When selling or disposing of an asset, you may make a capital gain or loss. The gain or loss depends on the difference between:
- What the asset originally cost to acquire, and
- What you receive when you sell it.
If you do make a profit from the sale of an asset, you usually have to include it in your taxable income and pay tax on it. This tax is known as a capital gains tax, or CGT.
A capital gain should be included in your tax return for the financial year in which an asset was sold (not necessarily when you receive the proceeds). Since additional tax may be payable on the gain, it’s important to ensure that you have enough money available to meet the CGT liability.
Potential CGT reductions
The taxable portion of a capital gain may be reduced if the asset was held for twelve months or more, depending on who owned it. For example:
For individuals and trusts (if distributed to an individual):
- Only half of the capital gain may be included in assessable income
For superannuation funds:
- During the accumulation or transition phase, only two-thirds of the capital gain may be included in assessable income.
- During retirement phase (up to the transfer balance cap), capital gains may be completely exempt from tax
Also, you may be able to defer or disregard some or all of a capital gain if you meet the relevant eligibility criteria for one or more of the small business CGT concessions, including:
- 15-year exemption
- 50% active asset reduction
- Retirement exemption
- Asset rollover (or replacement asset)
What if I make a capital loss?
If you dispose of an asset and make a capital loss instead of a gain, you can’t use it to lower other assessable income; however, you can use it to reduce a capital gain (before any discounts). Unused capital losses can be carried forward to reduce capital gains in future years.
Are there any assets excluded from CGT?
Some assets are generally excluded from CGT. For example:
- Any assets acquired before CGT was introduced on 20 September 1985
- Most personal assets, such as your primary residence, a car or motorcycle, and personal use assets purchased/acquired for less than $10,000
CGT is a complex area, and exemptions can apply. Therefore, it’s important to seek professional advice. We work with financial advisors in Accru Harris Orchard who can help, or you can contact your usual Accru Harris Orchard advisor.
Disclaimer: The information contained in this article is based on information believed to be accurate and reliable at the time of publication. To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this blog. This information is of a general nature only. It is not intended as personal advice and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives, financial situation and needs.