Capital gains at end of financial year

Timing and planning are everything when it comes to minimising your CGT bill and making the most out of your investment returns.

Capital gains tax (CGT) is incurred when a taxpayer disposes of an asset, for example, commercial and residential property, shares, units in unit trusts or collectables. Where such an asset is sold at a loss, this loss can be used to offset gains in that financial year or carried forward to a later year.

Here are some strategies to reduce your CGT liability:

Make use of CGT concessions

As detailed in the article above, there are a number of CGT concessions that are available to small businesses. These concessions can be extremely effective in reducing your CGT bill, and, in some circumstances, may even reduce it to nil.

CGT concessions claimed are generally required to be disclosed in your income tax return for the year of the disposal and as such, your eligibility for the concession may be queried by the ATO. It is important to confirm your eligibility for these concessions before claiming them in your return.

Dispose of poorly performing assets before the end of financial year

In years where you have incurred a significant capital gain, you may care to consider disposing of another asset that will yield a capital loss.

In the event that an underperforming asset will not have a positive turn around, disposing of it before the end of financial year will allow you to use the capital loss to offset your tax liability from any capital gains.

Defer disposal to a lower-income year

Instead of disposing of an asset that you expect to make a capital gain on this year, you may care to consider postponing the disposal if you expect to have a lower taxable income next year. For example, you may be planning to take some unpaid leave or have disposed of multiple assets in the current year.

Plan for CGT events in advance

If you are planning on making any new investments or disposing of assets, it always pays to plan your CGT strategy in advance. Careless timing can cost you a huge amount on your tax bill.

Carry forward your capital losses

You can carry forward capital losses from previous years to offset capital gains in the current year. The real offset value of capital losses diminishes over time, so if you have incurred a significant capital loss you may consider bringing forward the sale of an asset in respect of which you expect to derive a capital gain.