CAPITAL GAIN TAX (CGT)

 

What is CGT?

 

When you sell an asset, it is very common that we forget that there will be tax consequences. Whether it is shares, real estate or a plant when you dispose you make a capital gain or loss. CGT is the difference between the cost to acquire and what you receive when you dispose it.

 

CGT assets and exemptions

 

Since the capital gain tax (CGT) started on 20 September 1985 all the assets acquired are subjected to CGT unless excluded,

 

CGT applies to,

 

• Real estate
• Shares
• Cryptocurrency
• Leases
• Goodwill
• Foreign currency
• Capital improvements
• Collectables and personal use assets with restrictions

 

Below assets are exempt from CGT,

 

• Personal residence
• Car
• Motorcycle
• Depreciating assets
• Any assets purchased before 20/09/1985

 

WORKING OUT THE CGT METHOD

 

       1.Indexation method

–  Eligibility

• Purchased the assets before 11.45 am on 21/ 09/ 1999
• Held the assets for minimum 12 months before the CGT event

 

 

2. Discount method

         –  Eligibility

• Held the assets for minimum 12 months before the CGT event
• The discount method does not apply to companies
• CGT made after 8/05/2012 for foreign resident’s discount is removed or reduced.

 

     3.Other method

        – Eligibility

 

• Held the assets for less than 12 months before the CGT event

 

EXAMPLE OF DISCOUNT METHOD AND INDEXATION METHOD

 

On 24/06/1991 Kevin purchased an investment property. The purchase price of the property is $150000 and on the same day, he deposited $15000 and the balance to be paid on 5/07/1991 $135000. The other expenses were as below,

• 20/07/1991 Stamp Duty $5000
• 05/08/1991 Solicitors Fee $2000
• Agent commission $15000

 

An investment property was sold on 19/09/1999 for $600000.

CGT ACCORDING TO INDEXATION METHOD

 

Two indexation factors

*1.164

*1.1589

Cost Base

$15000*1.164= 17460

$135000*1.1589=156452

$5000*1.1589= 5795

$2000*1.1589=2318

 

Total                182025

 

Solicitor Fee $1500 (Indexation does not apply)

Agent commission $15000 (Indexation does not apply)

 

Total Cost base = $198525

 

Capital gain as follows

Capital Proceeds – Cost Base = Capital Gain

600000                  –   198525    = 401475

 

 

CGT ACCORDING THE DISCOUNT METHOD

Cost Base

• Deposit $15000
• Balance $135000
• Stamp duty $5000
• Solicitor fee $1500
• Agent commission $15000

 

Total                            $171500

 

Capital Proceeds – Cost Base =Discount capital gain * 50% = Net Capital Gain’

600000                 –   171500     =   428500*                        50% = 214250