The capital gains tax of Australia is a type of income tax. For this reason, expect to file your investment earnings with your standard tax filing. There are reasonable benefits to get from filing capital gains; there are also ways to reduce how much you pay and when. The first step is to understand what capital gains are and how they’re assessed.
Buying and Selling Your Assets
Capital gains, as stated without the term “tax,” is what you earn as profit from investments. This is a source of income, but it’s not a source that you labored for. Putting your money into a certificate of deposit (CD), for example, will give you capital gains at the end of the CD’s term. You’ll gain interest as profit on your investment. That interest is taxable.
- Purchase Price: The amount you invest in stocks, bonds or business equity is your investment principal. This is the money that you already had and, hopefully, had already taxed as prior income.
- Sell Price: After an investment matures, you sell it at a price that differs from the price you bought it at.
- The Difference: The outcome of your investment is either gains or losses. What you gain is what’s taxable. Subtract this amount from your initial investment.
Why Filing is Your Best Option
Below is a look at how you can make the most of capital gains. You should always file to get the best possible tax rate.
- Full Rate: Spending your capital gains in under 12 months of earning it will force you to pay a full tax rate on it.
- Discounted Rate: Capital gains held over 12 months receive a 50 percent rate reduction when filed.
Don’t Forget Your Capital Losses
Just as with your gains, you can cover your losses during tax season. You need proof of your investment transactions, yet with any loss measured out, it can reduce the amount that’s taxed on your gains. Losses act as a deduction, so the full amount you gain for a year won’t be taxed. You can only offset your capital losses on investment gains. Also, losses can’t be deducted on other sources of income.