Capital Gains Tax (CGT) is a big concern for Australian investors, property owners, and anyone selling assets. If you have sold shares, property, or other high-value possessions since 1985, you are probably familiar with CGT. There are smart, legal ways to minimise how much you pay.
What Is Capital Gains Tax (CGT) in Australia?
CGT is the tax that you pay on the profit that you gain when selling an asset. The gain is the difference between what you paid and what you sold it for.
You don’t get a separate CGT bill. Instead, your net capital gains are added to your assessable income when you do your tax return. This means CGT can bump you up into a higher tax bracket.
Some assets are exempt, like your main home, most cars, and depreciating assets used for business (like tools or equipment).
Key Strategies to Minimise CGT in Australia
1. Offset Capital Gains with Capital Losses
If you’ve made a profit on one asset but a loss on another, you can “net” these off. This is called tax-loss harvesting.
Example:
- Sold shares at a $10,000 gain, and another batch at a $3,000 loss.
- Net capital gain is $7,000.
If your losses exceed your gains, you can carry forward the unused losses to future years. There’s no time limit.
Tip: Keep a detailed record of all transactions for easy calculation.
2. Hold Your Asset for More Than 12 Months
If you’re an Australian resident individual (or trust), assets held for at least 12 months get a 50% CGT discount on the gain. For super funds, it’s a 33.3% discount.
Example:
- Buy property in May 2022 for $500,000.
- Sell in June 2024 for $700,000.
- Gain is $200,000.
- CGT discount applies, so only $100,000 is taxable.
Note: This discount doesn’t apply to companies.
3. Time Your Sale Carefully
Consider selling assets in a year where your income is lower. For example, after a career break, retirement, or during maternity leave.
Sell in July:
Selling at the very start of the financial year gives you the entire year to plan, make further investments, or contributions to super to offset your assessable income.
4. Use Small Business CGT Concessions
If you run a small business, you may qualify for extra CGT discounts. The rules are strict, so seek professional advice, but the main concessions are:
- 15-year exemption: If you’ve held a business asset for 15+ years and meet other conditions, you may pay zero CGT.
- 50% active asset reduction: Halves the capital gain for “active” business assets.
- Retirement exemption: Up to $500,000 of capital gains can be disregarded if you’re retiring (even if you’re under 55, provided funds go into superannuation).
- Rollover: Defer the tax by reinvesting the proceeds in another business asset.
5. The Six-Year Rule for the Family Home
If you move out and rent out your main residence, you can still treat it as your main home (and exempt from CGT) for up to six years, as long as you don’t claim another property as your main residence in the same period.
This is called the six-year rule. Handy if you’re relocating for work or travel.
6. Revalue Before You Lease Your Property
Before renting out a property, have it professionally valued. If it later becomes an investment, capital gains can be calculated using the market value at the time it first became available for rent, not the original purchase price. This can reduce your taxable gain.
7. Contribute to Superannuation
You can contribute extra concessional amounts to your super from the capital gain (at present up to $27,500 per annum, as at 2024).
- Concessional contributions are taxed at just 15% (if your income is under $250,000).
- May also save you on personal income tax.
- Some capital gains may be eligible for special small business contributions, with even higher caps.
8. Choose the Right Ownership Structure
How you own your assets makes a big difference:
- Family trusts can distribute gains to several beneficiaries. Especially useful if some family members have lower incomes.
- Self-managed super funds (SMSFs), for investment properties, get a lower tax rate (15%) and one-third CGT discount (so effective CGT rate on gains is just 10%).
9. Make Use of Exemptions
- The family home, as mentioned, is usually exempt.
- Personal assets like cars and depreciating business assets are exempt.
- Collectables may be exempt if purchased for less than $500.
- Pre-1985 assets are generally exempt from CGT.
10. Keep Excellent Records
Having thorough records is essential to claiming all available CGT discounts, losses, and exemptions. Poor record-keeping leads to missed opportunities and possible penalties.
Practical Examples
You sold an investment property with a $100,000 profit. You experienced a $30,000 loss on shares.
If you’ve owned the property for two years, taxable amount after 50% discount = $35,000.
Example 2:
Sold your business after 20 years of ownership at age 60. The business qualifies as a small business and you’re retiring. The entire gain can be exempt via the 15-year rule.
Key Takeaways and Next Steps
Tax accountant melbourne can helping out individuals and businesses through complicated tax rules and maximizing their financial performance. These specialists provide tax planning, compliance, and reporting skills, ensuring customers comply with all legislation while enjoying concessions and deductions available to them. Hiring a taxation services specialist can offer sound advice and reduce fiscal risks, especially when faced with complex situations like capital gains tax or small business relief.