Capital Gains Tax was introduced in Australia in September 1985.
Capital Gains Tax is essentially a tax that applies in respect of the disposal of a capital asset acquired on or after 20 September 1985 where the realisation is not undertaken in the ordinary course of carrying on a business.
Assets acquired prior to 20 September 1985 that are subsequently sold are generally exempt from capital gains tax and are referred to as pre-CGT assets.
A wide range of events known as CGT events can also give rise to capital gains that do not involve the disposal of a CGT asset. There are specific rules to determine how an assessable gain is calculated. The act identifies over 50 different CGT events.
A CGT asset includes
- Land and buildings
- Shares in a company or trust
- Options
- A right to enforce a contractual obligation
- Foreign Currency
Generally, the gross capital gain is calculated as the difference between the asset’s capital proceeds and cost base.(There are five elements of a cost base and only expenditure that fall in these five elements can be included in an assets cost base).
Capital losses (arising from both the current and previous tax years) can often be used to reduce the gross assessable gain. The net result is referred to as the Net capital gain. Capital losses can only be offset against capital gains.
In some instances, depending on the date the asset was acquired and disposed of and depending on the type of taxpayer – (Individual company etc.). the net capital gain will be subject to a discount. Generally, in the case of individuals and trusts a 50% discount is available if the asset was held for more than 12 months.
Specific CGT exemptions
The major exclusions from CGT are in relation to:
- Trading stock
- Plant used 100% for income producing purposes
- Cars, motorcycles, and similar vehicles
- Assets used to produce exempt income
- Main residence – The CGT main residence exemption basically provides that where an individual sells the main residence, no CGT is payable unless it has been used for income producing purposes.
- Compensation for wrong or injury
- Life assurance/superannuation policies
- Gambling winnings
- Marriage breakdown settlements
- Personal use assets that are owned by the taxpayer and are used or kept for personal use or enjoyment where the cost is less than $10,000
- Deceased estates – Generally when a person dies any capital gain or loss from a CGT event involving a CGT asset that was owned by the deceased at the time of death is disregarded. There are modifications to the cost base as a result of the death where the CGT asset is transferred to a Legal Personal representative or beneficiary.
Roll Over
There are rollover provisions that exist to defer a capital gain or loss until a CGT event occurs.
Small business relief
There are certain concessions available to help small business reduce the Capital gain as given below. The four concessions available providing certain conditions are met. The concessions operate subject to complex qualifying criteria.
- The 15-year exemption
- Small business 50% reduction
- The retirement concession up to a maximum gain of $500,000
- Small business rollover.
Please contact us on (08) 8172 9150 or info@mastertax.com.au for tailored advice in relation to any matters relating to Capital Gains Tax.
