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Everything you should know about Capital Gains Tax in Australia

As tax season approaches, you’ll hear “Capital Gains Tax“ (CGT) more frequently. Here are some essential points you must know about CGT in Australia and the information regarding when you’re needed to pay the tax.

Is There a Tax on Capital Gains?

Except for specific exclusions, capital gains tax is levied on selling any asset that generates a capital gain (the most common exemption being the family home).

The difference between the price you paid for an item and the price you received when you sold it is a capital gain or loss. This accounts for additional expenses incurred throughout purchasing and selling the item. Selling an asset for more than the price you bought means you’ve made a profit. When calculating and paying capital gains tax, being organized is essential. The best approach to staying on top of things is to keep track of items like an initial contract of sales and other receipts for costs and interest paid. 

What is the Tax Rate on My Capital Gains?

When it comes to CGT, the amount you pay relies on various circumstances, including how long you’ve had the item, your marginal tax rate, and if you’ve also earned any capital losses. Capital gains are included in taxable income on your tax return. Therefore, the marginal tax rate is critical. Certain taxpayers might obtain a 50% reduction on their capital gains for holding assets for more than 12 months.

What Will Happen if I Suffer a Loss of Capital?

A capital loss would be accrued if you sold your assets at a lower price than what you paid. It’s possible to employ capital losses to offset capital gains in the same year. Capital losses can be carried forward and deducted against future capital gains if they are bigger than your capital profits or if you incur a capital loss in a financial year in which you do not generate a capital gain.

What Will Happen if I Inherit Money or Other Property?

When you inherit assets, a CGT event is usually implied. If the deceased person purchased the assets before the introduction of CGT on September 20, 1985, the person who inherits the assets must identify the cost basis. The cost basis might be any of the following, based on the asset:

The original purchase price paid by the individual who died, or

At the moment of death, the worth of the assets.

On the other hand, if the deceased person acquired the assets after September 20, 1985, the person who would inherit them is considered to have received the asset at the time of death. In most circumstances, the market value of the assets will serve as the cost basis.

You may easily calculate how much capital gains tax you’ll have to pay when you sell your item by subtracting the selling price from its initial cost and related expenditures (like legal fees, stamp duty, etc.). The difference is your actual capital gain on the asset.


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