This month we look into the dreaded Capital Gains Tax. It is a complex area but it doesn’t go astray to have some understanding of the basics when considering investment.
Firstly there are assets which are exempt from the Capital Gains Tax regime. Thankfully your principal place of residence, cars and assets for personal use under $10,000 are all exempt.
Capital gains tax applies whenever you sell an investment purchased after 19 September 1985, so most commonly we are looking at the disposal of shares, investment properties and the sale of business.
In its most basic form a capital gain arises if there is a difference between the purchase price
and the selling price of an asset.
A common misconception is that Capital Gains Tax is a separate tax. This is incorrect, the gain is merely added to any other taxable income you have for the year and you are taxed at your marginal rate.
So does a capital gain always mean pain? Well for a start, for a gain to have occurred at all this means you have made a profit from your investment – excellent!
We now need to ‘reduce’ this gain so that your taxable income increases by the least amount possible.
Under current legislation if you have held an asset for more than a year, then the ATO allows individuals to discount the gain by 50% and further discounts can apply to the sale of small businesses.
In addition, various costs that were incurred at the time of purchase and sale along with various holding costs can help to reduce the capital gain.
It goes without saying that in depth records can go a long way to reducing your Capital Gains Tax liability!
We cannot stress enough the importance of keeping all records relating to your investments from purchase date.
Furthermore, the tax office requires you to keep records for five years after disposal of that asset.
Obviously, we cannot possibly cover every issue in this short article, but if you require detailed personal advice, please do not hesitate to contact our office.
Capital Gains Tax is a complex issue and we can assure you that as accountants we will do our upmost to ensure that all avenues are explored to maximise your gain and minimise your pain!
This newsletter is presented in summary form as a guide only for our clients.
It should not be relied on as a substitute for detailed advice or solely as the basis for making business decisions.
Stephen Hall & Associates Pty Ltd
Accounting on the mountain...
Shop 3/15 Main Western Road, North Tamborine, Qld 4272
Phone/Fax: 07 5545 2588
Email: info@accountingonthemountain.com.au
Website: www.accountingonthemountain.com.au