Capital Gains

There are numerous year-end tax strategies. This year we will be concentrating on Capital Gains for individual investors.  If you are interested in discussing this or any of the other year-end strategies don’t hesitate to contact us.

What are Capital Gains? 

A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price.

Capital Gains Tax (CGT)

As a general rule, if you acquired any assets on or after 20 September 1985, you may have to pay tax on any capital gain you make when you sell or otherwise dispose of them.

CGT is the tax you pay on any capital gain you include on your annual income tax return.  It is not a separate tax, merely a component of your income tax.  You are taxed on your net capital gain (gains minus losses for the year, less CGT discounts) at your marginal tax rate. This amount must be included in your assessable income.

Capital losses can only be offset against capital gains. Capital losses not offset against capital gains can be brought forward to future tax years.  

There are certain things that you need to know when it comes to working out whether or not you need to pay CGT. This includes: If a CGT event has in fact taken place, when it occurred, if you're eligible for exemptions and/or discounts, etc.

Individuals are entitled to a 50% discount if they have held the CGT asset for longer than 12 months. 

Please note that the sale date for CGT purposes is the contract date.  This can cause issues for tax planning when the settlement and contract dates fall in different financial year ends.

Have you sold, or do you plan to sell, a profitable asset this financial year? 

If so, there are some things you can do to manage capital gains tax (CGT).  Whilst there are a range of smart strategies available to mitigate the impact of CGT, we’ve explored two of them here. 

Both of these strategies can help reduce your tax liability while increasing your opportunity to invest.

 Rethink your weakest asset

Selling off your investment holdings at a loss may become critical if you’ve sold, or are planning to sell, a profitable asset this financial year.

By selling a poorly performing investment before 30 June, you can use the capital loss to your advantage. This is because the loss can be offset against your capital gain(s) when you complete your tax return, thereby reducing your taxable capital gains.

Use Super to offset CGT

If you’re likely to make a capital gain on the sale of an asset this financial year, you may want to contribute the sale proceeds into super and claim some of your contribution as a tax deduction.

You can also use the tax deduction to offset some, or all, of your taxable capital gain and reduce, or eliminate, your tax liability.

To be eligible to claim your super contributions as a tax deduction, you’ll generally need to be self-employed or not employed and meet certain other conditions. Alternatively if arranged in advance an employee could super salary sacrifice.

You will need to be mindful of the concessional super contribution caps.