Explaining Australian Capital Gains Tax

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Explaining Australian Capital Gains Tax

The taxman comes again when you sell an asset in Australia. This is called the capital gains tax.

Wondering if you have to pay this tax? Wondering if there are ways to reduce it? Find out what you need to know here. Explaining Australian Capital gains tax.

The Capital Gains Tax

The Australian government charges a capital gains tax when individuals or businesses sell some types of assets. The tax is calculated based on the sale price minus the cost basis of the asset, which is whatever the asset cost.

Assets that count generally include:

  • Property or house that is not your primary residence
  • Investments
  • Shares
  • High-value personal items worth more than $10,000

Of course, there are many assets not subject to this tax. These include:

  • Your primary residence
  • Assets that you acquired before 20 September 1985
  • Personal vehicles
  • Investment property assets that are depreciating

You declare your capital gains when you lodge your annual tax return and it becomes part of your total income that year.

How to Pay Less CGT

The CGT tax rate for individuals is based on your marginal rate, but nobody wants to pay more taxes than necessary. Check out these perfectly legal, effective methods of reducing your CGT liability.

1. Hold Assets for More Than 12 Months

Individuals get a whopping 50% discount on CGT when they hold the asset for more than 12 months. Aim to hold taxable assets for at least this time frame to take advantage of this benefit.

2. Keep Track of Your Capital Losses

If an investment ends in a loss, keep good records. You can use that loss in the future to offset any gains. For example, say you took a $1,000 loss one year. When you make $3,000 a few years later, you can reduce your liability by that $1,000 loss. Pretty nifty!

Bonus! There is no time limit for how long you can carry forward your losses.

3. Increase the Asset Cost Base

We mentioned the asset cost base is what it cost to acquire the asset. This includes the purchase price, costs to buy or sell (e.g. real estate agents fees), cost of repairs, maintenance, improvements, etc.

Make sure you add everything you possibly can to your asset cost base. Every dollar you add means one less dollar you have to pay tax on.

4. Revalue Your House Before Renting it Out

You don’t have to pay CGT on your primary residence, so take advantage! If you decide to start renting out your home, get it revalued at that point. Then, when it comes time to sell and pay CGT, it will be calculated based upon the value at the time you started renting it and not when you bought it.

Keeping Your CGT Low

Don’t get stuck paying more CGT than you should. Follow these tips and seek tax advice from a professional to make sure you are taking advantage of every way to reduce that bill!

Featured photo by The New York Public Library on Unsplash
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