Calculating and paying capital gains tax
Calculating capital gains tax doesn’t have to be daunting. Below is a guide for when you might have to pay it.
How much capital gains tax will I pay?
Companies will pay 30% tax on their capital gains (the current company tax rate). For individuals the rate will be your income tax rate for that year.
If you’ve acquired a capital gains tax (CGT) asset after 21 September 1999 and held it for over 12 months before selling it, you should be able to obtain a 50% discount on the capital gain. If you sell an asset less than 12 months after buying it you don’t get the 50% discount and should pay tax on the full capital gain.
For example, if you sell an investment property that you’ve owned for over 12 months and you make a $200,000 capital gain, you’ll pay tax on 50% – $100,000. This gain will be added to your taxable income and increase the tax that you pay.
If you acquired a CGT asset before 21 September 1999 and held it for over 12 months and then sell it, you may choose to use the indexation method instead of the CGT discount to determine how much capital you have to pay. The indexation method applies a multiplier prescribed by the tax law to account for inflation on the cost base of your CGT asset.
If you make a capital loss you can deduct that from other capital gains you make from other sources. If however, you do not have other capital gains in that income year to apply your capital loss, you can carry the capital loss to later income years to reduce your future CGT.
When do I have to pay capital gains tax?
Generally, CGT is not a separate tax. The net capital gains forms part of your assessable income in the year the CGT event occurred and is payable as part of your income tax assessment for the relevant income year.
When don’t I have to pay capital gains tax?
You should not pay CGT if you made a net capital loss for the income year. There are also certain assets and events which are exempt from CGT. Some examples include:
- selling the principal home, your personal car or motorbike, or
- selling an asset you acquired before capital gains tax was introduced on 20 September 1985.
How do I calculate it?
There are several ways to calculate your CGT – you can find more detailed information on the ATO website.
However as an example when you have sold an asset:
- Take the selling price of the asset
- Subtract the original cost of the asset and any associated expenses such as legal fees and stamp duty
The amount remaining is your net capital gain (or loss).
Keep good records!
Because assets are often long term you’ll need good records relating to acquisition, maintenance and improvements. This will help when finally working out the amount that is subject to Capital Gains Tax.
Some records to keep include:
- interest paid on related borrowings
- receipts of purchase
- records of expenses like legal fees, stamp duty etc
- receipts covering land taxes, insurance bills, rates etc
- receipts for repairs, maintenance and improvements
- any market valuations
- receipts for shares brokerage
Would you like to share your experiences with calculating and paying capital gains tax? Leave a comment or tip below.
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