Understanding Australian capital gains tax

Australia taxes its residents on all income worldwide, while non-residents are taxed only on income or assets that are derived from within Australia.

What exactly is a capital gains tax?

Capital gains tax is the tax that you must pay on any capital gain (i.e. income, assets or earnings) that is documented and declared on your income tax forms.

Your net capital gain is derived from a formula that takes your capital gains and subtracts your capital losses. This particular formula also allows for the subtraction of any net capital losses that you acquired from years prior to this particular tax year.

How the Australian capital gains tax affects you

You are also entitled to further subtract any particular capital gains tax concessions or discounts that may apply. These last two deductions are generally for a small business to consider.

Because your net capital gains are declared in your annual income and are considered for all purposes as part of your taxable income, the capital gains tax is a part of the taxing process itself — not some separate and distinct tax class.

Assets that may have been acquired before 20 September 1985, are not usually taxable under the present capital gains tax law. Residents of Australia will be taxed on any worldwide assets to which the capital gains tax law may apply. Non-residents are only held accountable to this taxation if their assets have a particular tie to Australia, such as Australian land or businesses.

If your family home is sold, it is fairly exempt from any capital gains taxation and is only accountable for capital gains tax if it was rented out for some period of time. The monies collected from rent, depending on losses, could be construed as a gain, making them subject to taxation.

When you look at the capital gains tax, do remember that this can mean a huge taxation, so any exemption can be a blessing and there are other blessings to be had, such as deferred interest or zero interest bonds.

For more information on capital gains tax in Australia visit the Australian Government Taxation Office website.