The 50% capital gains tax (CGT) discount is often discussed in the media, particularly in relation to housing affordability. While the issue is far more complex than any single tax measure, the discount remains significant for anyone who owns assets subject to CGT.
What the discount applies to
- Assets subject to CGT: Property, shares, and other investments.
- Exempt assets: Cars (including vintage models) are not subject to CGT.
- Homes: Your main residence is usually exempt, but partial exemptions may apply if you’ve used it to generate income or inherited it without meeting exemption requirements.
Key rules to understand
- Capital losses first: Losses must be applied before the discount, reducing its value.
- Business assets: Small business concessions may override or interact with the discount.
- Residency matters: Foreign residents generally cannot access the full discount for assets acquired after 8 May 2012. Even residents may lose part of the discount if they were non‑resident during ownership.
- Entities excluded: Companies cannot use the discount. Super funds (including SMSFs) only receive a one‑third discount.
- Not all gains qualify: Gains from granting legal rights (such as easements or restrictive covenants) are excluded.
- Holding period: You must hold the asset for at least 12 months — effectively 367 days (or 368 in a leap year).
Why it’s complicated
The CGT discount interacts with other concessions, residency rules, and exemptions. Misapplying it can lead to unexpected tax liabilities.
Conclusion
The 50% CGT discount is far from straightforward. With residency rules, exemptions, and small business concessions all in play, it’s easy to misinterpret how it applies. Before selling assets, speak with Regency Partners to understand the rules and protect your position.
