How bad is the Capital Gains Tax?
Capital Gains Tax, (insert groan here), may feel like a punishment for your success, but really, it’s just another form of income tax on any profit made from selling an asset. Conversely a Capital Loss is simply a loss made on any asset sale. ‘CGT’ applies to any asset obtained after Aug 1985. Selling assets such as your managed fund, shares or investment property, (not your home) are the most common ways to make a capital gain (or a capital loss).
CGT adds to your taxable income and so you are not required to pay this tax at the highest marginal rate. Instead this “Capital Gain” is added to your taxable income. You’re then taxed at that relative margin. Here is an example of a Capital Gains Calculator to help give you an idea:
The Good News
Most people are following a long-term wealth creation strategy, and many won’t need to worry about paying this tax for years or even decades. You only pay Capital Gains Tax once on any asset. You pay in the financial-year in which you sell or dispose of your asset or property. In some circumstances your asset could be exempt from CGT.
How do I calculate a Capital Loss or Gain?
It can be quite tricky to calculate the exact amounts and so it helps to have a great tax expert such as, https://www.thetaxaccountant.com.au/. They can help you work out your total Capital Gain or Loss. However, the rough calculations are as follows:
Take your single investment, subtract the original price from the sale price, (you’ll also need to subtract any costs such as legal fees or stamp duty). The amount remaining will be your capital loss or gain. If you make a loss, you won’t have to pay any Capital Gains Tax.
More Good News
For investment properties bought by individuals, superannuation entities or a complying trust, (after the 21st of Sept 1999) and owned for at least a year; you may be eligible to a 50% reduction of the Capital Gains Tax. As discussed there are exemptions too, like if your rental property has ever been your principal place of residence and is sold within 6 years. This 6-year rule can also restart if you make the property your home again.
Gain Knowledge, Get Control
In summary, Capital Gains Tax can be manageable, and possibly even avoided. Expert insight is key to understanding your investment needs.
Contact us today to chat further about your future assets.
This information is not to be relied upon without speaking to your finance broker, tax agent and financial adviser.
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