By the end of today’s blog we are officially half way through becoming Financially Well Organised, we look at Capital Gains Tax and the steps you can take to maximise efficiency. We’ve also included a handy check list for your taxation plan.
Capital Gains Tax
Capital Gains Tax (CGT) also needs to be considered. CGT applies when you sell an asset, not just to a third party, but also between related parties. CGT is one of the most complex areas of tax law that exists in Australia.
If an asset is owned by an individual or a trust for more than 12 months before it is sold, 50% of any capital gain is tax free. The capital gain is the difference between what you bought and sold it for, less the other costs of buying and selling. The profit will then be taxed at the relevant marginal tax rate applicable. A superannuation fund is only taxed on two-thirds of the capital gain, at a rate of 15%, or 0% in pension phase. A company is taxed at 30% on the full capital gain. There may be up to an additional 16.5% tax paid by the shareholders when the capital gain is paid out as a dividend from the company. Therefore companies are not the greatest entity in which to own appreciating assets.
Provided a small business’ affairs are correctly structured, the owners may be able to access the small business CGT tax concessions which could mean that a capital gain up to $4,000,000 can be received tax free.
Taxation Plan Checklist
- Ensure your structure provides you with enough flexibility to access the entity tax rates and spreading the income over more family members.
- Consider the use of superannuation as an effective vehicle for asset accumulation.
- Structure the ownership of your assets so that when they are sold, the least amount of Capital Gains Tax is paid, which enables you to keep more of the proceeds from the sale.
- Understand that it is important to get your long term structure sorted out early as sometimes from a taxation perspective, it can be expensive to unwind.
Please join us next week as we begin step 6, where we will discuss debt plans.
We’d love to help you set out a Taxation Plan to ensure you’re paying the least amount of tax possible. Call us on 07 3833 3999.