Calculating and paying capital gains tax

Posted in Money basics
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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.

The ATO full list of CGT exemptions.

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

More information

 

Would you like to share your experiences with calculating and paying capital gains tax? Leave a comment or tip below.

If you have a question about a product or service, please contact us. This includes enquiries you might have about your current NAB products.

Tags: Investing , Tax

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Comments

16 Responses to Calculating and paying capital gains tax

  1. You can use this tool to calculate capital gains tax in Australia, the ATO site is not much use in explaining the cost axe

    http://itunes.com/apps/Capitalgainstaxaustralia

  2. Dwayne says:

    I have been offed 310000 on my house where the the house and land cost me 340000 and I have not owned it for one year. Do I have to pay capital gains or does this be class as a capital gain loss.

  3. NAB says:

    Hi Dwayne, it’s best to contact the ATO in regards to your enquiry. Otherwise if you need further info feel free to drop a line to social.media@nab.com.au, thanks ^JP

  4. Ken says:

    I am a new resident having recently settled in Australia from Singapore. I still have my house in Singapore under my name which my family members (my wife and children) are living in at present. If I were to sell off the house, would it attract CGT in Australia? Can it still be considered as residential home for tax purpose? Thanks.

  5. Ken says:

    Thank you for your response. I will get in touch with ATLO. Ken

  6. Alex says:

    Hello, I recently went through a relationship breakdown and financial separation from my ex-wife. As a result of the financial split, I received a block of land that we owned outright for 13 years but had to transfer $90K from another mortgage. I paid $89K for the land in 2000 and its now valued at $400K. Is there any exemption for CGT if I sell this land to buy a house of a similar value, as I’ve received this land from our separation split? Thank you. Regards Alex.

  7. Bruce McGrath says:

    hello. i need some information about CGT. i currently don’t work an am looking at starting binary trading. i understand that the capital gains tax is based on your income tax rate but if i don’t have an income tax rate what will my CGT rate be

    • NAB says:

      Hi Bruce,

      your accountant or tax agent would be the most qualified to provide you with guidance on this issue.

      Or you can contact the ATO on 13 28 61 ^SN

  8. Sper26 says:

    hey could you help us with a rough estimate onCGT???
    bought an investment house in NSW in 1998 for $215K and looking at selling for approx $500K.
    what would be the CGT i would be up for??? would appreciate a rough estimate.

  9. gerry says:

    Please contact the ATO as we won’t answer any of your enquiries. Please contact the ato as we won’t…please contact the ato…please contact the…Please just don’t contact us, we’re here for your money, not to help.

    • NAB says:

      Hi Gerry,

      We direct customer enquiries to the ATO because we want to make sure they receive complete and accurate responses regarding their CGT enquiries ^SN

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