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If you sell a capital asset, such as real estate or shares, you usually make a capital gain or a capital loss. This is the difference between what it cost you to acquire the asset and what you receive when you dispose of it. You need to report capital gains and losses in your income tax return and pay tax on your capital gains. Although
it’s referred to as capital gains tax (CGT), this is actually part of your income tax, not a separate tax. When you make a capital gain, it is added to your assessable income and may significantly increase the tax you need to pay. As tax is not withheld for capital gains, you may want to work out how much tax you will owe and set aside sufficient funds to cover the relevant amount. If you make a capital loss, you can’t claim it against your other income but you can use it to reduce a capital gain. All assets you’ve acquired since tax on capital gains started (on 20 September 1985) are subject to CGT unless specifically excluded.
Most personal assets are exempt from CGT, including your home, car and personal use assets such as furniture.
CGT also doesn’t apply to depreciate assets used solely for taxable purposes, such as business equipment or fittings in a rental property.
The point at which you make a capital gain or loss is usually when you enter into the contract for disposal, not when you settle. So if you sign a contract to sell an investment property in June 2017, and settle in August 2017, you need to report the capital gain or loss in your 2016–17 tax return. If you’re an Australian resident, CGT applies to your assets anywhere in the world. For Norfolk Island residents, CGT applies to assets acquired from 23 October 2015. Foreign residents make a capital gain or loss if a CGT event happens to an asset that is, taxable Australian property.
Exemptions include capital gains or losses for:
your main residence (but there are exceptions)
your car (we define a car as a motor vehicle designed to carry a load of less than one tonne and fewer
than nine passengers), motorcycle or similar vehicle
personal use items acquired for less than $10,000
collectibles acquired for $500 or less, or worth $500 or less when acquired
depreciating assets used solely for taxable purposes, and trading stock
assets you acquired before 20 September 1985 (these are called pre-CGT assets)
o except for some pre-CGT shares in private companies, or pre-CGT interests in private trusts, where a combination of factors can occasionally trigger a CGT event giving rise to a taxable capital gain – see Taxation Ruling TR 2004/18Income tax: capital gains: application of CGT event K6 (about pre-CGT shares and pre-CGT trust interests) in section 104-230 of the Income Tax Assessment Act 1997. A decoration awarded for valor or brave conduct, unless you paid or exchanged property for it
assets used solely to produce exempt income or some types of non-assessable non-exempt income
compensation or damages received for any
o wrong or injury you suffered in your occupation
o wrong, injury or illness you or your relatives suffered winnings or losses from gambling, a game or a competition with prizes reimbursement or payment of your expenses under the following
o Unlawful Termination Assistance Scheme
o Alternative Dispute Resolution Assistance Scheme
o M4/M5 Cashback Scheme
o a scheme established by an Australian Government agency, a local government body, or a foreign government agency under an act or other legislative instrument (in this context expenses does not include a payment for the loss, destruction, or transfer of an asset)
the transfer of a super interest in one small super fund (a complying fund that has fewer than five members) to another on the breakdown of a relationship between spouses or former spouse’s rights in relation to a superannuation agreement (as defined in the Family Law Act 1975) being created or ended
a CGT event happening to the segregated current pension asset of a complying super fund
some payouts under a general insurance policy, life insurance policy, or annuity instrument
a payment you received on surrender of an insurance policy where you are the original beneficial owner of the policy
shares in a pooled development fund
shares of certain profits, gains, or losses arising from the disposal of investments by certain venture capital entities
a financial arrangement where gains and losses are calculated under the taxation of financial arrangements (TOFA) rules
some types of testamentary gifts (gifts made through a will).
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