Here is a hypothetical example, designed to illustrate how Capital Gains Tax applies to share trading.
Capital gains tax on the profit
You bought a parcel of shares that cost you $50,000.
You earn dividends, so you pay the usual income tax on those dividends.
Let’s say 2 years later, the shares are worth $70,000, and then you sell them, you would have a capital gain of $20,000.
Then, if you are an individual, as you have held the shares for longer than 12 months, you will receive the general CGT discount of 50%. So you would be taxed as follows:
| Sales Proceeds | $70,000 |
| Less Cost of Shares | – $50,000 |
| Gross Capital Gain | = $20,000 |
| General CGT Discount at 50% | – $10,000 |
| Taxable Capital Gain | $10,000 |
The $10,000 is then added to your taxable income, and you pay normal tax at your normal marginal income tax rates. See this link for the current income tax rates published by the ATO:
What about a Capital Loss?
If you had sold the shares for say $10,000, then you would have a capital loss. This works out as follows:
| Sales Proceeds | $10,000 |
| Less Cost of Shares | – $50,000 |
| Capital Loss | – $40,000 |
A capital loss can only be used against a capital gain. So, in the scenario above, if you had two lots of shares each costing $50,000.
If the first lot was sold for $10,000, and that was in the financial year before the second lot was sold for $70,000, the capital gain for the $70,000 would be as follows:
| Sales Proceeds | $70,000 |
| Less Cost of Shares | – $50,000 |
| Gross Capital Gain | = $20,000 |
| Less Capital Loss Carried Forward | – $40,000 |
| Carried Forward Loss | – $20,000 |
The CGT discounts apply after capital losses are applied.
This is just a simple illustration, which usually is more complex, as everyone’s personal financial situation is different.
Return to the Capital Gains Tax Fact Sheet.
AAG consultants are always here to provide advice and guidance. Contact us for a no-obligation discussion of your specific situation.
How we can help you?