We are often asked by clients what is my capital gains tax rate?
Capital Gains Tax is not a set rate but rather based on your marginal tax rate. The good news if you hold the property for 12 months or more it can be discounted. The nature of what you use the asset and how long you hold assist to reduce the capital gain.
Twenty-five years ago, Capital gains tax (CGT) became law on 20th September 1985 for Australian and Overseas taxpayers holding Australian Property.
In summary, all assets worldwide held by Australian Resident taxpayers may be subject to CGT, and for non-residents, its only Australian Assets. Listed shares are exempted from being declared as a capital gain by non residents. This encourages overseas investors to invest in our Australian businesses.
Assets – what is included the cost base?
Assets include shares, boats, investments, property and collectables. Generally, there is an exemption for your home, but that too can be subject to CGT in some circumstances.
If you were lucky to be the registered ownership of an asset at that time, you, as having a pre CGT asset that is generally exempt from tax and continues to be so.
For individuals, these assets include assets owned by the person who was classified as pre CGT assets. Upon death, the CGT freshened up. The new beneficial holder is regarded as post CGT assets transferred by the beneficiary at the market value.
If you have an acquired an asset post-20th Sept 1985, then Capital Gains Tax applies only to assets acquired on or after that date.
How is Capital Gains Tax Calculated for your income tax?
The marginal rate determines your capital gains tax rate will be in the year you derive the Gain
The gain is determined using the cost of an asset. It is adjusted cost base of an asset less deemed consideration. The calculation to determine the correct gain, includes other adjustments such as selling costs are deducted against the sale price to determine the net gain.
If you hold an asset for more than one year or more you may choose to apply indexation up to 20th September 1999 and this was to account for inflation. In most cases, the 50% discount is more favourable.
From 20 September 1999, the law changed and introduced a 50% discount on the capital gain for individual taxpayers held for assets greater than 12 months.
50% CGT Discount will reduce your cgt tax rate!
For those assets acquired between 20 September 1985 and 20 September 1999, taxpayers have the option of using the indexation method capped at 30th September 1999 or electing to use the 50% discount method.
The simplest way to understand Capital Gains is that it is calculated at half your marginal rates for those holding assets for more than 12 months. Therefore a net capital gain is included in with other income and then assessed at your marginal rates.
Non-residents missout on CGT concessions
Non-residents now do not qualify for the Capital Gains Tax 50% discount but this offset for the sale of listed shares in most cases are exempt.
Careful planning can help reduce the amount of tax or capital gains tax one may pay on the realisation of assets.
Great Capital Gains Relief options for Small business
From 21st September 1999, the new small business CGT concessions became law. These measures result in small businesses being able to reduce their capital gains tax liability by various small business measures. The Small Business Capital Gains concessions can wipe out any capital gains in many cases
These concessions include a small business retirement exemptions, reduction for active assets, and allowing a rollover when selling one active asset to buy another. These are complex rules so please seek our professional advice
Individuals can access the 50% CGT discount. As the tax rate is lowering for Companies this discount does not apply. For a SMSF their discount is set at 33% CGT discount .
Investment properties are popular throughout inner Melbourne.
If you are planning your Estate and how capital gains may impact you may also be interested in our article on https://www.gartlyadvisory.com.au/estate-planning/do-i-need-a-will/
If you are contemplating selling an asset, please talk to us, and we can help you to determine the potential capital gains impact and if any tax-saving measures can be applied. There are opportunities for managing Capital Gains Tax can base on upon your circumstances. We always tell our client that a realised capital gain is often better than basing an investment decision on tax alone.