Advanced guide to capital gains tax concessions for small business

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Chapter 1 - About capital gains tax

What is capital gains tax?

Capital gains tax or CGT is the tax you pay on any capital gain that you make and that you include in your annual tax return. There is no separate tax on capital gains, rather, your capital gain is part of your income, and the tax on your capital gain is a component of your income tax. You are taxed on your net capital gain at your marginal tax rate.

Your net capital gain is the difference between your total capital gains for the year and your total capital losses (from your business and other assets), less any relevant CGT discount or concessions. Any net capital gain you make for an income year must be included in your assessable income.

CGT events

A capital gain or capital loss is made when certain events or transactions (called CGT   events) happen. Most CGT   events involve a CGT asset. Some CGT   events, such as the disposal of a CGT asset, happen often and affect many different taxpayers. Other CGT   events are rare and affect only a few taxpayers, for example, those concerned directly with capital proceeds and not involving a CGT asset.

CGT assets

The most common CGT assets are land, buildings, shares in a company and units in a unit trust. Less well-known CGT assets include contractual rights, options, foreign currency, leases, licences and goodwill.

Capital gains and losses

In general, you make a capital gain if you receive an amount from a CGT   event (such as the disposal of a CGT asset) that is more than your total costs associated with that event. You make a capital loss if you receive an amount from a CGT   event that is less than the total costs associated with that event.

In some cases, you are taken to have received the market value of the CGT asset even if you received a different amount or nothing at all, for example, when you give an asset away.

This rule is especially relevant to family succession transactions - for example, where you gift the family farm or other business assets to your children.

You can use a capital loss only to reduce a capital gain, not to reduce other income. You can generally carry forward any unused capital losses to a later income year and apply them against capital gains in that year. Generally, you can disregard any capital gain or loss made on an asset you acquired before 20 September 1985.

ATO references:
NO NAT 3359