What is Capital Gains Tax?

 A capital gain or (loss) happens when you sell an asset. The gain or loss is the difference between what you paid for the asset and what you receive when selling the asset. If you make a gain, you pay tax on this, which is known as capital gains tax (CGT).

How does Capital Gains Tax work?

Capital gains tax occurs when a CGT event happens. There are many CGT events, however, the most common are:

  • when you sell an asset
  • when an asset is given away, destroyed or lost
  • if you stop being an Australian resident

Any increase in value from the time the asset was acquired or created will cause CGT to be paid. The capital gain is taxed in the same financial year the asset is sold.

Whilst the amounts that are subject to this tax vary, the resulting capital gain is included in your income for that financial year and taxed at whatever marginal rate you would then pay. The amount that is added into your assessable income is known as the ‘net capital gain’.

How to work out the net capital gain?

To work out net capital gain, you take the money you make from selling the asset and subtract your cost base. The cost base includes:

  • the price you paid for the asset originally
  • any costs incurred in buying and selling it
  • other incidental costs

Calculating capital gains can often be very complex. If you are looking to sell assets and want to understand what the consequences might be, or if you have already sold and want to know what your potential tax bill is, speak to one of our experienced tax accountants.

Learn more about capital gains here.


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