Capital Gains Tax (CGT) is a general tax applied on capital gains on sale of land, shares, and similar assets. However, any purchase of CGT assets prior the 20th September 1985 is exempt from CGT no matter how many gains/losses are made from the sale of the assets.
In Australia, a capital gain will apply for transactions made on or after 20 September 1985, and if that amount that you receive (or are entitled to receive) is greater than the total costs incurred. The net capital gain made by a taxpayer during an income year is included as assessable income in the taxpayer’s return for that income year. However, whether a transaction is considered a capital gain also depends on the type of asset and the value of the transaction. There are also various exemptions. The specifics are explained below.
Classification of Assets.
CGT assets are classified into different classes, each explained briefly below:
– Artwork, jewellery, antique object of artistic and historical significance over 100 years old TD 1999/40), coin or medallion;
– Rare portfolio, manuscript or book;
– Postage stamp or first day cover;
– Collectables are used or kept mainly for your personal use or enjoyment;;
Any capital gain is ignored if the acquisition of the collectable was $500 or less.
A set of collectables is taken to be a single collectable, and the $500 threshold applied to the set, not individual items. However, capital loss incurred from collectables can only offset gains in other collectables in current year or later income years.
Personal Use Assets (PUA)
A PUA is a non-collectable asset, other than land or buildings, used or kept mainly for personal use or enjoyment.
Any capital gain is ignored if the acquisition of the PUA was less than $10,000. For example, your car or yacht will be PUA whereas your clothes or kitchenware won’t be PUA.
Other Assets
Other assets are assets other than collectables or PUA. The ordinary CGT rules apply to this class of assets.
Separate CGT Assets
A building, structure or any other improvements you made on land you purchased after 20 September 1985 will be treated as Separate CGT Assets for CGT purposes and if you purchased the land prior to 20 September 1985, the improvement on the land will also be a Separate CGT Asset unless you entered into the contract, or construction began, before this day. If you made an improvement to other assets you purchased before 20 September 1985, and the amount you spent on the improvement is more than the threshold of $124,258 for the 2009-10 year, or more than 5% of the amount and property you received from the event, then the improvement will also be treated as Separate CGT Assets.
Exemptions from Capital Gains Tax
– Motor vehicle designed to carry less than one tonne and fewer than 9 passengers;
– CGT asset used solely to produce exempt income;
– Compensation or damages received for wrong, injury or illness received by taxpayer;
– Gambling winnings or prizes;
– Main residence up to the extent of fully rented out for six years;
– Rights, annuities and allowances payable under insurance policy;
– Decoration awarded for valour or brave conduct, unless purchased by the taxpayer;
– Superannuation or employer termination payment;
– Depreciation assets used for business purposes;
– Film copyright or research and development pools.
Which Taxpayers are Subject to Capital Gains Tax?
Australian residents are liable for Capital Gains Tax regardless of the location of the asset and regardless of whether the residents are individuals, partnerships, trusts or companies.