Capital Gains Tax and Property Settlements

Capital Gains Tax

Capital Gains are ...

the profit or loss you make if you sell an asset, such as real estate or shares. The amount of Capital Gain or Loss is the difference between what it cost you to acquire the asset and what you receive when you dispose of it less any cost associated with maintaining it.

What is Capital Gains Tax?

Capital Gains Tax is a tax you pay on the capital gain you make when you sell an asset that is subject to Capital Gains Tax. You need to report capital gains and losses in your income tax return and pay tax on your capital gains. Although it’s referred to as capital gains tax (CGT), this is actually part of your income tax, not a separate tax.

What about if I have a Capital Loss? Can I claim it against my other income?

No. Capital gains are added to your income and your tax is assessed on whatever the tax rate is for you based on your wage earnings + other earnings + (capital gains – any capital losses). You can’t claim capital losses if there are no capital gains. Talk to your accountant, this is general information not financial advice and rules may change without us updating this post.

Does it apply to everything I sell?

Capital Gains Tax was introduced on 20 September 1985. If you bought the asset before that there may be an exemption.  Find out more about exempt assets such as your family home, personal items and so on.

https://www.ato.gov.au/General/Capital-gains-tax/CGT-assets-and-exemptions/

What about if we transfer property in our Property Settlement?

In your property settlement you may transfer property that would normally result in a capital gains event such as an investment property, shares or other non-exempt asset.  Rather than paying the Capital Gains Tax in your tax return in the year of the transfer you may roll over the tax obligation until the asset is sold again.
 

Generally the rollover applies if:

  • ownership of an asset, or a share in a jointly-owned asset, is
    transferred between you and your spouse, or from a company or trust to
    one of you
  • the transfer of ownership is because of a court order, formal agreement such as a binding financial agreement or award.

You can’t choose whether or not the rollover applies.

The person who receives the asset will have to pay the tax eventually not the person who transferred it.

Find out more about this on the Australian Tax Office Website.

https://www.ato.gov.au/general/capital-gains-tax/relationship-breakdown/

It’s Complicated!

We strongly recommend that you work with a competent tax accountant.

Your lawyer can’t provide financial advice in the detail needed to understand the tax consequences of Capital Gains Tax Asset. 

This article on the ATO website explains it. If you don’t understand it sufficiently to confidently work out what the Capital Gains Tax consequences of a transfer are you should see an accountant to get their assistance.
 
 

Your FDR Practitioner can’t calculate the Capital Gains Tax Implications for you.

Family Dispute Resolution Practitioners may alert you to the potential of a capital gains tax but you need to go to an accountant with information to help them to work out the implications. They will need to know the following:

  • When did you buy the asset?
  • How much did you pay for it?
  • What have you spent on the asset since then?
  • What is the value of the asset at the time of transfer?
  • What is your tax rate in the year of the transfer?
  • There may be other information your accountant needs. This is not financial advice.
 
 

Family Dispute Resolution

Additional Resources

Selling the asset? Find out more in the ATO Guide to Capital Gains 2020. 

https://www.ato.gov.au/Forms/Guide-to-capital-gains-tax-2020/

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