Dealing With The Common Capital Gains Tax Events
Capital Gains Tax is a big discussion topic all around the world. Taxation rules are different in every country. Every country’s taxation system and authority defines the rules regarding Capital Gains Tax. In this part of the world, Australia Taxation Office is responsible for introducing and implementing tax rules in the entire country. You will find similar rules and regulations in many other countries such as England. Majority of the people in Australia don’t know even half correct information about the concept of Capital Gains Tax. Accountants Sydney will help you understand the basics of this concept with few examples. First, we need to develop the correct understanding about Capital Gains Tax Events.
In Australia, tax is applied on all kinds of income. Capital gain is considered as income which is why tax applies on it. People think that CGT applies only to those who do business. This is a total misconception. Keep reading the article to find out how CGT event can take place if you are an employee and don’t run business. There could be hundreds of different CGT events taking place in one’s life. It is important to know and understand the type of CGT event in order to deal with it in an appropriate manner. The way you deal with CGT event will determine capital gain or loss in the future.
The process of dealing with a particular event starts with identifying event type. To make you understand, we have discussed some of the major CGT events below.
Types of CGT Events
Purchasing CGT Assets – Buying or acquiring an asset comes into this category. For future tax return Sydney purposes, you are required to keep a detailed record of the asset. In many cases, people tend to pay more than what they actually needed to pay due to having no records. Owner’s share must be established if the asset is owned by two or more parties.
Sale of Asset – It is the phase where CGT event is actually completed. From here on, the taxation obligations are applied which are must to be fulfilled for an individual. You might give the asset or sell it to another party. At this point, you must have your calculator in order to determine capital gain or loss.
Real Estate Implications – Having a property over 2 hectares qualifies for a CGT event if ever sold in future. Your family home which is also called main residence is exempted from any CGT implications if you have not rented it during a financial year. Real estate is taken seriously with subject to Capital Gains Tax. All kinds of land such as rentable property, farms, holiday buildings and vacant land can lead to CGT with sale or purchase activity.
Units and Shares – Selling of any kind of shares and units qualifies for a CGT event. You have to pay tax on the income earned during this transaction. With units, you are liable to pay tax even if the units are redeemed by transferring from one fund to another.
Other Scenarios Qualifying As CGT Events
- Destruction of an asset whether voluntary or involuntary
- Compensation payment
- Declaration of financial instruments or shares being worthless
- Individual being no more Australian resident
- Redemption, cancellation or surrender of shares
- Shareholder receiving payment from company other than dividend
- Payment received by business from local council for disruption to the assets
Dealing With Common CGT Events
In majority of the people’s lives the most common CGT event is when they sell an asset previously acquired by them. The particular event commonly makes up the majority of Capital Gains amount for a financial year. Due to this, it is important to calculate the correct gain or loss for this event in order to cope with tax obligations later on. This is where you need a calculator to determine the gain or loss on sale of asset.
Capital Gain or Loss = Cost Proceeds – Cost Base
The amount being positive would indicate gain and vice versa. The cost proceeds and cost base amount will vary from individual to individual and asset to asset. It has to be calculated correctly before finding out capital gain or loss. On this amount the tax implications will be applied if it is a gain. On the other hand, you can use the loss to reduce overall gain amount for the particular financial year. It will ultimately help you paying less amount of tax in the end. If you have been unfortunate and loss is greater for a financial year then you get to transfer the remaining loss amount to future years.
You don’t have to deal in any way with the selling of personal property such as car, furniture, etc. If you own a small business then you are entitled to avail 50% discount on capital gains in case of holding an asset for one year or more. If you are not good with financial terms then we suggest you to consult tax adviser rather than dealing with CGT events on your own. You may understand the basics of dealing with CGT events. However, the details will make the whole process complex for you. To save money and any trouble related to tax issues, always consult a tax agent Sydney who can help you in better way.