Capital Gains Tax + Advice

Capital Gains Tax… Those three works that can sometimes send shivers down your spine!

Some of the most common questions we are asked by our clients when it comes to Capital Gains Tax are:

• When do we pay Capital Gains Tax?
• Is there a capital gain on real estate?
• How much tax do you pay on capital gains?
• Is there a Capital Gains Tax when it comes to cryptocurrency?

For many people, their first experience would be a capital gain or a capital loss on property.

However, this can also apply to shares, art, cars, and managed funds to name a few, as well as a range of other personal use assets if they are of a certain value.  Capital Gains Tax comes under the heading of income tax.

Broadly, Capital Gains Tax (CGT) is the tax that is payable on the profit you receive when you sell an asset or an investment if the asset was acquired after 20th September 1985.

The profit made is the difference between what it cost you to acquire the asset and what you receive when you sell or dispose of the asset.

There may be some other capital or holding costs to take into account to make sure that the resulting profit or loss is correct.

You may be surprised to know that a person’s main place of residence (their home) is exempt from Capital Gains Tax.

However, this may not be the case if any of the following apply:

• Part of it is rented out for income (this doesn’t include a “granny flat arrangement”);
• It is being used for business purposes; or
• it is on more than two hectares of land.

Cars and motorbikes are also exempt from Capital Gains Tax unless they have been used in a business.

Personal use assets, such as boats, electrical goods and household items are subject to Capital Gains Tax when sold if their purchase cost was greater than $10,000.

Collectables such as jewellery, antiques and artwork are subject to Capital Gains Tax when sold if their purchase price was over $500.  The sale of shares which have been held as an investment (rather than used in a share trading business) can also attract Capital Gains Tax.

Capital Gains Tax also applies to inherited items of a certain value, but it doesn’t apply to assets that have been acquired before 20th September 1985.

Finally, selling or disposing of assets within 12 months after purchase will mean paying the full amount of Capital Gains Tax calculated.  However, if these assets are held for over 12 months it means that you may be eligible for a 50% discount on the amount of Capital Gains Tax to be paid.

So, how is Capital Gains Tax calculated?

Any increase in value from the time the asset was acquired is calculated by subtracting the cost involved in acquiring and holding an asset (the cost base) from the proceeds of the sale of the asset.

From this total – the gross capital gain – are subtracted any eligible capital losses from other assets and this then gives you, the net capital gain.  You will pay tax on the resulting gain at your marginal tax rate.

It is always a good idea to get advice from your Accountant and/or your Financial Adviser to ensure that you are complying with current legislation and maximising your potential tax return.

Capital gain events can be quite complex, particularly when you are dealing with shares, capital expenditure on property or sales of businesses.