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The basics of Capital Gains Tax
Capital Gains Tax (CGT) is tax on your net capital gain.
Net capital gain is total capital gains, minus total capital losses, minus the CGT discount.
What is the CGT discount?
The CGT discount is 50% - shares or units need to be held for 12 months to get the discount.
Capital losses are taken away from capital gains before the discount is applied. (The discount is available for individuals, but not for a company.)
The net capital gain is then taxed at your marginal tax rate. CGT is not a separate tax.
Note that capital gains or losses as a general rule can be disregarded for CGT purposes when assets were acquired before 20 September 1985 (pre CGT).
The CGT events
A capital gain or capital loss only happens if there is a CGT event. Some common CGT events include:
- Sale of shares or units.
- Distribution of a capital gain by a managed fund or other trust.
- Receipt of a payment from a company other than a dividend.
- When a liquidator or administrator declares shares in a failed company are worthless.
- When shares are cancelled because a company is wound up.
- Creating a trust over a CGT asset or transferring a CGT asset to a trust.
There are about 50 CGT events. Details of each can be found in the Guide to CGT, issued annually by the ATO. The timing of the event is important. If an asset is sold the CGT event happens when you enter into a contract. The distribution of a capital gain from a managed fund is taken to have been made in the income year shown on the statement.
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