Back
~
2
min read
· Posted on
September 10, 2021

What’s capital gains tax?

When you make money on a share trade or other investments, you often speak about your #gains. But with #gains comes #taxes.

What's the key learning?

  • Capital gains tax is the tax you have to pay on any money you’ve made from selling an asset, like shares, crypto and even an investment property
  • You do this by reporting your gain to the tax office at tax time
  • It forms part of your income tax, which means the money you profit gets added to your income, and you pay tax at your individual tax rate on the total. 

When you make money on a share trade or other investments, you often speak about your #gains.

But what you forget to mention is the capital gains tax.

Capital gains tax is the tax you have to pay on any money you’ve made from selling an asset, like shares, crypto and even an investment property.

Pay tax on gains?

Yep, that’s right. But let’s back it up a sec.  

If you sell an asset for:

  • More than it cost you - this is a capital gain
  • Less than it cost you - this is a capital loss

You only pay tax on your net capital gains, which is:

  • Your total capital gain
  • Minus your capital loss
  • Less any discount you’re entitled to on your gains.

And you do this by reporting your gain to the tax office at tax time.

While it’s called CGT, it actually just forms part of your income tax. Which means the money you profit gets added to your income, and you pay tax at your individual tax rate on the total. 

Example 1 - CGT

You buy $5,000 worth of shares. You own those shares for 6 months, and then sell them for $5,500.

This means you’ve made a net gain of $500.

When you do your tax return, you declare a capital gain of $500. 

If your salary is $60,000, the $500 becomes part of your income, and you pay tax on $60,500 at your individual income tax rate. 

Example 2 - CGT discount

You buy a block of land for $500,000 as an investment (I know, I know, not realistic but just an example). 

You decide not to build on the land, and sell it for $600,000 two years later, which means you’ve made a capital gain of $100,000 on your investment property. 

Since you’ve held the property for more than 12 months, you’re entitled to a 50% CGT discount, which means you only need to declare a capital gain of $50,000 on your tax return.

If your salary is $70,000, you’ll be taxed on $120,000 at your individual tax rate.


Ready to win at money?

Sign up for Flux and join 100,000 members of the Flux family

A button to App StoreGoogle Play store button
Excellent  4.9 out of 5
Star rating