ATO crackdown on capital gains tax: Here’s what you need to know

Various concessions and exemptions can help to reduce your capital gains tax. (Source: Getty) (Samantha Menzies)

This tax time, the Australian Taxation Office (ATO) plans to focus on capital gains tax (CGT), with particular attention on taxpayers failing to record taxable disposals or under-declaring proceeds from sales.

And it's not just property and cryptocurrency the ATO has in its sights. It will also look at share sales and managed investment transactions.

Also by Mark Chapman:

• Tax and your holiday home: Look out for these ATO traps

• 5 tax myths debunked: What’s true and what’s false

• Tax refunds to shrink: Here’s why and what to do about it

What is CGT?

CGT comes into effect when you dispose of assets. It's calculated based on the difference between the amount you paid for the asset and the amount you received when disposing of it.

Any profit is subject to CGT, which can potentially be discounted by 50 per cent if you hold the asset for more than 12 months.

How is CGT calculated?

Your capital gain is calculated like this:

• Deduct the cost base from the sale proceeds. The cost base is the price you paid for the asset (for example, cryptocurrency) plus incidental costs

• Deduct any capital losses you have

• Discount the gain. Individuals are entitled to a 50 per cent discount. The asset must have been held for 12 months or more for the discount to be available

• The result is your net capital gain, which is subject to tax at your marginal rate

To ensure you are meeting your obligations and paying the right amount of tax, you need to calculate a capital gain or capital loss for each asset you dispose of, unless an exemption applies.

CGT exemptions, concessions and discounts

The main CGT exemption is in relation to your main residence. However, if you have used your home to produce income, such as renting out all or part of it through the sharing economy - for example, Airbnb or Stayz - or running a business from home, you could still find that CGT applies to the part of the property that was used to earn income.

It is vitally important that you keep records of the income-producing period and the portion of the property used to produce income to calculate your capital gain.

Another exemption could apply in relation to any business assets you have sold. The small business CGT concessions are available to reduce or, in some cases, eliminate capital gains arising where small businesses or people dispose of their business or part of it.

There are four CGT concessions that may apply to the disposal of a small business:

• The 15-year exemption

• The 50 per cent reduction

• The retirement exemption

• Rollover of the gain

Broadly speaking, the concessions are available provided you run a small business (which for these purposes is one with a turnover of less than $2 million) and the assets being sold are active assets, which refers to assets that are used in a business.

Shares in a private company can also be active assets if the underlying business of the company is trading in nature, rather than investment driven.

Also, the general 50 per cent discount is available against most capital gains arising from the sale of assets, including shares, property and business assets. You will be eligible for this discount – in effect halving the rate of tax – if you have owned the asset for more than 12 months.

The main features of the discount are as follows:

1. The discount is available to individuals, trusts, partnerships and complying superannuation funds but not to companies

2. The rate of the discount is 50 per cent for individuals, trusts and partnerships and 33.3 per cent for superannuation funds

Prepare for CGT scrutiny

Don’t fall into the trap of thinking the ATO won’t notice if you sell an asset for a gain and don’t declare it. However, do be aware of the various concessions and exemptions that can reduce your gain.

It’s always worth talking to a tax agent if you think you are liable for CGT. They will make sure your tax return is correct, complete and that all transactions have been properly disclosed. They will also make sure you claim any discounts, concessions or exemptions available to you.

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