An Introduction to Capital Gains Tax in Australia: Analysis

This report offers a concise introduction to Capital Gains Tax (CGT) in Australia, elucidating its core principles and application. It defines CGT as the tax on profits from asset value increases, primarily collected by the Australian Taxation Office (ATO). The report outlines taxable assets, including property, jewellery, and collectables, while also clarifying exemptions for main residences and certain personal assets. It further details the taxation of shares and managed funds, along with the methods for calculating capital gains. The report references relevant sections of the ITAA 1997 and provides a concluding overview of CGT's implications for individuals, including record-keeping requirements. The report also mentions key references like Auerbach and Hassett (2015), Bock and Watzinger (2017), Dimmock et al. (2018), Hemels (2017) and Jacob (2018).

Taxation

INTRODUCTION
Capital gain tax is the tax an individual is required to pay on the profits made from increasing
value of acquired assets between the purchase time and selling time. Property or real estate is
one of those asset types that highly attract this type of tax, which is gathered by the Federal
Government by Australian Taxation Office (ATO). By considering this aspect, an individual
might have to pay CGT, if they earn profit while selling or disposing a personal assets or
belongings for £6,000 or more than this (Auerbach and Hassett, 2015). Possessions which are
taxable are inclusive of jewellery, matching vases, antiques, coins, paintings, stamps, or
chessmen. Capital Gain Tax is not considered as a separated tax, along with this the capital
gain or loss is added in the assessable income of taxpayer and is adhered to the assessable
income of taxpayer.
An engagement ring which costs $5000
A collectable includes an artwork, a coin or medallion, jewellery, an antique or manuscripts,
sheets or books which are rare, that is utilized or kept predominantly for personal satisfaction
or use. Under the Subsection 108-10(2) of the ITAA 1997, it is given that jewellery that is
kept or utilized predominantly for personal satisfaction or use is said to be collectable.
Further, the engagement ring which is valued at $5,000 is considered as collectable,
according to the s 108-10(2), ofITAA97 contains jewellery and ornaments in its meaning
(Jacob, 2018). In accordance with ITAA 97, sec 118-10(1), a capital gain or loss, an
individual makes in a collectable manner is overlooked if the initial part of its base of the cost
is less than $500. As per the ITAA 97, sec 108-10(1), working on the capital gain or loss for a
given income year, wherein capital losses held from collectables can be solely used to
minimize capital gains from collectables
Shares in BHP
Assets which do not reduce in collectable definitions and own use assets are entitled to
capital gain tax, unless and until they are particularly exempted. these assets are inclusive of
the lease, real estate, rights and goodwill. An individual is required to keep records of such
CGT taxes. Any investment generating affirmative returns is subjected and entitled to CGT
(Hemels, 2017). If an individual purchases share at a different price and sell at a different
price, then the difference is stated at capital gain or loss. In a situation where individual gains

more from their shares, than they have actually paid, then they make a capital gain which is
taxable.
The most general type of capital gain for individuals takes place from selling shares or units
or resulting from the share of managed funds. There are three key means of computing capital
gains which are the indexation method, the discount method and the ‘other’ method.
Main residence
In the situation of real estate, the individual is usually needed to pay capital gain tax on the
owned property, but not a primary residence, i.e., where an individual resides for the most of
time. This is inclusive of holiday homes, investment properties and other related owned
properties (Bock and Watzinger 2017). The exemption of the main residence offers an
exemption on capital gain tax wherein a gain is gained on the disposal of residence, and it is
the main residence of an individual during the period of ownership.
The exemption rule of the main residence also offers exemption partially if the residence was
the main dwelling of the individual merely for their ownership period or if it is put in use to
generate assessable income partially that is rental income at the time of ownership period. the
exemption of the main residence is not calculated on the basis of a single factor; the influence
is given to every variable based on personal situations (Dimmock et al., 2018). The duration
of time, an individual resides there, and their purpose of acquiring the residence might also be
relevant to the CGT.
On the other hand, the home might be exempted if it's an individual’s main residence
according to Subdiv 118-B. It is extremely significant to maintain records of the real estate,
inclusive of own home, in a situation on a future basis, if an individual decides to rent it out
or run a home business on that residence.
CONCLUSION
In accordance with the Australian Taxation Office, most of the individual assets are exempted
from the capital gain tax, inclusive of home, vehicle, and other personal assets like furniture.
CGT is not applicable to depreciation based assets used only for taxable purposes like
business equipment etc.

REFERENCES
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. American
Economic Review, 105(5), pp.38-42.
Bock, C. and Watzinger, M., 2017. The Capital Gains Tax: A Curse but Also a Blessing for
Venture Capital Investment. Journal of Small Business Management. 1(5), pp.3-4.
Dimmock, S.G., Gerken, W.C., Ivković, Z. and Weisbenner, S.J., 2018. Capital gains lock-in
and governance choices. Journal of Financial Economics, 127(1), pp.113-135.
Hemels, S., 2017. Tax Incentives for Museums and Cultural Heritage. In Tax Incentives for
the Creative Industries (pp. 107-135). Springer, Singapore.
Jacob, M., 2018. Tax regimes and capital gains realizations. European Accounting
Review, 27(1), pp.1-21.