Suitable for: Anyone who has sold a capital asset during the financial year
Tax Difficulty: Advanced
Time to read: 8-10 minutes
Tax Focus: Income Tax Returns
When you sell capital assets such as shares, or property, you typically generate a capital loss or a capital gain on the sale. This is determined by comparing the purchase price of the asset to the price at which you sold it for. While this issue may seem simple, it can actually get very complex very quickly, so in this Help Centre article, we’ll explain the basics of capital transactions, and how they can be recorded on the Airtax tax return. You’ll also find out how you can get further help from a PwC tax accountant when things start to get tricky.
What is capital gains tax (CGT)?
Although it may sound like it is, capital gains tax (or CGT) is actually not a separate tax to income tax. Any gain you make on the sale of an asset is added to your income for the financial year and taxed at your relevant marginal rate. This can increase the amount of income tax you need to pay when you lodge your tax return.
Any losses you make on the sale of assets can’t be used to reduce your overall assessable income, however, they can be applied to reduce/offset other capital gains.
You are deemed to make a capital gain/loss on the date at which you enter into a contract to dispose of the asset, not the date at which the asset is transferred/settled. This is important, as it can impact the tax return period that you need to record the gain/loss.
What is a capital asset for income tax return and CGT purposes?
Any asset you have acquired since CGT began on 20 September 1985 is subject to CGT when you sell it unless the asset is specifically exempt.
Some exempt assets include:
- Most personal assets including your home, car, and personal use assets like furniture.
- Depreciable assets that are used solely for a taxable purpose, such as business equipment, and fitting in a rental property.
You can read more about exempt CGT assets here.
What’s the difference between a capital gain and a capital loss?
- If you sell an asset at a price that is more than you originally paid to acquire it, then you have made a capital gain.
- If you sell an asset at a price that is less than you originally paid to acquire it, then you have made a capital loss.
How do I account for capital gains on the Airtax tax return?
You only need to record a capital gains transaction if you sold the asset during the financial year you are lodging. If no assets were sold during the year, you can skip past the above Capital Gains section.
As you enter information relating to the assets you have sold during the financial year, you will notice the “Capital Gain/Loss” field will be updated live for you based on the purchase and sale information you list. There’s no need for you to work out this gain/loss yourself!
- The cost of purchase is the total amount you initially paid for the asset, including any costs incurred in buying and selling the asset.
- The proceeds of sale represents the total amount you received from the sale of your asset
I’m stuck and need help with capital gains, what can I do?
Given no tax is withheld from CGT events during the financial year, this source of income can substantially increase the amount of tax you need to pay. CGT can quickly become an overwhelming tax issue depending on your situation, and it’s critically important that you get this information correct so you can avoid an inaccurate income tax bill. Many people tell us that they want to use an accountant to do their personal tax return, but don’t realise that through Airtax they have access to lots of accountants. We want to make sure you have the choice on how you complete your return. You have the option of completing yourself, or purchasing one of our phone support calls where you can speak to one of our PwC accountants about your tax return.
- Tax Assist: if you have particular questions about the capital gains section of your return, this 30 minute phone call might suit you. $179 includes a 30 minute phone call and one free income tax return lodgement.
- Tax Professional: our most comprehensive income tax return support service. If you need a detailed walkthrough of an entire tax return with a dedicated accountant, from start to finish, Tax Professional is perfect for you. $349 gets you maximal support, including a follow-up phone call where necessary, and includes a free income tax return.
Feedback from our users suggests that Airtax phone support is a great way to get peace of mind knowing that you’re lodging correctly, and can help you find any deductions you may not have known you could claim.
What you’ve learned:
- What capital gains is, for the purposes of income tax returns
- What a capital asset is
- The difference between a capital gain and a capital loss
- How to record CGT transactions on the Airtax tax return
- How to get help when CGT gets complex