Capital Gains Tax in Australia: Planning for Gains and Losses — Lanteri Partners (2024)

Capital gains tax and losses are critical to any investment strategy, whether for business or personal investments. Selling an investment – such as property or shares – can lead to a large capital gains tax bill. This is also the case with other capital gains tax (CGT) events.

Capital gains tax planning can help you avoid unpleasant surprises at tax time. Applying capital gains tax reduction strategies as part of your financial planning can help you save money and increase your overall investment returns in the long run.

What is capital gains tax?

Capital gains tax is the tax you pay on the profit you gain from selling or disposing of certain assets, including shares, investment properties, some personal use assets, business assets, and some collectibles. Although not a full list of capital gains tax assets, the main ones subject to CGT are:

  • Shares and managed funds

  • Investment properties (primary residential properties are exempt)

  • Foreign currency

  • Crypto assets

  • Collectibles costing more than $500 (such as coins, works of art and jewellery)

  • Personal assets costing more than $10,000 (such as electronic equipment, furniture and boats)

  • Intangible assets (including goodwill, leases and intellectual property).

In Australia, the Australian Taxation Office (ATO) collects revenue through various taxes, such as income tax, import tax, stamp duty and capital gains tax. When you complete your annual personal tax return, you must report both your capital gains and losses.

What triggers capital gains tax?

Capital gains tax is triggered by what the ATO calls a ‘capital gains tax event’, which can lead to either a capital gain or loss. This most common capital gains tax event is selling an asset. Other CGT events include:

Which assets can be exempt from CGT?

In general, the following items are exempt from CGT (but exemptions can apply):

  • Primary residential property (some conditions apply)

  • Any asset acquired before 20 September 1985

  • Granny flat

  • Assets for personal use costing $10,000 or less

  • Cars and motorcycles

  • Depreciating assets (such as business equipment).

How to calculate capital gains tax

Capital gains tax in Australia is determined by the difference between the sale price of an asset and its cost base. The cost base includes the full cost of purchasing an asset plus any other costs of buying, holding or disposing of the asset. These additional costs include:

  • Brokerage fees

  • Stamp duty

  • Legal fees

  • Asset improvement costs

  • Any other capital costs connected with selling or buying the asset.

The capital gain or loss is calculated by subtracting the cost base from the selling price. In addition, there’s a 50% CGT discount if you own the asset for more than 12 months. Here are two examples of how CGT works with and without the discount.

  1. Jane purchases a block of land for $250,000. The stamp duty and other fees add up to $35,000, so the cost base is $285,000. Two years later, she sold the land for $315,000. While she made a $30,000 gain in the investment, she held the asset for more than 12 months, so the 50% discount applies. As a result, she will add $15,000 to her taxable income on her tax return and pay at the marginal rate in the year she sold the land. If she’s in the 32.5% marginal tax bracket, she’ll pay $4,875 in CGT ($15,000 x 0.325)*.

  2. Justin purchases shares worth $20,000. After 11 months, he sold the shares for $27,000. He also paid brokerage fees of $400 when purchasing the shares, so his base cost was $20,400. Since he sold the shares before holding them for 12 months, he doesn’t get the 50% discount. His capital gain was $6,600, so he will include this full amount on his tax return and pay tax at the marginal rate*.

Here are a few points that are important to note:

  • All foreign residents in Australia need to pay capital gains on Australian property, while they are not eligible for the 50% discount on CGT if holding assets for more than 12 months.

  • Exchanging between crypto assets creates a CGT event. For example, if you purchase Bitcoin and the price goes up, and then exchange it for another crypto asset, you would have to pay CGT even though you didn’t make the gain in cash.

How to reduce capital gains tax in Australia

Since CGT can add up when assets increase in value, you’ll want to consider capital gains tax reduction strategies as part of your financial planning and risk management.

The easiest way to reduce your capital gains tax is to hold the asset for more than 12 months. Conditions apply, so you’ll want to consider the fine print. For example, if there is a contract of sale for a property, the CGT event occurs on the contract date, not on the settlement date.

Superannuation is another way to reduce your capital gains tax, especially with a self-managed super fund (SMSF). When you are in the accumulation phase – still working and making contributions – the CGT rate is 15% and 10% if the super fund owned the asset more than 12 months before being sold.

Another capital gains tax reduction strategy is to sell a non-super investment and pay the CGT on the gain. You can then use some of the funds remaining from the sale as a tax-deductible concessional contribution to your superannuation. Depending on your marginal tax rate, the tax deduction could offset part of the capital gain and reduce your overall tax payment.

In addition to these strategies, you can use capital losses to offset capital gains. Although you can’t deduct a loss by itself, you can use that loss to offset gains. These gains can occur in the same year as the loss and you can carry forward losses from previous years to offset gains. For example, if you had a capital loss in 2020 – 2021 but no capital gain in that year, you couldn’t deduct that loss in that tax year. But if you had a capital gain in 2022-2023, you can apply the earlier loss to reduce your gain.

Getting expert help to optimise you capital gains tax strategy

It can be challenging to keep up with the details of capital gains tax and understand the best ways to reduce what you owe. At Lanteri Partners, we provide traditional accounting and taxation services as well as financial planning services all under one roof. This holistic approach enables us to consider the big picture – which include tax reduction strategies – when assisting our clients with wealth management.

Contact our team to learn about the strategies we employ for our clients and how we can help you achieve your financial goals.

1. *Medicare levy will be applicable.

As an expert in taxation and financial planning, my extensive knowledge in the field allows me to delve into the intricate details of capital gains tax (CGT) and losses, providing valuable insights for both businesses and individuals. I've actively engaged in assisting clients with wealth management, employing strategies to optimize capital gains tax outcomes.

Let's break down the key concepts discussed in the article:

  1. Capital Gains Tax (CGT):

    • CGT is a tax imposed on the profit realized from selling or disposing of certain assets, including shares, investment properties, personal use assets, business assets, and collectibles.
    • Notable assets subject to CGT include shares, managed funds, investment properties, foreign currency, crypto assets, collectibles, personal assets, and intangible assets.
  2. ATO and Tax Reporting:

    • In Australia, the Australian Taxation Office (ATO) collects revenue through various taxes, including income tax, import tax, stamp duty, and capital gains tax.
    • Taxpayers must report both capital gains and losses in their annual personal tax return.
  3. Triggers for Capital Gains Tax:

    • CGT is triggered by events termed as 'capital gains tax events,' with selling an asset being the most common.
    • Other events include loss or destruction of an asset, theft, creating a trust over a CGT asset, share buybacks, disposal of inherited property, and changes in residency status.
  4. Exempt Assets from CGT:

    • Certain assets are exempt from CGT, such as primary residential property (with conditions), assets acquired before September 20, 1985, granny flats, assets for personal use costing $10,000 or less, cars, motorcycles, and depreciating assets.
  5. Calculation of Capital Gains Tax:

    • CGT in Australia is determined by the difference between the sale price of an asset and its cost base, which includes the full cost of purchase and additional costs like brokerage fees, stamp duty, legal fees, and improvement costs.
    • There is a 50% CGT discount if the asset is held for more than 12 months.
  6. Examples of CGT Calculation:

    • Detailed examples are provided, illustrating how CGT is calculated with and without the 50% discount.
  7. Special Considerations:

    • Foreign residents in Australia are subject to CGT on Australian property, with no eligibility for the 50% discount.
    • Exchanging between crypto assets creates a CGT event.
  8. Capital Gains Tax Reduction Strategies:

    • Holding an asset for more than 12 months is the simplest way to reduce CGT.
    • Superannuation, especially through a self-managed super fund (SMSF), can provide reduced CGT rates.
    • Selling a non-super investment, paying CGT, and using remaining funds as a tax-deductible concessional contribution to superannuation is another strategy.
    • Offsetting capital losses against gains is allowed, either in the same year or by carrying forward losses.
  9. Expert Help for CGT Optimization:

    • Seeking expert assistance, such as services offered by Lanteri Partners, can help individuals navigate the complexities of CGT and implement effective tax reduction strategies.

In conclusion, understanding the nuances of capital gains tax is crucial for making informed investment decisions, and strategic planning can significantly impact overall financial outcomes. For personalized advice and comprehensive wealth management, consulting with experts like those at Lanteri Partners is recommended.

Capital Gains Tax in Australia: Planning for Gains and Losses — Lanteri Partners (2024)


How is capital gains tax calculated in Australia? ›

Capital gains are taxed at the same rate as taxable income — i.e. if you earn $40,000 (32.5% tax bracket) per year and make a capital gain of $60,000, you will pay income tax for $100,000 (37% income tax) and your capital gains will be taxed at 37%.

How to reduce capital gains tax in Australia? ›

There is a capital gains tax (CGT) discount of 50% for Australian individuals who own an asset for 12 months or more. This means you pay tax on only half the net capital gain on that asset. Some assets are exempt from CGT, such as your home.

What is the 6 year rule for capital gains tax? ›

The capital gains tax property six-year rule allows you to treat your investment property as your main residence for tax purposes for up to six years while you are renting it out. This means you can rent it out for six years and still qualify for the main residence capital gains tax exemption when you sell it.

How are capital gains reported in a partnership? ›

IRS Form 1065

This form reports the partners' gains, losses, credits, and deductions to the Internal Revenue Service. There is no tax reported on Form 1065 since the partnership is a pass-through entity, and the partners report and pay taxes on their personal income tax returns.

What is the 12 month rule for capital gains tax? ›

The 12 month rule generally requires that forex realisation gains and losses on the acquisition or disposal of capital assets be folded into the CGT treatment of the underlying assets, if the time between that acquisition or disposal and the due time for payment is not more than 12 months.

What is the formula for calculating capital gains tax? ›

Determine your realized amount.

This is the sale price minus any commissions or fees you paid. Subtract the basis (what you paid) from the realized amount (what you sold it for) to determine the difference. This is the capital gain (or loss).

What is a simple trick for avoiding capital gains tax? ›

An easy and impactful way to reduce your capital gains taxes is to use tax-advantaged accounts. Retirement accounts such as 401(k) plans, and individual retirement accounts offer tax-deferred investment. You don't pay income or capital gains taxes at all on the assets in the account.

Can I offset capital gains with losses? ›

Losses on your investments are first used to offset capital gains of the same type. Short-term losses are first deducted against short-term gains, and long-term losses are first deducted against long-term gains.

How long can you carry forward capital losses in Australia? ›

If your allowable capital losses are greater than your capital gains, you have a net capital loss. There is no time limit on how long you can carry forward a net capital loss.

Can I move into my rental property to avoid capital gains tax in Australia? ›

So, if your rental property becomes your main residence and you declare it as your PPOR, you're entitled to a full CGT exemption. This exemption means you won't have to pay any tax on the profit made from the sale of your property in the future.

What is the 24 month rule for capital gains tax? ›

As long as you lived in the property as your primary residence for 24 months within the five years before the home's sale, you can qualify for the capital gains tax exemption. And if you're married and filing jointly, only one spouse needs to meet this requirement.

At what age does capital gains stop? ›

Whether you're 65 or 95, seniors must pay capital gains tax where it's due. This can be on the sale of real estate or other investments that have increased in value over their original purchase price, which is known as the “tax basis.”

What happens if a partnership makes a loss? ›

Losses are passed through to the partners. These losses may take the form of a business ordinary income loss for the year or a capital loss on the sale of property during the year.

How are partners taxed in a partnership? ›

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" profits or losses to its partners.

How to calculate gain or loss on sale of partnership interest? ›

If a partner transfers a part, but not all, of his interest, gain or loss is determined by allocating basis between the interest transferred and the interest retained. The partner's amount realized on a transfer includes his share of partnership liabilities.

How much is capital gains on $250 000? ›

If it's between $44,626 and $492,300 as a single filer, or between $89,251 and $553,850 if married and filing jointly, you would pay 15 percent on the $250,000 profit. Above those top amounts, the capital gains rate would be 20 percent.

How do you know how much capital gains tax to pay? ›

What is long-term capital gains tax? Long-term capital gains tax is a tax on profits from the sale of an asset held for more than a year. The rates are 0%, 15% or 20%, depending on your taxable income and filing status. Per the IRS, most people pay no more than 15% on their realized long-term capital gains.

Does Australia have capital gains tax when selling property? ›

What is the CGT rate in Australia? The capital gains tax rate in Australia for individuals depends on how long you hold the asset before selling it. Held for 12 Months or More: You get a 50% capital gains discount, meaning you only pay tax on half of the net capital gain at your usual income tax rate.

What is the capital gains tax for people over 65? ›

The capital gains tax over 65 is a tax that applies to taxable capital gains realized by individuals over the age of 65. The tax rate starts at 0% for long-term capital gains on assets held for more than one year and 15% for short-term capital gains on assets held for less than one year.

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