What is capital gains tax and what rate of tax do you pay?
Some terms in this section may be new to you. These words are explained in Definitions.
While we have used the word 'bought' rather than 'acquired' in some of our examples, you may have acquired your shares or units without paying for them (for example, as a gift or through an inheritance or through the demutualisation of an insurance company such as AMP, IOOF or NRMA, or a demerger such as the demerger of BHP Steel Ltd (now known as BlueScope) from BHP Billiton Limited). If you acquired shares or units in any of these ways, you may be subject to capital gains tax (CGT) when you sell them or another CGT event happens.
Similarly, we sometimes refer to 'selling' shares or units although you may have disposed of them in some other way (for example, giving them away or transferring them to someone else). All of these disposals are CGT events.
CGT is the tax you pay on any capital gain that you include on your annual income tax return. It is not a separate tax, merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate.
Your net capital gain is:
- your total capital gains for the year
- any CGT discount and small business CGT concessions to which you are entitled.
If your total capital losses for the year are more than your total capital gains, the difference is your net capital loss for the year. It can be carried forward to later income years to be deducted from future capital gains. (You cannot deduct capital losses or a net capital loss from your income). There is no time limit on how long you can carry forward a net capital loss. You apply your net capital losses in the order that you made them. More information on how to apply your capital losses is in step 8 of Part B Sale of shares or units, and step 4 of Part C Distributions from managed funds.
You make a capital gain or a capital loss if a CGT event happens. The disposal of an asset is an example of a CGT event. You can also make a capital gain if a managed fund or other trust distributes a capital gain to you.
You show the total of your current year capital gains at H item 17 on your Tax return for individuals (supplementary section) 2006, or at H item 9 if you use Tax return for retirees 2006. (Note: You cannot use the tax return for retirees if you had a distribution from a managed fund during the year.) You show your net capital gain at A item 17 on your tax return (supplementary section), or at A item 9 if you use the tax return for retirees.
This guide only covers capital gains or capital losses from CGT assets that are shares, units or other interests in managed funds.