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It's about time to think about Capital Gains Tax

June 30 is just five months away - a good time to think about capital gains tax.

It's the friendliest tax you can pay because it is not triggered until you dispose of the asset, and this may be many years after you acquired it. Furthermore, if you have owned it for over 12 months, the capital gains tax is reduced by 50%.

There is no separate rate of capital gains tax - it is calculated by simply adding the gain to your taxable income in the year the transaction takes place, after adjustment for items such as cost, improvements and the 50% discount. Therefore, it can be a good strategy to defer the triggering a capital gain until a year when you have a low taxable income.

Keep in mind the relevant dates are the contract dates - not the settlement dates. If you sign a sales contract on 28 June 2014 for settlement in July 2014 the gain would be deemed to have occurred in June.

If you would prefer to push the sale into the next financial year it may be worthwhile trying to avoid signing a contract until after June 30. Of course, this strategy opens you to the risk of losing the buyer.

Tax on a capital gain cannot be deferred past June 30, but capital losses can be carried forward indefinitely. This is why it may be appropriate to sell loss-making assets in a year when you have a taxable capital gain, as the capital losses will offset the capital gain.

Next week I'll discuss how it may be possible to use superannuation to reduce or eliminate a capital gain..

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.
 

Topics:  noel whittaker opinion tax



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