Capital gains
Net capital gain
The net capital gain is the amount left after applying capital losses and any CGT discount to your total capital gains for the year, and it is added to your assessable income.
Your net capital gain is the figure that actually affects your income tax. It is the end result of working through all the capital gains and capital losses for the income year, then applying any discount and concessions. That final figure is included in your assessable income and taxed at your normal marginal rates, or at the company rate if you are a company.
The calculation follows a set sequence. First, work out each capital gain and each capital loss for the year. Add all the gains together, giving total capital gains. Then subtract current year capital losses, and any net capital losses carried forward from earlier years. If a positive amount remains, you may apply the CGT discount, which is 50% for individuals and trusts that held the assets for 12 months or longer.
After the discount, any small business CGT concessions that you are eligible for are applied. The active asset reduction comes first, followed by the retirement exemption and rollover where chosen. The amount left after all this is the net capital gain. If total losses exceed total gains, there is no net capital gain, and the unused amount is a net capital loss carried forward.
A net capital loss cannot be claimed against salary or business income. It stays in the CGT system and waits for future gains. This is one of the main differences between capital losses and ordinary tax losses from a business. Make sure the loss is reported in your tax return each year so the ATO has a record of it.
The net capital gain is reported on your tax return, in the capital gains section, and it can affect other items. It forms part of your taxable income, so it can push you into a higher marginal rate and may influence your Medicare levy surcharge position and other income-tested amounts. For that reason timing sales across different income years can sometimes matter.
GST on the sale of an asset sits outside this calculation and is accounted for on your BAS. Keep schedules showing each asset, the date, the proceeds and the cost base. This is general information only, so confirm the correct calculation for your circumstances with the ATO or a registered tax professional.
Worked example
In one income year, Jo makes capital gains of $30,000 on shares held over 12 months and $10,000 on a second asset held over 12 months, a total of $40,000. She has a $6,000 capital loss from this year. $40,000 - $6,000 = $34,000. After the 50% discount, her net capital gain is $17,000, which is added to her other assessable income.
Practical tips
- Apply losses first and the discount second, then any small business concessions, to reach the correct figure.
- Report net capital losses in your return so they are carried forward, even if you have no gain this year.
- Remember the net capital gain adds to taxable income, so it may affect your marginal tax rate and income-tested items.