Are you looking for more information on how to calculate capital gains tax? Here’s a quick guide to help you through the procedure.
What is the Capital Gains Tax (CGT)?
CGT or Capital Gains Tax is the tax charged on a capital gain that you make from selling a capital asset such as real estate or shares. A capital gain or loss is generally the difference between how much you paid to acquire the asset and how much you received when you sold it. You will need to report any capital gains and losses in your income tax return.
Small businesses (companies not included) and individuals can generally get a 50% discount on a capital gain if they have held the asset for more than one year. For foreign residents who have made capital gains after 8 May 2012, the 50% discount is removed or reduced.
How do I calculate my capital gain?
There are three ways to calculate your capital gain. First, is The Discount Method where you subtract the cost base (how much you paid for the asset and other costs related to purchasing, holding and disposing of your asset) from the amount of money you had received when you sold it. Next, deduct any capital loss, then reduce the total by the discount percentage that’s applicable to you.
The Discount Method can generally be used by an individual who has owned an asset for 12 months or more. For more details on this method such as eligibility, exclusions, and discount percentages, you can go directly to the Australian Taxation Office’s page here.
There is also The Indexation Method of calculating your capital gain. This method can be used for assets that have been owned for more than a year and were purchased before 11:45 am (ACT time), 21 September 1999.
The ATO’s Indexation Method will enable you to increase the cost base of your asset by applying an indexation factor that is based on the consumer price index (CPI) up to September 1999. For this method, just apply the indexation factor that’s relevant to you, then subtract the indexed cost base from the payment that you received when you sold your asset.
Lastly, this ‘Other’ Method of calculating your capital gain is for assets that were held for less than 12 months before they were sold. You will just need to subtract the cost base of your asset from how much you received when you sold it.
How do I calculate my capital loss?
A capital loss is when the amount you paid for your asset is more than how much you sold it for. It is a financial loss for the seller. The difference between these two amounts will be your capital loss. You can use this loss to lower a capital gain that you make in a later year. You can visit the ATO’s website about capital loss to find out what the next steps are after calculating your loss.
Need help with capital gains tax? Contact a Chan & Naylor accountant near you, and we’ll be more than happy to help.
Aside from capital gains tax assistance, have a look at our other accounting and advisory services that we do to help you achieve greater success.
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Source: Australian Taxation Office
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