Capital gain is an increase in the value of an asset (such as your home or an investment property or you share portfolio) that gives it a higher worth than the purchase price.
In Australia you pay tax on your capital gains, but only when you sell your asset as this gain is not “realised” until the asset is sold.
Though it’s referred to as capital gains tax (CGT), it forms part of your annual income tax and is really a separate tax.
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 most personal use assets, such as furniture.
CGT also doesn’t apply to depreciating assets used solely for taxable purposes, such as business equipment or fittings in a rental property.
Interesting if you make a capital loss, you can’t claim it against income but you can use it to reduce a capital gain from the sale of a different asset.
And if your capital losses exceed your capital gains in an income year, you can generally carry the loss forward and deduct it against capital gains in future years.
If you’re an Australian resident, CGT applies to your assets anywhere in the world.
Foreign residents make a capital gain or capital loss if a CGT event happens to an asset that is ‘taxable Australian property’.
For most Capital Gains Tax events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset – that is, where you receive more for an asset than it cost you.
The cost base of a CGT asset is largely what you paid for it, together with some other costs associated with acquiring, holding and disposing of it.
But if you own the asset for more than 12 months individuals (not companies) only pay CGT (at their tax rate for that year) on 50% of the total Capital Gain.
« Back to Glossary Index