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Capital Gains Tax in Australia

In theory, capital gains tax in Australia should be simple.  Whenever you sell an asset, the capital gain is the difference of the price you paid and the price it sold.  For example, if you bought a rental property at $100,000 and sold it for $120,000, then you gained $20,000.  You would pay tax only on the $20,000.

Complexities of Calculating Capital Gains Tax

In practice, however, it is quite different.  Calculating capital gains tax can be one of the most complex tasks.  There are three different methods the Australian Tax Office (ATO) has as part of the capital gains tax rules.

There is also the issue of capital loss.  You can offset your gains by your losses.  If you incurred both gains and losses, then you will need to work out your net capital gain/loss.  That is, the sum total of all losses and gains.  On top of that, your losses can sometimes be carried forward into future years, and it reduces the tax you pay in those years.

Then there is the additional consideration of capital gains on assets inside a superannuation fund.  Depending on which of the three methods you choose, you can cut your tax by 33% to 50%.

As you can see, there are many details to calculating capital gains tax.  It is easy in theory, but difficult in practice.

How We Can Help

To minimize capital gains tax in Australia and obtain the greatest number of deductions, you should include your accountant in calculating capital gains tax.  Prior to selling any significant assets, your accountant can help you plan ahead and keep your taxes low.  This is most especially true for business valuation when selling a business.

Exemptions to Capital Gains Tax in Australia

There are some assets that are exempt from capital gains tax in Australia.  Your primary residence and vehicle are two of the most common.  However, those also depend on whether you rented your home or had a lodger.  More exemptions to capital gains tax include:

  • Assets acquired before 10 September 1985
  • Collectables such as paintings, coins, and stamps
  • Prizes from gambling
  • Decorations awarded for valour or brave conduct
  • Share in a pooled development fund
  • Compensation received for certain types of wrong, injury, or illness
  • Certain types of inheritance

This list is not all-inclusive.  There are many more exemptions, and they depend on your circumstances.

When calculating capital gains tax, make sure everything is done right.  Tim Nash & Associates can help you in determining the maximum amount of relief for capital gains tax in Australia.  Give us a call today to discover more.

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