Capital Gains Tax Rate

Because the Capital Gains Tax is not a separate tax, there is no capital gains tax “rate as such. The same income tax rates apply to ordinary income and net capital gains income.

However there are a number of capital gains tax exemptions, concessions and discounts which reduce the taxable amount of capital profits, and therefore dilute the tax which applies. The effective tax rate is therefore often lower than the tax would otherwise be paid on the whole amount of the gain.

A simple example: Assume a taxable capital gain of $10,000 is made on the sale of shares, and there are no offsetting losses or concessions available, other than the general discount of 50%

A taxpayer who has a taxable income of, say $90,000, will have a top marginal tax rate of 37% before medicare levy. Including $10,000 capital gain in income will cost $3,700; the tax rate on the capital gain is 37%.

However if the general 50% discount is deducted, the taxpayer only declares $5,000 capital gains income, tax on which at 37% is $1,850. The tax rate on the capital gain of $10,000 has thus “fallen” to 18.5%.

Note: Some capital gains tax exemptions apply simply because the transactions are taxed under some other section of the tax act, and are therefore not necessarily tax free.

Capital gains tax reductions, exclusions and concessions include:

  • Assets acquired before 20 September 1985 are not subject to CGT (unless a subsequent action or event brings them into the net)
  • The small business CGT concessions:
    • the small business 15 year exemption
    • small business 50% discount
    • small business retirement exemption
    • small business rollover
    • general exemptions under Subdivision 118-A ITAA 1997 include:
    • Cars, motor cycles and valour decorations
    • Collectables and personal use assets
    • Assets used to produce exempt income etc.
    • Shares in a PDF
    • Reducing capital gains if amount otherwise assessable
    • Carried interests
    • Superannuation lump sums and employment termination payments
    • Depreciating assets
    • Trading stock
    • Division 230 (TOFA) and Subdivision 250-E (deemed loan) financial arrangements
    • Film copyright
    • R&D
    • Compensation, damages etc.
    • Expiry of a lease
    • Transfer of stratum units
    • Sale of rights to mine
    • Foreign currency hedging gains and losses
    • Certain gifts
    • Later distributions of personal services income
    • Transactions by exempt entities
    • Marriage or relationship breakdown settlements
    • Reduction of boat capital gain
    • Special disability trusts
  • main residence exemption: a dwelling owned and normally occupied as a taxpayer’s main residence is generally not subject to CGT
  • asset rollovers – which have the effect of transferring a capital gain from one asset to another, achieving a delay or removal of any CGT liability, or preserving the pre-CGT exempt status. There are rollover reliefs available for:
    • replacement assets:
      • involuntary disposals
      • statutory licenses
      • strata title conversions
      • exchanges of shares, units, rights or options
      • exchange of shares between two companies
      • exchange of units in a unit trust for shares in a company
      • conversion to a corporate body
      • crown leases
      • prospecting and mining entitlements
      • depreciating assets
      • scrip for scrip
      • disposal of fixed assets by a trust to a company
      • Australian property trusts and stapled securities
  • demergers
  • same asset rollovers
    • marriage breakdown
    • companies within the same wholly-owned group
    • changes to superannuation fund trust deeds
    • small superannuation funds
    • demutualisation
  • small business rollovers
  • business reorganisations

 

 

This page was last modified on 14 July 2015