Capital Gains Tax (CGT), is the tax owners must pay on their profit when they sell or receive income from their assets. It applies to any type of asset – land, investments, shares, or property bought after 1985. In this article, we will see all that Capital Gains Tax consists of and how to reduce the amount payable.
What are Capital Gains, and How are they Calculated?
Capital gain refers to the profit obtained when an asset is sold for higher than its cost price. It is calculated by determining the gross gain and subtracting the total loss incurred to get the net capital profit.
If your assets have incurred losses that you didn’t include in tax returns for previous years, you can include them in your latest return.
Notable Points About Capital Gains Tax
1. This tax applies to:
- All assets – land, property, shares, and any possible investment; and
- Personal items worth more than $10,000 acquired after September 1985.
- Personal properties such as a primary residence, a private vehicle, winnings from games, and items worth less than $10,000 are not subject to Capital Gains Tax.
- The tax is progressive, which means that the more capital you have obtained due to investment or sale gains, the higher the amount you will have to pay.
- Capital Gains Tax is not a separate individual tax, but forms part of the annual tax return.
- Capital Gains Tax from shared properties should be calculated separately with the losses and gains of the individual owners and not collectively.
How to Minimise Your Capital Gains Tax
The rate for Capital Gains Tax varies depending on the value of the property, the profit made from the property, and length of ownership.
Unsurprisingly, many people look for legal means to reduce the amount of tax they need to pay. Here are some of the most useful tips.
Maximising Concessions
Many Capital Gains Tax concessions and exceptions are available, especially for small business owners. By studying them and knowing their eligibility criteria, you can maximise them to reduce the amount of tax you have to pay.
Enlisting the Help of a Tax Expert
With the help and input of a tax expert, you can find legal ways of reducing your Capital Gains Tax. One of the ways they can do this is through property valuation – which ensures you don’t pay more than necessary for an asset. With their help during your valuation and other processes, your Capital Gains Tax can be kept to a minimum.
Own the Property for More Than 1 Year
Irrespective of the value of your property, if you have held it for over a year, there is a discount on the Capital Gains Tax of up to 50%. However, this right only applies to personal assets, not ones owned by a company.
Conclusion
Investors and property owners should have a thorough understanding of capital gains tax to make informed decisions and avoid increasing their tax liability. As an asset owner, it is vital that you familiarise yourself with all aspects of your assets, so that you can make strategic decisions and reduce your tax bill.