A Basic Introduction to the Capital Gains Tax Rules and Bookkeeping
Australian Taxation Office is very clear about the rules and regulations regarding Capital Gains Tax. Majority of the people don’t understand these rules and regulations. Sometimes the terms become too complex to understand whereas the process alone isn’t simple.
What is Capital Gain or Loss?
Purchasing an asset costs you some amount of money. On the other hand, when you dispose the particular asset you get to receive money. Capital gain or loss is the difference between these two amounts. Capital gain occurs when the difference is positive. Capital gain is considered income which is why tax has to be applied on this income. It is known as Capital Gain Tax. This type of tax is mandatory to be paid just like the entire income tax. Your bookkeepers Sydney can assist you to make sure all expenses and income are accounted for.
Capital loss can also occur. In this case, an individual is not allowed to claim it against the income amount. However, it can be used for the purpose of reducing capital gain amount for the particular financial year. It might happen that you have to face capital loss for the income year. You can take advantage of this situation by carrying the capital loss amount to next year and get it deducted from capital gains. Capital losses can be transferred to future years. Many people don’t know this valuable information.
The rules and regulations regarding Capital Gains were implemented on 20 September, 1985. Every capital asset which you have purchased or acquired since 1985 is linked with CGT. The asset might not be entitled to CGT if it has been specifically excluded. Some people might argue with the rules but this is the way it has to go in Australia. The most common way you could make capital gain or loss is by selling shares or real estate. Both the items qualify for application of CGT. On the other hand, Capital Gains Tax is also applied at business goodwill and other intangible assets. All the assets which you purchase or acquire for generating income come under CGT’s umbrella. Other assets like home, car and furniture are exempted from application of CGT due to the personal nature of these assets. You might be using some depreciating assets such as property on rent and business equipment. These assets are also exempt from application of Capitan Gains Tax.
Above, we discovered the basic rules and regulations of Capital Gains Tax rules. Now, we are going to learn about the situations when these rules actually apply, specifically in terms of assets. For Australian residents, Capital Gains Tax applies no matter in which part of the world you live. Taking care about your bookkeeping Sydney is important part of it.
CGT Assets Being Owned and Acquired
You must know while purchasing an asset whether CGT would apply on it or not. In this way, you will be able to start planning for the future by keeping records for the particular asset if it qualifies for CGT. The record keeping can help you in paying no extra amount of tax. It is must to have owner’s share if the asset is in joint ownership.
CGT Events Linked to Sale of Asset
What is a CGT event? The occasion when you give or sell the asset to someone else is known as CGT event. Here you get to know whether you will be making capital gain or loss. CGT events could come up in many other forms as well. A Trust or any other managed fund organizer might distribute capital gain to you. This situation also comes under CGT event.
Real Estate and Home
Main residence is the one where you live. It is exempted from applying of CGT if it has not been rented for some time period or it is less than 2 hectares of land. On the other hand, majority of real estate is applicable to CGT such as business premises, free land, farm houses, rentable property and holiday apartments.
Calculation of Capital Loss or Gain
For this purpose, you need to have basic understanding regarding few terms such as cost base and capital proceeds. The cost of acquiring or purchasing an asset is known as cost base. The amount received with disposal of an asset is known as capital proceeds. Calculation carried out in a CGT event is to find out whether capital gain has been achieved or capital loss. In this case, the cost base is subtracted from capital proceeds. In your financial year report, an individual is supposed to declare all capital gains minus capital losses and minus CGT concessions. The best option is to make sure you are provided with the best bookkeeping services Sydney can offer for this time of calculations.
CGT Concessions, Rollovers and Exemptions
There are quite a few assets exempted from the applying of Capital Gains Tax. It majorly includes all assets of personal nature such as furniture, car, home and deprecating assets which have been used for taxable reasons. Good news is that small business owners can get a 50% discount on their capital gain if the asset has been held for 1 year or more. In some cases, you might be entitled to roll over or defer the CGT event till the time another event takes place. Australian Taxation Office provides relaxation to small business owners in order to encourage them to do business by offering various other CGT concessions.
This is the very basic guide which must have helped you learn about basic CGT rules and their application in different circumstances.