What Is Capital Gains Tax and How Much Is It?

What is Capital Gains Tax?

When an asset is sold, either as part of your business or personally, it can be easy to forget that there may be tax consequences. Examples of assets that can be affected by Capital Gains Tax (CGT) include shares, cryptocurrency, investments, land & property (unless this is your main residence) and it may also apply to collectible and personal items depending on what you paid for them.

A Capital Gain or Loss is the difference between what you paid for that asset and what you sold it for. If you receive more for your asset than what you paid for it, you’ll have a capital gain and may need to pay Capital Gains Tax on it.

How Much is Capital Gains Tax?

The amount of Capital Gains Tax that you’ll pay is dependent on considerations such as how long you have owned the asset, what your marginal tax rate is, and whether you have made any capital losses.

If you have held the asset for longer than 12 months, capital gains are discounted by 50% for individuals, 50% on active assets for small businesses, and 33.3% for superannuation funds. There is no discount available for other businesses.

When do I Pay CGT?

Although it sounds like it, capital gains tax isn’t separate tax at all. Your net capital gains become part of your taxable income, whether you are an individual, business, or super fund. CGT is payable as part of your income tax assessment for the relevant income year. Companies and individuals pay different rates of CGT:

• companies: 30%
• small businesses: 26% in for the 2021 Financial year and 25% for the 2022 financial year and beyond
• superannuation funds: 15%
• Individuals: the net capital gain is added to your assessable income for the year and is then taxed at your marginal rate.

Types of CGT Assets and Exemptions

Things such as shares, investments, land & property are easily recognisable as a CGT Asset. However, there are other CGT assets, such as contractual rights, options, foreign currency, cryptocurrency, and goodwill that can be quite confusing. CGT assets fall into three categories:

• Collectables: includes items such as artworks, jewellery, antiques, coins or medallions, rare manuscripts, folios & books, and postage stamps. Capital losses from collectables can only be used to reduce capital gains from collectables. If a CGT event happens to a collectable, capital gains or losses are disregarded if the asset was acquired for $500 or less.
• Personal Use Assets: an asset, other than a collectable, that you use or keep mainly for personal use or enjoyment for yourself or your associates and includes items such as boats, furniture, electrical goods, and household items. If a CGT event happens to a personal use asset, capital gains are disregarded if the asset was acquired for $10,000 or less.
• Other Assets: those assets that are not collectable or personal use assets and include items such as land, shares, rights & options, cryptocurrency, goodwill, licences, convertible notes, your home (see exemptions), contractual rights, foreign currency, and any major capital improvement made to certain land or pre-CGT assets.

Exemptions to CGT

While capital gains tax applies to assets that you sell or dispose of, there are some exemptions:

• Property acquired before 20 September 1985 – however if you have made improvements after that date, those improvements may be subject to CGT.
• Your main residence is also exempt – CGT may apply if you rent part of it out, you use it for your business, or it is on more than 2 hectares of land.
• Your car or motorcycle is also exempt – a care is defined as a motor vehicle that carries a load of less than 1 tonne and fewer than 9 passengers.
• Cryptocurrency, if that cryptocurrency is a personal asset used mainly to purchase items for personal use or consumption.
• Personal Use assets acquired for $10,000 or less.
• Collectable assets acquired for $500 or less.
• Depreciating assets used solely for taxable purposes, such as business equipment and items in a rental property. Gains or losses made on these assets are treated as assessable income or claimed as deductions.
• Awards and payouts such as winnings and losses from gambling, games or competitions with prizes, and compensation or damages for any wrong or injury or illness.

Calculating capital gains can be quite complex. Whether you are looking to sell or have already sold an asset and want to know what the potential tax consequences are, speak with one of our experienced tax consultants at <contact info>.

Should you require any additional assistance please don’t hesitate to contact us.