The Australian Taxation Office (ATO) has announced that capital gains tax (CGT) will be closely scrutinised during this year’s tax return assessments. According to ATO data, many taxpayers are either neglecting to report taxable disposals or are under-declaring the proceeds from asset sales. This observation is reinforced by various third-party data sources, including mortgage loan information and reports on cryptocurrency ownership collected from Australian designated service providers (DSPs). These insights help the ATO identify individuals involved in asset transactions and assess the volume of these transactions.
In addition to property and cryptocurrency, the ATO is also targeting transactions involving shares and managed investments. Taxpayers should remember that CGT is triggered upon the disposal of assets, calculated by subtracting the purchase price from the selling price. Gains are subject to CGT, but if the asset has been held for over 12 months, a discount of up to 50% may apply.
Calculating Capital Gains:
- Deduct the cost base: This includes the original purchase price of the asset plus any incidental costs.
- Subtract capital losses: Any losses incurred can be offset against gains.
- Apply the discount: A 50% discount can be claimed if the asset has been owned for more than 12 months.
- Determine the net capital gain: This is the figure that will be taxed at the individual’s marginal tax rate.
Taxpayers must accurately calculate capital gains or losses for each asset disposed of unless an exemption is applicable.
Key Exemptions:
The primary exemption for CGT applies to a taxpayer’s main residence. However, if the property has been rented out or used for business purposes, CGT may apply to the portion of the property that generated income. Keeping records of the income-generating period and the property’s relevant portion is crucial for CGT calculations.
Moreover, small business owners may benefit from CGT concessions that can either reduce or eliminate capital gains when they dispose of their business or its assets. These concessions primarily apply if the business has an annual turnover of less than $2 million and the assets involved are active, such as equipment or trading stock.
CGT Concessions for Small Businesses:
To qualify for certain CGT concessions, the business assets must be actively used in the business operations. Shares in a private company can also qualify if the underlying business is trading rather than solely investment-based.
A notable concession allows for a general 50% discount on most capital gains from selling assets, including shares and business property, if owned for more than 12 months.
Key Features of the Discount:
- Eligibility: Available to individuals, trusts, partnerships, and complying superannuation funds, but not to companies.
- Discount Rate: 50% for individuals, trusts, and partnerships; 33.33% for superannuation funds.
Taxpayers should be cautious about the misconceptions that the ATO may overlook undisclosed capital gains. It is advisable to consult a tax agent to ensure compliance, accuracy in tax returns, and to guarantee that all discounts, concessions, or exemptions available are claimed appropriately.
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