Capital Gains Tax Australia

The Australian taxation system uses the Capital Gains Tax (CGT) in the context that it applies to any capital gain made on disposal of any asset, except for assets that fall under specific exemptions such as the family home. Some disposals have rollover provisions that apply to them, one of the most significant being the transfer of assets to beneficiaries upon death. This makes the CGT not a quasi death duty.

A net gain is treated as taxable income in the tax year if an asset is either sold or otherwise disposed of. If a taxpayer is able to hold on to an asset for a year or more, than any gain is discounted by 50% for individual taxpayers or if it's a superannuation fund, the discount is 33.3%. Net losses may be carried forward but cannot be offset against income.

Taxpayers are effectively stopped from using their investment earnings to subsidize their hobbies since personal use assets and collectables are considered to be in separate categories and losses on those are quarantined so they can only be used against gains in the same category.

Capital gain taxes are fairly new in Australia, having only been introduced in September of 1985 as part of the tax reforms put into effect by the Hawke/Keating government. The rules initially called for the cost of assets held for one year to be indexed by the consumer price index before calculating a gain. This was to allow for prices that rose due to inflation only to not fall under taxation.

In the beginning, an averaging process was used to calculate the tax on gains such as 20% of a taxpayers net capital gain was included as income with the amount of extra tax it caused to be multiplied by five. The theory was to allow the tax brackets to be stretched out instead of pushing the taxpayer into a higher bracket without following the existing marginal rate.

By September of 1999, the indexing of the cost base was terminated and the present 50% discount of the plain gain above the cost base was enacted. The same year saw small business owners get CGT concessions such as reducing tax when owners retired and allowing a rollover when one active asset was sold to buy another.

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