Investing is a key part of any wealth building strategy, and it’s important to know the tax implications for any gains or losses you make.

We all invest in shares through our super and many of us invest in property in the hopes that our investment will increase in value over time.

When it’s time to sell the asset and reap the rewards of our investment, the profit made is subject to tax.

What is capital gains tax?

Capital gains tax (CGT) is the tax you need to pay when you make a profit from the sale of an asset, such as property or shares.

You report your capital gains and losses on your tax return, so CGT is part of your income tax rather than a separate tax.

When is capital gains tax applied?

Tax is applied to any capital gains each year on your individual tax return.

This means in the financial year that you have a capital gain, such as selling an investment property, then the tax you need to pay will increase.

For example, if you sell shares and make a $1000 profit, then you will pay tax on this gain ($1000) at your individual income tax rate. your individual income tax rate. For gains accruing after 1 July 2027 the tax paid will be at a minimum of 30% unless you are currently receiving any means-tested government support payments such as the Age Pension or JobSeeker.

Importantly, any assets which were held before 20 September 1985 are not assessable for CGT purposes on any gains occurring prior to 1 July 2027, however are assessable on gains accruing after that date.

How do I calculate my capital gains tax?

You pay tax on your net capital gains, which is your total capital gains less any capital losses and any discount you are entitled to on your gains.

For individuals, the original cost of the asset can be indexed to account for inflation over the period it was held for the purpose of the calculation which reduces the net capital gain assessable. For individuals holding assets which accrue gains prior to 1 July 2027 there is also access to a 50% discount on the gains attributable to prior to that date.

What is considered a CGT event?

A CGT event is usually when you sell an asset subject to capital gains tax.

If there is a contract of sale, then the CGT event happens on the date of the contract and not when you settle.

If there is no contract of sale, such as when you sell shares, then when you stop being the owner of the asset it is considered the CGT event.

A CGT event can also be the loss or destruction of an asset, or the creation of contractual or other rights.

In the event of a loss or the destruction of an asset, the CGT event happens either when you first receive compensation or when the loss/destruction is discovered.

RELATED: Does capital gains tax (CGT) apply for knock-down rebuilds?

What happens if I have a capital loss?

If you sell an asset for less than you paid for it, then you make a capital loss.

You can use this loss to reduce your capital gains in the same financial year.

If your loss exceeds your gains, or you haven’t made any capital gains that year, then you can carry the loss forward and deduct it against capital gains you make in a future year.

How does the capital gains tax relate to superannuation?

Eligible people can exclude some of their personal super contributions from counting towards their non-concessional contributions cap (NCC) by electing for the amounts to count instead towards their super CGT cap.

The amount you contribute must arise from a capital gains event and the election to your fund must be made before or at the same time as you make the contribution.

Your super CGT cap is a lifetime cap, which is indexed every year.

Need tax advice?

Navigating tax, including capital gains tax, can be complex and guidance from a trusted advisor is crucial.

To contact the experts at LDB Group for tax advice, phone (03) 9875 2900 or send us details via the contact form.