to understand if your asset is at all subject to CGT or not. The concept of Capital Gains Tax was introduced in Australia on 20th September 1985. So, have you bought any potential assets in Australia after this period? If so, then, rest assured that you will need to pay CGT in case you have acquired some substantial capital gains 


Convenient options to calculate your CGT

How you will gauge your CGTs will depend on the convenient tool you choose. You can adhere to any method which you think will give you the choicest result. A few of the convenient modes of calculating your Capital Gains Tax include the following:


The method of indexation

This method applies to assets that were purchased on 21st September 1999 post 11:45 am. The time is calculated according to the standard time of the Australian Capital Territory. Most importantly, these assets should be possessed for at least twelve months for the pertinent CGT event to apply. The indexation method allows you to enhance the cost base through the application of an indexation factor. This factor is particularly based on the consumer price index (CPI) till September 1999. 


CGT discount method 

The CGT discount method applies to all those assets which were held for twelve months or more. This duration should be attained prior to the occurrence of the pertinent CGT event. It allows you to decrease your capital gains through the following options:

  • Three percent for meeting the obligations of your superannuation funds
  • 50% applicable only to individuals which include trusts and partners comprising partnership businesses in Australia. 

Companies in Australia cannot access this method of CGT calculation

Additional methods of CGT calculation 

In the case of CGT calculation, you must exclude the day of the CGT event and the day on which you had acquired your asset. It will ascertain the fact that you had held the asset for twelve months and not less. If you own any asset for twelve months or more, you will become eligible for a substantial CGT discount of 50%. Subsequently, you need to deduct the cost base from the pertinent capital which proceeds. Thereafter, you should reduce the potential discount of 50% by deducting the potential capital losses.  


Hire a Capital Gains Tax Accountant

Alternatively, you can hire a registered capital gains tax accountant as well who will gauge your relevant Capital Gains Tax on your behalf. 


CGTs for Norfolk island residents in Australia

Are you a resident of Norfolk Island? Then, you should pay your potential CGTs on time. If you lodge a late tax return instead, you might be incurred by potential penalties. The CGT rule for Norfolk Island residents however applies to assets that were acquired from 23rd October 2015. In the case of foreign dwellers, CGT applies to assets that are considered as a ‘Taxable Australian Property’ in Australia. To get premium assistance regarding your CGT lodgement, you can always feel free to hire a qualified tax accountant in Perth to get the finest services.

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