Capital Gains Tax
One of the most generous features of the capital gains tax (CGT) regime – which may apply to the disposal of assets such as property, shares, rights and options, foreign currency, goodwill in a business, units in a unit trust, certain personal use assets such as boats – is the CGT general discount. It can reduce your CGT liability by up to 50% if applicable.
Eligible taxpayers include individuals, superannuation funds and trusts (depending on the beneficiary’s eligibility). The most notable omission is companies – they do not qualify for the 50% discount. The discount’s unavailability should be considered when contemplating whether to hold CGT assets with a company structure.
Having established the structure’s eligibility, the entity must have held the asset for at least 12 months before the CGT event (ie. the sale) to qualify for the discount. Interestingly, the ATO takes the view in Taxation Determination TD 2002/10 that the day of acquiring and selling the asset must be excluded from the 12 month holding period.
For this reason, if you are nearing the 12 month holding period, you may wish to delay the asset’s sale to quality for the required 12 month period. By doing so, you can dramatically reduce your CGT liability.
As well as companies, non-residents are also now ineligible for the CGT discount. Foreign and temporary resident individuals, including beneficiaries of trusts and partners in a partnership:
- Are subject to CGT on taxable Australian property.
- Are not entitled to the 50% capital gains tax (CGT) discount for assets acquired after 8 May 2012.
If the CGT asset was purchased after 8 May 2012, and you remain a foreign or temporary resident for the entirety of ownership, you are not entitled to any CGT discount when you sell the asset.
