Capital gains tax (CGT) plays a significant role for taxpayers when certain events occur, such as the sale or transfer of business assets or property. If you are a business and you qualify for the small business CGT concessions, you may be able to defer or eliminate some or all of your capital gains on active assets. Depreciating assets like equipment typically aren't subject to CGT unless they're used for personal purposes or for something outside of business activities. Seeking guidance from an experienced tax professional such as Symmetry Accounting & Tax is often helpful in navigating the complexities of CGT.
What Exactly is Capital Gains Tax?
Capital gains tax refers to the tax imposed on the profits you make from selling assets like property, stocks, or other investments. Rather than being a standalone tax, CGT is part of your income tax, and it’s triggered when an asset is sold or otherwise disposed of. You’re required to report any capital gains or losses as part of your annual income tax return.
If you realize a capital gain, it’s combined with your other income and taxed at your regular income tax rates, after deducting any capital losses. It’s important to calculate how much tax you owe and set aside funds for it.
If you experience a capital loss, you can offset it against any capital gains within the same year, or carry it forward to future years, helping to reduce your taxable income. It’s vital to report any losses on your tax return to maximize your tax savings.
Key Assets Subject to CGT and Potential Exemptions
It’s important to know which assets are subject to CGT and which are exempt. Here’s a breakdown of the key asset types:
Pre-CGT Assets: Assets acquired before 20 September 1985 are generally not subject to CGT.
Real Estate: Most real estate is subject to CGT, including business property, vacant land, rental properties, holiday homes, and hobby farms. If you acquired property before the 1985 cutoff, improvements made after that date may still be subject to CGT.
Primary Residence: Typically, your main home is exempt from CGT, but exceptions apply if it is used for business, rented out partially, located on land larger than 2 hectares, or if you don’t meet certain criteria as a foreign resident.
Granny Flats: CGT is not applicable to the creation, variation, or termination of eligible granny flat arrangements.
Vehicles: Motorcycles and cars are not subject to CGT.
Investments: Shares, units in managed funds, and similar investments are subject to CGT upon disposal or when you receive distributions.
Cryptocurrency: If you sell or exchange cryptocurrency, CGT is applicable.
Personal Use Assets: If an asset you purchase for personal use costs over $10,000, any gain from selling it is subject to CGT.
Collectables: Items such as art, antiques, and other collectables are liable to CGT unless their value is under $500 or if acquired before specific thresholds.
Intangible Assets: CGT applies to intangible assets like goodwill, licenses, and contracts.
Foreign Currency: The sale or exchange of foreign currency can trigger CGT.
However, depreciating assets like machinery and office equipment are typically exempt from CGT unless they’re used outside business purposes.
Importance of CGT Record-Keeping
To accurately calculate and report CGT, it’s essential to maintain proper records of your transactions. You need to track when and for how much you acquire and dispose of assets, as well as any related costs involved in these transactions. Professional bookkeepers like Symmetry Accounting & Tax can help you keep detailed records, which is crucial for determining whether you’ve made a capital gain or loss. These records must be kept for at least five years from the year the CGT event occurs.
Final Thoughts
Navigating capital gains tax for business assets, understanding exemptions, and managing your record-keeping responsibilities can be a challenging process. If you're unsure about your obligations, or need help managing your CGT records, consulting with a tax professional can ensure you comply with the law while optimizing your tax position. Experts at firms like Symmetry Accounting & Tax in Perth can provide the assistance you need to stay on top of your CGT obligations.
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