What is a capital gains tax return and how do I calculate it blog image

What is Capital Gains Tax and how do I calculate it?

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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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Chan & Naylor Group has nationwide offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with your tax returns as well as any other business or personal tax enquiry that you may have. Contact us today.


Source: Australian Taxation Office

Photo: Stock Photo Secrets

2 responses to “What is Capital Gains Tax and how do I calculate it?”

  1. Sandra says:

    Hello I have asked a question before but never received a reply? CGT I have asked ATO this question and received 3 different replies . Bought PPR 1991 lived in it until 1993 then rented it out ongoing still Paid H & Land $120,000 improvements etc.. maybe $130,000 when renting advertising price $118,000 to sell 1993 today price is $620,000+ joint owned 50% each my understand is base cost now less costs divide by 2 then minus 50% then multiply by rate of tax which is low income 0.15% for my husband nil income from me how much CG Tax payable please is there any tax on years rented or percentage .Regards Sandra

    • Chan & Naylor says:

      Hi Sandra,

      The answer to this CGT question will depend on a few variables such as your tax residency, and if there was any other PPR eligible to be or having been nominated, by your husband and/or you, for tax exemption purpose since 1993.

      The simplies scenario would be Australian tax residency throughout the ownership period and there hasn’t been any other PPR eligible / been nominated for tax exemption. In that case, the CGT calculation will be, in principle, (Sales proceeds – property cost) pro rata for (year of sale – 1993 – 6years) out of the total number of years of ownership since 1991, divided into half for each owner and then apply a CGT discount. (50% method or indexation method are both available thus it depends on which one gives the best discount result). *

      For example, using your provided numbers with an assumed year of sale in 2019, the calculation will look like this: (620k – 130k) x (2019-1993-6) / (2019-1991) = 350k, dividing it into half thus each owner gets 175k. Assuming there’s no carried forward / current capital loss in your tax return, then the 175k will have discount applied based on either one of the two discount methods. Say 50% discount method is elected, then the taxable capital gain to each of you will be $87.5k. It’ll be taxed on the marginal tax rate relevant to your overall income earned (including the capital gain) for the year. *

      *for simple illustration purchase, selling expense such as legal / agent commission, property cost base adjustment & balancing adjustment and pro rata based on number of days rather than years have not been considered / used.

      If your circumstances were different to the above scenario, as there can be a few variables such as the ones raised in the first paragraph above impacting the whole calculation, and as a result, there could be many tax planning opportunities. We’d encourage you to contact one of our offices for further assistance. Contact details for each office can be found here.

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