C & W Partners Chartered Accountants

    
INTRODUCTION TO CAPITAL GAINS TAX



All assets you have acquired since capital gains tax came in (on 20 September 1985) - including options, rights and business goodwill - are subject to the CGT rules unless specifically excluded. 
(Assets acquired before CGT came in are referred to as 'pre-CGT assets').
If you are an individual, some of your main assets are generally excluded or exempted from CGT, including:
                                          
                                            •    Your main residence 
                                            •    A Car, motorcycle or similar vehicle
                                            •    Assets for personal use acquired for $10,000 or less.

These and other exemptions, as well as rollovers and concessions may allow you to ignore, defer or reduce your capital gain or capital loss. The indexation and discount methods of working out your capital gain also reduce your capital gain in some situations. 
CGT does not apply to depreciating assets you use solely for taxable purposes. Gains (or losses) made on these assets are treated as assessable income (or claimed as deductions). Such assets may include business equipment or fittings in a rental property. However if you have used a depreciating asset for a non-taxable purpose (for example, used it for private purposes) the CGT rules apply. 
If you are Australian resident, CGT applies to your assets anywhere in the world. 

ACQUIRING A CGT ASSET 

When you acquire a CGT asset, you need to start keeping records immediately because of the potential for having to pay tax on it in the future. Your records will help ensure you do not pay more tax than necessary. 

CGT EVENTS

The range of CGT events is wide. Some happen often and affect many people while others are rare and affect only a few people. The most common CGT event happens when you dispose of an asset to someone else - for example, if you sell or give it away, including a relative. 
If a CGT event occurs to an asset you own (such as when you sell it or when a managed fund or other trust distributes a capital gain to you), you generally make a capital gain or capital loss (occasionally you 'break even' in that you do not make a capital gain but have not made a capital loss either). 

WORKING OUT YOUR CGT                   

For most CGT events, your capital gain is your 'profit' the difference between your 'capital proceeds' (what you receive) for your asset and the asset's 'cost base'. You make a capital loss if your 'reduced cost base' is greater than your capital proceeds. 
Your net capital gain is: 
                                            Your total capital gains for the year 
                    MINUS 
                                            Your total capital losses (including any net capital losses from previous years)
                    MINUS    
                                            Any 'CGT discount' and CGT small business concessions you are entitled to. 
If your total capital losses for a year exceed your total capital gains, the difference is your net capital loss for the year, which you can carry forward and deduct from capital gains in future years. (You cannot deduct capital losses or a net capital loss from your other income.)