Table of Contents
ATO’s Capital Gains Tax Focus: What You Need to Know
The Australian Taxation Office (ATO) has announced that capital gains tax (CGT) will be a primary area of scrutiny during this tax review year. According to data from the ATO, many individuals have either failed to report taxable disposals or have misrepresented their sales’ proceeds. Insight from mortgage lenders and cryptocurrency service providers indicates a significant gap in compliance.
The ATO’s interest is not limited to property and digital currencies; it extends to share sales and managed investment transactions. Therefore, keeping accurate records of all transactions is more important than ever.
Understanding Capital Gains Tax
CGT is triggered when you dispose of an asset. It is calculated by determining the difference between the purchase price and the sale price. Any profit realised is subject to CGT but may be eligible for a 50% discount if you have owned the asset for over 12 months.
Calculating Your Capital Gain
To accurately calculate your capital gain, follow these steps:
- Determine the Sale Proceeds: Start with the sale price of the asset.
- Subtract the Cost Base: This includes the original purchase price and any incidental costs incurred when acquiring the asset.
- Deduct Any Capital Losses: If you’ve sold other assets at a loss, you can subtract this amount.
- Apply the Discount: Individuals who have held the asset for more than 12 months are eligible for a 50% CGT discount.
- Calculate the Taxable Amount: The remaining amount after deductions is your net capital gain and will be taxed at your marginal tax rate.
Make sure you assess each asset disposed of individually unless you qualify for an exemption.
Key Exemptions to Know
The primary CGT exemption relates to your main residence. However, if parts of your home have been used for income-generating activities (like renting through platforms such as Airbnb), CGT may apply to that portion.
Businesses may also benefit from CGT exemptions. The small business CGT concessions can reduce or eliminate capital gains on the sale of business assets. To qualify, businesses must have a turnover below $2 million, and the assets sold need to be classified as active assets.
There are four specific CGT concessions applicable to small businesses:
- Small Business Retirement Exemption
- Active Asset Test
- 50% Active Asset Reduction
- Small Business Roll-Over
A notable 50% discount is also applicable to most capital gains if the asset has been owned for more than 12 months.
Important Discount Features:
- The CGT discount is available for individuals, trusts, partnerships, and complying super funds, but not for companies.
- For individuals, trusts, and partnerships, the discount is 50%; for super funds, it is 33.33%.
It’s essential to report any capital gains accurately, as the ATO is equipped with data to identify unreported transactions. Familiarise yourself with available concessions and exemptions to minimise your tax burden.
Getting Professional Help
If you suspect you have CGT liabilities, consulting a tax professional is advisable. This ensures your tax return is accurate and comprehensive, helping you take advantage of discounts, concessions, and exemptions appropriately.
In conclusion, armed with the right knowledge, you can better navigate your CGT obligations. Engage a qualified tax agent to help ensure compliance with tax laws and optimise your tax position.
Stay informed about the latest updates in the finance sector by following reliable sources on social media, including Facebook, LinkedIn, and Instagram.
