Capital Gains Tax (CGT) is the tax imposed on the profits you earn from selling or disposing of certain assets, including investments like properties, stocks, and cryptocurrencies. Although commonly referred to as "capital gains tax," it is actually part of your overall income tax rather than a separate tax category.
When you dispose of an asset—typically when you cease to own it—a CGT event may occur. This event necessitates that you report any capital gains or losses on your tax return.
Dealing with Capital Gains and Losses
If you experience a capital gain, your tax liability will increase. It is advisable to calculate the amount of tax you will owe and set aside the necessary funds to cover it.
Conversely, if you incur a capital loss, you can use it to offset any capital gains in the same year or in future years, thereby reducing your tax liability. It is crucial to report these losses on your tax return.
Example: Calculating CGT
Consider the case of Maree, who purchases shares for $5,000. After holding the shares for six months, she sells them for $5,500, with no other capital gains or losses to report. Maree declares a capital gain of $500 on her tax return and will be taxed on this gain according to her individual income tax rate.
