Capital Gains Tax Planning

A capital gain is an increase in an asset’s value over time. When you sell (or dispose) of an asset you may be liable to pay Capital Gains Tax (CGT) on any gain made. The net amount of the capital gain is included as part of your assessable income and is taxed at your marginal rates.

CGT only applies to assets that were acquired on or after 20 September 1985, as all assets acquired before this date are CGT-free. If the asset was held for more than 12 months, you may be able to receive a 50% discount on the capital gain included in your assessable income, as an individual taxpayer. There are different rules that apply for superannuation funds and companies.

In determining whether CGT implications are present you will first need to determine whether the asset in question is a “CGT asset”. The main asset that is excluded from this list is your principal residence, which will not be subject to CGT upon sale.

Once you have determined if you have an asset that is subject to CGT, you will then need to determine whether a “CGT event” has occurred. There are over 50 different CGT events that will trigger a tax liability, so it best to seek specialist advice on this matter.

The calculation of CGT is dependent on the type of entity that is disposing of the asset. As such, there are concessional taxation arrangements for CGT assets that are disposed of within the superannuation environment. Details of the different tax treatments are outlined in the table below.

Entity Tax Treatment of Capital Gain
Personal Name Net capital gain is included in assessable income and is taxed at your marginal rate of tax. A 50% discount may be received if asset is held for longer than 12 months.
Superannuation (Accumulation) Net capital gains are taxed at a flat rate of 15%. If the asset was held for over 12 months the gains are taxed at a rate of 10%
Superannuation (Pension) There is no tax payable on any capital gains (i.e. capital gains are received entirely tax-free).

As your capital gains are included in your assessable income, it is possible to reduce the impact of capital gains tax through deductions (e.g. personal deductible contributions to super, salary sacrifice, interest pre-payment etc). For this reason it is important that you see your financial planner to ensure you have an appropriate plan in place to reduce the impact of CGT.

The potential sale of CGT assets should be discussed with your financial planner in the financial year prior to the intended sale, where possible, to ensure the appropriate strategies are in place well in advance.