In a recent study which was headed by businessman David Murray and entitled the Murray Financial System Inquiry, experts looked back over years of Australian taxation statistics. They investigated whether the last review, written in 1997, was still relevant and if things needed to be improved.
After concluding that much had changed in the financial world since the mid 1990’s – not least a global economic crisis – they recommended the current system of capital gains taxation be reformed, or at least debated by government. They cited the housing market, the differing rules on savings and the process of franking, as key areas of CGT concern, suggesting modifications were now needed to maintain a stable economy.
What Is Capital Gains Tax?
In Australia, when we talk about capital gains tax, we mean the profit you made on a purchase. This could be a property you use as a holiday home or shares you own in a company listed on the ASX. The law states that CGT is applied to these assets assuming they were bought after 20th September 1985, when the government first introduced this new tax on capital gains.
CGT is payable if you choose to sell a particular asset, or even if you give it away to another person. Also, if you are an Australian resident with a foreign real estate portfolio, you are liable to pay CGT on these properties too. If you share ownership of an asset, you and your partner or partners should negotiate the percentage owned by each person, this will save any one individual paying more or less tax than required further down the line.
What Is Excluded?
Not every asset you own will be subject to capital gains tax, your home and your car are the two most prominent exemptions. Similarly, your furniture and any collectible items are not liable for capital gains taxes, if you chose to sell, or give them away.
Small Businesses and CGT
In order to make life easier for smaller businesses, the government has introduced a number of concessions for this group. Primarily, they can benefit from a 50% reduction in their CGT, so long as they have owned the asset in question for at least a year. Smaller companies can also defer the payment of their CGT if they have had a less profitable year, or to spread their costs over a longer period of time.
How Will Non-Residents And Offshore Owners Be Affected By The Recent Changes In CGT Legislation?
Foreign residents and offshore owners, who had a CGT event after the 8th May 2012, must now meet certain criteria in order to qualify for a reduction of 50% in their CGT. Officials will base your tax bill on the date the asset was first owned and your personal residency status. It is a complicated formula, but they have launched a capital gains calculator in order for people to find out where they stand. So if you are affected by the recent changes, it is worth clicking on the link to discover how your CGT liabilities are now placed.
Offshore owners should be aware of strict anti-avoidance laws which the Australian Tax Office is implementing, the department is liaising with more overseas tax agencies than ever before, and so if you have offshore assets or income generated abroad – now is the time to disclose the details.
What Are Capital Gains Tax Valuation Reports?
A capital gains tax valuation report is used to work out the market value of an asset. It can also be used to identify any increases or decreases in value, or provide a retrospective figure, where the valuer will suggest the cost of your asset at a previous point in time.
For What Reason Would I Need a Capital Gains Tax Valuations Report?
CGT valuations occur when a CGT event is about to happen, depending on the asset in question it can be triggered by many factors. Property valuations will be needed if you intend to rent out your home or just one bedroom and if you change its purpose, for example, if you start running a business from home.
If I Do Need A CGT Valuation Report, What Happens?
When you have to get your assets valued for market purposes, it can take up to 48 hours. It is not always easy to ascertain the actual value of an asset immediately, but the methods used by a valuer will be based on its ‘highest and best use’ – meaning they look at the potential of a property, not simply its current state. They may even decide an asset has ‘special value’, in which case market forces could be disregarded.
If you know you have a valuation coming up, it’s a good idea to do some research and get an idea of what to expect on the day.
Author Bio: Rowan Hemsley is a Licensed Valuer and the director of Qwest Valuations, a boutique property valuation and consultancy firm in Perth, Western Australia.