Australia’s Capital Gains Tax Explained

In this article, we will explain briefly what the Australian capital gains tax is and how to minimise the amount you pay.

What is CGT or Capital Gains Tax?

CGT is a tax applied to the profits obtained from the sale of any asset. By this, we mean investments, land, property, or shares. It was introduced in 1985 in Australia and applies only and exclusively to assets acquired after this year.

Under the ATO, personal assets under $10,000 are not included in Capital Gains Tax calculations. These items include furniture, your car, your home, and other personal use items, but do not apply to rental property or equipment, as they depreciate.

5 Ways to Minimise CGT

There are several ways to minimise the payment of Capital Gains Tax. Let us now look at the five most common ones.

1. By offsetting capital gains against losses. If you have undeclared losses from previous years, you can report them to offset this year’s capital gains, and reduce the amount of CGT payable.

2. Keep the assets in your possession for a period longer than one year. This simple trick gets you a 50% discount on your Capital Gains Tax. This means that if we sell an asset that we have held for more than one year, and it makes a capital gain of $10,000, the tax will only be applicable on $5,000, not on the entire $10,000 capital gain you have made.

3. Valuing a property before renting it out. If you have a property and you want to rent out, you should value it first. In this way, the Capital Gains Tax will be calculated based on the independent valuation, not from the moment you bought the property. In cases where the property has aged considerably since you bought it, this can represent a significant saving on your CGT.

4. Increase the cost basis of the property. By keeping detailed records of the costs incurred in acquiring and maintaining the property, you can use these to offset the amount of the capital gain, and consequently reduce the CGT you pay. Make sure to include the large costs such as insurance premiums, repairs, or maintenance.

5. Enlist the services of an experienced CGT professional. The complexity of the Australian tax legislation sometimes forces individuals to rely on the services of a professional to make their declaration as accurate and transparent as possible. This will avoid tax evasion problems, which are heavily penalised in Australia.

Conclusion

To effectively manage your capital gains tax, it is essential to keep records of all transactions. Keeping a record allows you to keep track of your losses or gains over the years and make the best decision on how to add your losses based on the information you have.

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