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What is Capital Gains Tax [CGT]

Capital Gains Tax (CGT) is applied to profits made from asset sales in Australia. It is not a separate tax but is part of the income tax system. When you dispose of an asset and make a capital gain, you may be required to pay tax on that gain. Originally published on https://taxly.ai/tax-guides/what-is-capital-gains-tax-cgt-in-australia/

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What is Capital Gains Tax [CGT]

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  1. What is Capital Gains Tax [CGT] in Australia? Safe & Secure Capital Gains Tax (CGT) is applied to profits made from asset sales in Australia. It is not a separate tax but is part of the income tax system. When you dispose of an asset and make a capital gain, you may be required to pay tax on that gain. www.taxly.ai

  2. How is CGT calculated? First, You Need to Calculate Your Capital Gain: The capital gain is essentially the profit made from selling an asset. Now, Calculate the Base Cost: Include in Cost Base: The cost base comprises the purchase price, incidental costs (like legal fees for acquisition), and certain capital improvements. Apply CGT Discounts: Eligibility: If you’ve held the asset for more than 12 months, you may be eligible for a CGT discount. www.taxly.ai

  3. Apply Marginal Tax Rates: The taxable capital gain is added to your income and taxed at your marginal tax rate. Report in Tax Return: Submission: Include your capital gains and relevant details in your income tax return. What is the capital gains tax in Australia? Capital gains tax (CGT) is the levy applied to profits from selling your assets. Despite its designation as ‘capital gains tax,’ it is not a standalone tax but rather a constituent part of Australia’s income tax. www.taxly.ai

  4. Assets on Which Capital Gains Tax (CGT) Applies in Australia: • Real Estate (Residential and investment properties, commercial properties) • Shares and Investments (Stocks and shares, units in a unit trust, managed funds) • Business Assets (Sale of a business, business-related goodwill) • Personal Use Assets (Collectibles if the acquisition cost exceeds $500) • Other Assets (Cryptocurrency, leases, and licenses) www.taxly.ai

  5. Assets on Which Capital Gains Tax (CGT) Does Not Apply: • Primary Residence (Generally exempt, but exceptions apply for business use or rental) • Personal Use Assets (Up to $10,000) • Certain Collectibles (Up to $500) • Cars, Motorcycles, and Other Personal Vehicles (Used for private purposes) • Depreciating Assets Used Solely for Taxable Purposes (Assets used solely for business) • Compensation and Insurance Payouts (Generally exempt unless they include an amount for lost capital) www.taxly.ai

  6. What is the 12-month rule for CGT? It states that If you own an asset for more than 12 months before selling it, you can claim a CGT discount. The 12-month rule encourages long-term ownership and investment, as it provides a tax incentive for holding onto assets for a more extended period. CGT Discount: Individuals and trusts are generally entitled to a 50% CGT discount on the capital gain if the asset has been owned for at least 12 months. This means only 50% of the capital gain is included in the assessable income for tax purposes. www.taxly.ai

  7. In a Nutshell Capital Gains Tax is an integral part of the Australian tax system. It is triggered when you sell an asset and gain some sort of capital from the sale. You can claim a CGT discount if you sell an asset after 12 months of ownership. However, CGT discounts are not applicable to businesses. www.taxly.ai

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