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How To Calculate CGT: Everything You Need to Know

CGT can add up to quite a lot of money when you sell a property or asset. This is why it is so important to calculate it in the right way. Take a look at our guide and do just that.

How to Calculate CGT: Everything You Need to Know

Capital Gains Tax can appear confusing, but it doesn’t have to be. Basically, any asset you invest in and then sell, including active assets you use in the day-to-day running of your business, will be taxed. There are some CGT exemptions, however, including:

  • Most main residence properties
  • Personal use motor vehicles
  • Any asset that is depreciating in value – for example, business equipment
  • Assets acquired before the implementation of CGT in September 1985

However, capital gained from the sale of all other assets will be taxed according to CGT rates. Read on to learn more about how to calculate this.

Understanding Your Net Capital Gain

To begin with, you will need to identify two important figures:

The cost base: Basically, this is the total amount you paid to acquire the property.

The sale amount: This is the total value you received from this sale.

To work out the cost base, simply add together the price you paid for the property, plus any fees you might have paid during the transaction. This might include solicitor’s fees and stamp duty.

To work out the sale amount, begin with the full price you received for the property. Then, subtract any fees you had to bear during this transaction. This might include solicitor’s fees and agent commission.

Simply subtract the cost base from the capital proceeds to be left with your net capital gain.

Defining CGT from Net Capital Gain

If any of the following situations are true, you must pay CGT on the total value of your net capital gain:

  1. The CGT event does not involve the sale of an asset.
  2. The CGT event involves the sale of an asset you have owned for less than 12 months.
  3. The CGT event involves the sale of an asset you have owned for less than 12 months, and:
    • You acquired the asset as a legal representative of the estate of a deceased person.
    • The deceased person acquired the asset before 20 September 1985.
    • You sold the asset within 12 months of the deceased persons’ death.

(In the event that the deceased person acquired the property in any tax year after 20 September 1985, you must pay CGT on the total net capital gain if you sold the asset within 12 months of the deceased person acquiring it.)

  1. The CGT event involves the sale of an asset you have owned for less than 12 months, and:
  • You acquired the asset as the result of the breakdown of a relationship.

CGT Indexation and Discount Methods

If the above criteria do not apply to you, you may be able to choose either the indexation or the discount method to work out your taxable gain.

Indexation method

To find your index value, visit the ATO website and look up the following:

  1. The CPI value for the month in which your contract began
  2. The CPI value for the month in which you made a payment (for example, stamp duty payment and house deposit)

Divide the second value by the first value to receive your index value.

Multiply all the payment components by their individual index.

Add these values together to arrive at the revised cost base. You can use this to find your net capital gain or capital loss.

Discount method

You may instead decide to use the discount method (if you are eligible). 

Find your net capital gain, and then visit the ATO website to find out which discounts apply to you. Applicants must first apply all capital losses for this tax year, as well as any capital losses from previous years that are yet to be applied.

A professional accounting service can make CGT much easier to manage for you and your business. Reach out to our team today to find out how we can help you.

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