Did you know that your tax position can be affected by selling some assets? Capital Gains Tax, or CGT for short, is tax payable on any amount of money you earn by selling an asset for more than what you purchased it for. CGT is not a separate tax but is included in your tax return and therefore should be considered come tax time.
Capital gains are included as income in your assessable income throughout the year. Put simply, capital gains tax applies when you ‘dispose’ (most commonly selling, although other circumstances may also trigger this) of an asset and turn a profit.
Assets such as land or buildings, shares, collectibles or units in unit trusts are examples of assets that can often trigger capital gains and therefore attract CGT. To work out if you may need to pay CGT on your assets, you simply need to calculate the difference between what you spent on the asset and the amount which you received when you sold the asset. For more complicated assets, such as where an asset gained value thanks to your own investment (eg. renovations made to a property), you may need to seek professional financial/taxation advice.
While you will not attract CGT when selling your main residence, other property investments will attract an additional tax obligation when selling for a profit. So you may need to seek financial advice prior to purchasing and/or selling assets to avoid accruing additional tax obligations.
It’s important to note that CGT also works the other way; if you make a loss on an investment that attracts capital gains, you can ‘bring forward’ that loss to offset capital gains in the future. This can make losses on investments less detrimental, however it is again recommended you seek professional advice to ensure that this loss will work in your favour.
Capital Gains Tax is a commonly misunderstood aspect of financial planning and taxation, so it is best to seek out a Financial Adviser registered with the Tax Practitioners Board to ensure you are getting the most comprehensive advice relating to your circumstances.