Selling an asset? Whether it is part of your business, or a personal asset, it’s still important to remember that there can be tax consequences.
From shares, to an investment property, or if your business has sold a piece of equipment or a commercial property – it all needs to be part of your tax assessment, as Capital Gains Tax (CGT). Want t know more? Here are some basics on CGT:
First – it’s important to realise that the gain is calculated based on the difference between the money you receive when an asset is sold, and the price you paid for it (with the subtraction of any relevant costs).
And it’s not all about tangible goods, either. An asset can be intangible, such as contractual rights regarding your business and even the business goodwill.
Capital Gains Tax (CGT) is also potential an issue if you are selling off a portion of the business, paying out a former business partner, undertaking renovations or extensions to a commercial property, changing the structure of your business (for example, setting up a trust and then transferring assets from the business into it), or if you have received any compensation payouts for assets that have been either lost or destroyed.
CGT Exceptions
The main CGT exception is if the gain can also be assessable under another area of the tax law, such as qualifying as ordinary income.
If that is the situation, the CGT rules take place after the other rules. Some examples of this include any sales of depreciating assets and trading stock – things that are not taxed under the CGT rules, simply because they are assessed under their own tax regime.
Another common exception is related to the sale of your family home. If the property is your main residence – and that means that is the house you live in every day – there will be no CGT when you sell it.
How does CGT work?
The trigger for CGT is a CGT ‘event’.
This is when you sell as asset but does also relate to the time when an asset is given away, if it is lost or destroyed and also if you cease to be an Australian resident.
The capital gain is always taxed in the financial year that the asset is sold, disposed of or changes hands.
Just how much the tax will be varies but the resulting capital gain forms part of your income in that financial year, so is taxed at whatever marginal rate applies to your income bracket. The amount that is added to your assessable income is referred to as ‘net capital gain’.
There is also ‘gross capital gain’ but there are many influencing factors in determining this and to make the best sense of it, it is wise to speak to your trusted accountant. After all, one little mistake could mean you pay more than you should in tax – and nobody likes doing that!
Calculating capital gains accurately is a very complex thing so if you are planning to sell some assets, or if you have already done the transaction and you need to know what this will mean to your next tax return, it is important to get professional advice from an accountant who has a clear understanding of Capital Gains Tax and the ramifications for you and your business.
Our team at TAS are always here to answer any of your questions, call us on (03) 9728 1448.