Sole Trading
11. Capital Gains Tax (CGT)
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 23 Sep 2015
- Capital Gains Tax (CGT) is paid on the capital gain or loss which is the difference in value of an asset between when you originally received it and when you disposed of it.
- Capital gains amounts can be substantial elements of a business particularly a business that depends on high value appreciating assets that may only be held for a short amount of time.
- The incentives for individuals operating as sole traders are substantial when it comes to Capital Gains Tax (CGT). This makes operating as a sole trader appealing for those who intend to own and sell high value assets that are going to increase in value over time.
- Sole proprietors can claim the 50% CGT discount for individuals.
- Provided the sole trader has held an asset for at least 12 months tax is only payable on half of the capital gain made on the particular asset. By comparison a company would have to pay tax on the entire amount of the capital gain.
- Additional CGT deductions for some eligible businesses may further reduce the tax obligation on a capital gain down to 25%. This will depend on factors including:
- the type of business you operate;
- your annual turnover amounts; and
- how long you have owned the asset.
- Whether the CGT incentives associated with operating a business as a sole trader are relevant to your business will depend on:
- the type of assets involved in running your business;
- asset values;
- whether assets are likely to depreciate or appreciate; and
- how long you intend to hold such assets.
- Understanding how these elements of your business will affect your CGT liabilities before you choose your structure will save you and your business money in the long term.
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