Capital Gains Tax – What Is It And How Will It Affect Me?
Although it has been in existence for almost three decades, quite a number of people still aren’t well versed with it. This is evident from questions such as “what is Capital Gains Tax” which keep popping up every time. The following insights will shed more light on what Capital Gains Tax (CGT) in the Australian context is.
What Capital Gain Tax Is?
Capital Gain Tax (CGT) is any gain or profit made from disposing or selling a non-inventory asset. It is only charged on assets that were bought after 20th September 1985.This is when the Hawke and Keating Government passed the new reforms. The tax is only charged on realization. Simply put, a CGT asset whose value increases but is not sold won’t be charged. However, in case it is sold, then the seller will pay for tax.
What Items Are Covered?
The tax covers a wide range of assets. Some are well defined while others may need to be clarified at point of application. The assets can be classified as follows:
- Real estate: – This covers both residential as well as commercial property. It is also among the popular taxed items.
- Securities: – Items traded in the bourse or stock market are also taxed. They include stocks, shares, options, bonds, and annual dividends from mutual trusts.
- Valuable Collectibles: – This includes art, antiques, stamps, wine, coins, precious metal, jewellery, rugs and more
- Personal use items:- these include furniture, electrical appliances, boats, motor vehicles and more
How Does It Work?
CGT works in a similar manner to income tax only that in this case it’s charged on non-inventory assets. The tax amount is pegged on the tax payer’s income bracket. Therefore the higher the bracket the more the tax. The holding period can be short term(less than 1 year), long-term (more than 1 year). Any asset held for at least 1 year attracts a 50% discount or a third (33.3%) in case of superannuation funds.
The following are some of the assets exempted from CGT:
- Assets acquired prior to 20th September 1985
- Personal assets of less than $10,000
- Taxpayer’s main residence
- Collectibles worth less than $500
- Capital loss
- Motor vehicles that carry less than 9 passengers or 1 tonne
- Compensation for personal or occupational injuries
- Decorations, awards and medals for bravery etc
On paper, it might look pretty straightforward. But the truth is that it can get quite complicated. And just like any other tax, failure to comply with the tax regulations can be catastrophic. It may lead to huge fines and penalties being imposed. The above guidelines on the question “What is Capital Gains Tax” will go a long way in making certain you are complying with the taxman regulations.
To find out how we can help you with this complex issue, contact Joe Gilles Accredited Specialist in Taxation contact us here..
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