Tax and Structures

Capital gains tax

Timing of gains

The capital gain generally becomes taxable in the year the asset is sold or transferred to a different owner. That is when the capital gain is realised. For capital gains tax purposes, certain assets, such as investment properties, are considered sold when the sale contract is entered into. This is usually when the property exchanges hands rather than at settlement.

When the sale of a property exchanges, contracts are signed and entered into. Settlement is when the property changes hands and the remaining purchase price is paid.

Always make sure you have money available to meet your capital gains tax liability when it falls due. It is important to carefully plan when the asset is sold as the capital gain will be added to the assessable income in that particular financial year. Thus it may be preferable, where possible, to sell an asset in a year where total assessable income is lower than in other years in order to minimise total tax payable.

For example, a person retiring in the next financial year might defer the sale of a share portfolio until retirement when their other income is much lower and therefore they pay less tax to the ATO.

When looking at using timing to manage asset sales and associated tax exposures, please seek advice and guidance from a tax specialist. As well as considering tax implications, you need to consider when it is a good time to sell to get the best price.