When selling an asset for a profit, whether property, land, or shares, capital gains tax is payable on the profit margin obtained on the sale. Whether these assets are an inheritance or an outright purchase, you will need to pay capital gains tax if you acquired them after 20th September 1985.
This article will analyse capital gains tax in Australia and give you an in-depth understanding of what capital gains tax is, and how to keep it to a minimum.
What is Capital Gains Tax, and Where Does It Apply?
Capital gains tax is the tax paid when a capital gain has been made from the sale of certain assets received or purchased after 20th September 1985. Simply put, any gains made on an investment property are liable for capital gains tax.
These properties include every possible investment property – cryptocurrency, land, shares, etc., as well as personal properties purchased for over $10,000. However, it doesn’t include gains made from gambling, your primary residence, personal items such as your car, and gifts or rewards.
How to Calculate Capital Gains
Because capital gains are part of what defines your overall revenue for the year, you need to know how to calculate it so that you can log it correctly in your annual tax return.
Capital gains are calculated by adding up your gross gain from sale of assets through the year, less your losses (including uncalculated ones from previous years).
How to Reduce the Amount of Capital Gains Tax Payable?
Of course, everybody would like to reduce the amount of tax they pay! Here are some straightforward – and legal – ways to reduce your CGT.
Owning the Property for at Least 12 months
If you own an asset for 12 months, you can get a 50% capital gain reduction. However, if you sell the property before 12 months of ownership, you will have to include the entire gain in your taxable income.
If you don’t want to be overcharged, then you need to conduct an in-depth property valuation. With the help of an expert, you can find ways of reducing your payable tax, whilst following the law. Bear in mind that if the property is a shared one, you are only liable for your portion of the capital gains.
Small Business Capital Gains Tax Concessions
There are also small business tax concessions that you can use to your advantage, if your company meets the criteria.
Capital gains tax is not paid as a standalone tax, but as part of your annual tax. However, understanding the details of how this tax is calculated can help you find legal ways to reduce its contribution to your tax bill.