Capital Gains Tax (CGT) is a tax you pay on capital you gain when selling or disposing of assets you acquired after 19 September 1985 (eg investment property, shares). Your Capital Gain is included in your annual income tax return. Capital Gains Tax is not a separate tax but a component of your income tax. You are taxed on your net Capital Gain at your marginal tax rate.
Calculating Capital Gains Tax
Total Capital Gain for the year minus your Total Capital Losses, (including any net capital losses from previous years) minus any Capital Gains Tax discount and Capital Gains Tax small business concessions you are entitled to.
Calculate Capital Gains Tax using one of these methods:
- Indexation method – For assets you acquired before 21 September 1999 and owned for 12 months or more. This method allows you to increase the amount of your cost base (and reduce your capital gain) by an inflation factor based on increases in the Consumer Price Index (CPI) up to September 1999.
- Discount method – For any asset you have owned for 12 months or more. If using this method you do not apply the indexation factor to the cost base but you might be able to reduce your capital gain by the CGT discount (50% for individuals and trusts, 33.3% for complying superannuation funds).
- ‘Other’ method – If neither the indexation or discount method apply. Generally you subtract your cost base from your capital proceeds.
MORE: See the ATO website for more information on calculating capital gains.
There are four CGT concessions for small business:
- Small business 15-year exemption – If your business has owned an asset for 15 years and you are 55 or older and retiring, or if you are permanently incapacitated, you will not have an assessable capital gain when you sell the asset.
- Small business 50% active asset reduction – You can reduce the capital gain on a business asset by 50%.
- Small business retirement exemption – A capital gain from selling a business asset will be exempt up to a lifetime limit of $500,000. If you are under 55, you need to pay the exempt amount into a complying superannuation fund or a retirement savings account.
- Small business roll over – If you sell a small business asset you can defer your capital gain until a later year. This means you won’t include the gain in your income until a change in circumstances causes a CGT event that crystallises the gain.
MORE: See the ATO website for more information on CGT concessions for small business.
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