How to Keep More of Your Money: Simple Ways to Reduce Capital Gains Tax

Capital Gains Tax (CGT) can have a significant impact when selling your assets. Understanding how to manage and reduce your CGT liabilities is crucial for ensuring you keep more of your gains. Here’s a comprehensive guide on how to effectively minimize your CGT obligations.

Understanding Capital Gains Tax (CGT) in Australia

In Australia, CGT is applied to the sale of non-exempt assets acquired after 20 September 1985. Your capital gain is the difference between the sale price and your cost base. The applicable CGT rate varies depending on the type of asset and your tax status:

• Assets Subject to CGT: Investment properties, shares, cryptocurrency, business vehicles, business/office equipment, and commercial properties.

• CGT-Exempt Assets: Assets acquired before 20 September 1985, your main residence, personal vehicles, and depreciating assets in an investment property.

Key Strategies to Minimize Your CGT

1. Hold Assets for Over 12 Months
   Individuals who hold an asset for more than 12 months are eligible for a 50% discount on CGT. For instance, if you sell shares with a $3,000 gain after holding them for over a year, you will only be taxed on $1,500 of that gain. Self-managed super funds (SMSFs) benefit from a 33.3% discount, which means capital gains are taxed at 10%. Companies do not receive a CGT discount and must pay the full rate.

2. Offset Gains with Capital Losses
   You can use capital losses from the current or previous years to offset your capital gains, reducing your CGT liability. Always apply carried-forward losses before using current-year losses, and carefully select which gains to offset first.

3. Revalue Your Property Before Renting
   If you decide to convert a residential property into an investment property, ensure it is revalued before renting it out. This way, CGT will apply only to gains from the revaluation point forward, rather than from the original purchase date.

4. Utilize Small Business CGT Concessions
   If you run a small business and sell a business asset, you may qualify for various CGT exemptions and concessions, provided you meet the eligibility criteria.

5. Increase Your Asset Cost Base
   Enhancing your asset’s cost base can lower your capital gain. Include acquisition, disposal costs, and holding costs in your cost base to reduce your CGT liability.

6. Consult a Tax Professional
   Australian tax laws can be complex. Consulting with a tax professional ensures you use legal and effective methods to minimize CGT while avoiding penalties related to tax avoidance.

Get Expert Assistance with Your CGT

Managing Capital Gains Tax effectively requires a thorough understanding of tax regulations. If you’re searching for expert advice, Aero Accounting Group is here to assist. Contact us today to ensure your CGT obligations are managed efficiently and in accordance with Australian tax laws.