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What Is Capital Gains Tax? Simple Insight into CG Tax In Australia!

In Australia, Capital gains tax was introduced in 1985, according to which you need to pay capital gains tax if you have sold an asset on or after that time.

Capital gains tax is simply a fee that you need to pay on the profit you make after selling specific property or assets in Australia.

When you sell a share, asset or property, and the selling price exceeds the buying price, you need to pay a tax in this situation. The tax levied on that substantial gains is known as the capital gains tax.

How Much CGT Do You Need To Pay?

The amount which you should pay as your Capital Gains Tax can differ favourably depending on certain aspects. They include factors like the marginal rate of the tax, duration for which you have owned the asset etc… Aside, another factor is worth considering while gauging the amount of CGT you need to pay. It is the potential capital losses in case you have made some. As already said that the time-frame for which you have held your asset could affect the sum of CGT you must pay.

Factors Affecting Your CGT

Say, for instance, you have owned some substantial shares for more than twelve months. In that case, you can expect a discount of 50% on your Capital Gains Tax. It can also be discounted for Australian superannuation funds differently. It includes discounting your asset by 33.3%. Similarly, evaluating the marginal rate of your tax is equally essential. Do you know why? That is because your CGT is going to be added to your calculable income. This particular income will be included while you are lodging tax return during the current financial year.

Capital Gains Tax Events

A CGT event refers to the selling or transferring of an asset to another individual. That asset can be in the form of an investment property or share. A clear understanding of CGT events can help you identify the potential points at which capital losses or gains occurred. Hence, preserving and highlighting those points of time worth it. That is because they guide you about your eligible year of income. Subsequently, you will be able to report your notable capital losses or gains during that particular year.

CGT Event And Its Importance

The importance of Capital Gains Tax Events is worth acknowledging when it comes to calculating your tax obligations. A CGT event is that instance when you sell a particular CGT asset.

However, a CGT event remains null and void unless you enter into a substantial contract to dispose of your CGT property.

Real Estate

When it comes to real-estate, a CGT event conventionally takes place when you enter into a contract. According to this criterion, the date on the contract will be considered to be your entry date, unlike when you are settling.

Capital Gains Tax Assets

Well, Capital Gains Tax Assets refer to each asset which you had acquired from the introduction of CGT. So, make sure that the assets which you own were purchased on or after 20th September 1985. Some of the assets which are conventionally considered as CGT assets include the following:

  • Cryptocurrency.
  • Units, shares and investments similar in type.
  • Real estate.

The checklist of CGT assets is not exhaustive and hence includes a couple of other potential assets too. Personal use assets, collectables, foreign currency, contractual rights, major capital ameliorations, licenses, leases and goodwill complete this list.

Capital Gain Tax Exemptions

There are certain assets and events subjected to capital gain tax exemptions in Australia.

These primarily include the following:

  • Depreciating assets are those only used for serving the potential taxable purposes
  • A motorcycle or that of a car and
  • The main dwelling where you live is again subject to some exclusive exceptions etc.

It implies that you conventionally don’t include these in your assessable income. Besides, there are a few capital losses too that you cannot optimise for offsetting a capital gain. Capital gains tax exemptions apply to the following assets. 

Certain assets are subject to Capital Gain Tax Exemptions in Australia. It implies that you conventionally don’t include these assets in your assessable income. Besides, there are a few capital losses too which you cannot optimize for offsetting a capital gain. By doing so, you could have reduced your assessable income optimally. So, to delve deeper, capital gains tax exemptions apply to the subsequent assets. 

  • Depreciating Assets

Depreciating assets chiefly include assets that are solely used for taxable purposes. Examples include items comprising a rental property or business equipment etc. 

  • Personal Use Assets

These are CGT assets, kept and used solely for personal purposes. Personal use assets which are below AU$10,000 are not incurred by CGT purposes. Examples include household items, boats and furnishings etc. 

  • Collectables

Items that are kept aside and used primarily for personal purposes are called collectables. You can purchase these items for you as well as for your associates. Prominent examples include antiques, jewellery, books, rare folios, manuscripts and postage stamps etc. 

A CGT exemption can also apply to your car. It should be a motor vehicle designed for carrying a certain amount of passengers safely and suitably. 

Capital Gain Tax Rates In Australia

In Australia, there are different Capital Gains Tax Rates that apply to all Australian dwellers. Say, for instance, you bought a property for AU$50,000. Subsequently, you sold it for AU$70,000. It means that you have procured a capital gain of AU$20,000. Finally, you will require paying CGT on the figure of AU$20,000 that you gained after selling the property. 

CGT Discount

Have you sold or disposed of your capital gains tax assets within a duration of fewer than twelve months? In that case, you need to pay the total amount of CGT to the ATO. Again, you as an individual being can become eligible for a discount of 50%. This rule will apply after you’ve appealed for any potential capital losses for any CGT tax asset held above twelve months. Again, the said duration of twelve months should have been covered before you had sold your property. If you are eligible for the potential CGT exemptions, then you need to calculate your CGT Rate In Australia differently. Pay your CGT only in the financial year in which you have or had sold your pertinent asset in Australia.

What If I Make A Capital Loss Instead Of Capital Gains?

The situation of a capital loss arises when you sell your CGT asset less than what you had paid for it. You can use a capital loss to offset a capital gain in the same financial year. Remember, you cannot claim any duty back if you have made a capital loss. 

At times, it happens that the amounts of capital losses outnumber the capital gains as well. In that case, you can carry the former forward and deduct the same against any capital gains you will make in the upcoming years.

Absence Of Potential Capital Gains

Sometimes, people do not get gains after they have a capital loss. It conventionally takes place in the same financial year in which the individual had faced loss. In that case, you can carry forward the capital losses to the rest of the income years. After you complete this task, you can expect to balance the capital losses with the potential capital gains occurring in the imminent future. Remember, your capital gains form an imperative part of your assessable income, so, sell your CGT asset wisely.

How To Reduce Capital Gains Tax?

Whether or not you’ll qualify for a capital gains tax will depend on the nuance between how much you’d paid and got instead. If you get less, simply, it’s a capital loss. Similarly, if you get more than your selling price, it leads you to acquire a Capital Gain. Now, as the payer of your CGT, you would wish to know How To reduce capital gains tax on property? You can hire a qualified tax agent to get the job done faultlessly. 

The Role Of A Tax Accountant In CGT Minimisation

A well-versed capital gains tax accountant can help you minimise your Capital Gains Tax optimally. He or she will analyse the several crucial factors resulting in the effective minimisation of your Capital Gains Tax. Subsequently, your tax accountant will assist you on how to reduce the Capital Gains Tax. Your accountant will also check for eligibility if you can claim that the property you are selling is your dwelling where you reside along with your family.

The Three Effective Ways To Reduce Your Capital Gains Tax In Australia

Apart from professional assistance, you can also adhere to some strategies to reduce CG tax by yourself. Here is a checklist of three such useful ways that will help you to reduce your Capital Gains Tax to a reasonable extent. These include the following:

  • Optimise Low-income Year

Make the best use of your low-income year in case you are selling an investment property. That is because capital gains tax is considered an influential part of your earning. So, it might happen that you have made a relatively lower income during a specific year. You can expect to pay Capital Gains Tax at a lower rate during those years.

  • Maintain Accurate Property Records

Yet another effective way to bring down the rate of your Capital Gain Tax to a reasonable extent. So, make sure that you maintain detailed and flawless records on the sums you had spent on your property. It requires you to record-keep all the crucial data related to the moment when you bought your property effectively. What’s more, you should also maintain records of offsetting your CGTs as per ATO’s guidelines.

  • Own An Investment Property Above Twelve Months

What if you could obtain a massive discount of 50% on your potential CGT? Well, it’s not a lucid dream but a reality instead. All you need to do is to own an investment property for more than twelve months.

So, do you wish to delve even deeper into how to avoid capital gains tax in Australia? Then, Palladium Financial Group is there to provide you with the best services in this matter. A  CGT accountant has the knowledge and acumen to help you pay your potential CGTs correctly and on time!

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