Capital gains tax (CGT) is a tax that applies to the increase in value of an asset that you own or have disposed of. CGT is part of your income tax, not a separate tax. In Australia, CGT applies to assets such as property, shares, cryptocurrency, collectibles, and business assets.

However, there are certain exemptions and concessions that may be available to individuals and businesses, which can reduce or eliminate the amount of CGT that is payable. These capital gain exemptions can include any CGT discount, the 6-year CGT rule, CGT on a principal place of residence, and CGT on certain business sales.

Some of the main CGT exemptions in Australia are:

• Pre-CGT assets: Assets you acquired before 20 September 1985 are exempt from CGT2. This means you do not have to pay any tax on the capital gain or loss you make when you sell or dispose of them. However, any property improvements or additions you make after that date may be subject to CGT.

• Personal use assets: A capital gain on a personal use asset is subject to CGT if it cost you more than $10,000 to acquire the asset. Capital losses on personal use assets are ignored. This means you cannot use a capital loss on a personal use asset to reduce capital gains on other assets. Personal use assets are CGT assets that you keep for your personal use or enjoyment. They include boats, furniture, electrical goods, household items, and cars.

• Your main residence: Your main residence (your home) is generally exempt from CGT. However, CGT may apply if you rent out part of it, you use it for business, it is on more than 2 hectares of land, or you are a foreign resident and you do not satisfy the requirements of the life events test at the time the ‘CGT event’ happens2. The life events test allows you to access the main residence exemption if you sell your home within six years of moving out due to certain circumstances, such as death, divorce, terminal illness, or disability.

• Granny flats: The CGT exemption for the main residence has been extended to include granny flats. A granny flat is a separate, self-contained living area that is located on the same property as the main residence. The exemption applies if you enter into a formal written agreement with a relative or a person with a disability to provide them with accommodation in the granny flat, and you or the other person do not pay or receive any rent or consideration for the use of the granny flat.

• CGT discount: The CGT discount allows you to reduce your capital gain by a certain percentage, depending on your entity type and the length of ownership. You can only use this  method for assets acquired on or after 11:45 am AEST on 21 September 1999, and owned for 12 months or more2. The CGT discount percentage for individuals and trusts is 50%, and for complying superannuation funds is 33.33%. The CGT discount percentage for individuals and trusts has increased from 50% to 60% for assets that are held for more than 3 years and support affordable housing.  Affordable housing is housing that is provided to low to moderate income earners at a rent below the market rate. To qualify for the increased discount, you  must have a certificate from the National Housing Finance and Investment Corporation (NHFIC) that confirms the eligibility of the dwelling and the tenant13.

• 6-year CGT rule: The 6-year CGT rule allows you to treat a property as your main residence even if you are not living in it, as long as you do not treat any other property as your main residence during that period. This means you can rent out your property for up to six years and still claim the full CGT exemption when you sell it, as long as you lived in it as your main residence for at least 12 months before you moved out.

• Small business CGT concessions: There are four small business CGT concessions that may apply to you if you sell an active asset that is used in your business, or if you own shares or units in a company or trust that runs a business. These concessions are: the 15-year exemption, the 50% active asset reduction, the retirement  exemption, and the rollover concession. These concessions can reduce or eliminate your capital gain, and may also provide you with CGT exemptions or rollovers for your superannuation2 .

If you have any questions or concerns about your capital gains tax obligations, or you need assistance with planning, reporting, or reducing your tax liability, do not hesitate to contact us at Daniel Jude Lawyers. We are a team of experienced and qualified tax lawyers who can provide you with expert advice and representation on all aspects of CGT law in Australia. Whether you are an individual, a business owner, or an investor, we can help you achieve the best possible outcome for your situation. Call us today on 02 92313433 or email us on dj@danieljude.com.au to book a free consultation. Don’t let CGT stress you out - let us handle it for you. 

Disclaimer: The information contained in this article is for general information purposes only and does not constitute legal, accounting, financial, or investment advice. The article is based on the current laws and regulations in Australia as of the date of publication, and may not reflect the most recent changes or developments. The article is not intended to provide specific guidance or recommendations for any individual or situation. You should not rely on the information in this article as a substitute for professional advice from a qualified lawyer, accountant, financial planner, or investment adviser. Daniel Jude Lawyers disclaims any liability for any errors or omissions, or any loss or damage arising from the use of or reliance on the information in this article.