A capital gain is made when you sell an asset for a profit and Capital Gains Tax (CGT) is the tax imposed on that profit. The profit is the positive difference between what you paid for the asset when you purchased it or the amount it was worth if you received it as a gift and the amount you sold it for. CGT is assessed as part of determining your liability for income tax rather than being a separate tax. Any net capital gain you have made is combined with your other net income to determine how much tax you need to pay.

If you sell your asset for less than it was worth when you acquired it that is considered to be a capital loss. A capital loss does not reduce your net income. However, if you have also made capital gains in the current tax year, your capital loss may be used to reduce your net capital gain. If you have not made any capital gains, then the capital loss may be carried forward into the future and used to reduce capital gains in later tax years.

Individuals and small businesses who make a capital gain on an asset that they have owned for more than 12 months may claim an immediate 50% deduction of that capital gain. This means that for assets you have held for more than a year, CGT will only be assessed on half of the profit you made when you sold that asset.

This Legal Guide on Capital Gains Tax provides individuals with information about capital gains tax. Before making important decisions it is advisable to obtain legal advice specific to your situation. LegalEagle’s™ free directory profiles all lawyers in Australia. You can use it to Find a Lawyer near you.

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