How the Australian capital gains tax affects you

Australia taxes its residents on all income worldwide, and non-residents are taxed on income that is Australian based. Tax is applicable to any capital gain that is made and declared as income.

What exactly is a capital gains tax?

Capital gains tax is the tax that you must pay on any capital gain that is documented and declared on your income tax forms.

The net capital gain is derived from a formula that takes your capital gains and subtracts your capital losses. This particular formula also allows for the subtraction of any net capital losses that you acquired from years prior to this particular tax year.

You are also entitled to further subtract any particular capital gains tax concessions or discounts which may apply. These last two deductions are generally for a small business to consider. Because your net capital gains are declared in your annual income and are considered for all purposes as part of your taxable income, the capital gains tax is a part of the taxing process itself — not some separate and distinct tax class.

Assets that may have been acquired before 20 September, 1985, are not usually taxable under the present capital gains tax law. Residents of Australia will be taxed on any worldwide assets to which the capital gains tax law may apply. Non-residents are only held accountable to this taxation if their assets have a particular tie to Australia, such as Australian land or businesses.

A capital gains tax is implemented on the difference in the selling price and the base cost. The most important exemption from this taxation is an Australian resident's home residence. If the family home is sold, it is fairly exempt from any capital gains taxation and is only accountable for capital gains tax in the event that there was a portion of time where the homeowner was not in residence, such as a period of tenant occupancy and there were income monies collected. The monies collected, depending on losses, could be construed as a gain and would then be accountable under the capital gains tax auspices.

When you look at the capital gains tax, do remember that this can mean a huge taxation, so any exemption can be a blessing and there are other blessings to be had, such as deferred interest or zero interest bonds.

Due to capital gains taxation Australians can actually experience a 30% automatic loss in investments, so the government is attempting to overhaul many of these laws. They are making it possible for non-residents to be completely exempt from the capital gains tax. This may possibly open the door for those trying to seek a non-resident status in order to take advantage of this tax break.