Preparation is critical to minimising your capital gains tax at the end of the financial year.
Capital gains tax (CGT) is the tax you pay on any capital gain made when you sell or otherwise dispose of an asset. CGT forms part of an individual’s income tax; it is not a separate tax.
Some examples of a CGT event include selling or giving away an asset, the loss or destruction of an asset, shares which are cancelled, surrendered or redeemed worthless, and so on.
Here are five strategies to help minimise your CGT bill:
Utilise the small business CGT concessions
Small business entities may be eligible to use a number of CGT concessions, in addition to other CGT exemptions, roll-overs and concessions which are available more widely. Small businesses can apply as many concessions as they are entitled to until the capital gain is reduced to nil.
Hold an asset for at least 12 months
Individuals and small businesses (excluding companies) can generally discount a capital gain by 50 per cent if they hold the asset for more than 12 months.
Offset a capital loss against a capital gain
Selling poor performing assets that will yield a capital loss before 30 June allows individuals to use the capital loss to offset their tax liability from any capital gains realised this financial year.
Defer asset sales
If you expect to make a capital gain on the disposal of an asset, consider deferring the sale until after 30 June. This strategy is particularly beneficial for those who expect to be earning a lower taxable income in the next financial year, for example, individuals who plan to retire or take unpaid leave.
Carry forward capital losses
Capital losses from previous years can be carried forward to offset capital gains in the current financial year, thereby reducing CGT liability.