Capital gains tax records.
Congratulations! Your investment has done well, and you’re cashing in. You’re happy — and so too is the ATO. That substantial capital gain has brought wealth… and a hefty tax bill.
Sharing might be part of the deal, but when it comes to your hard-earned profits, you’d likely prefer to keep the ATO’s share to a minimum. Keeping good records can help you do just that.
Here are some practical tips to help you hold on to more of your windfall and reduce your capital gains tax (CGT) liability.
How much did your investment really cost?
Good record-keeping is essential. It helps your accountant ensure that you pay no more tax than necessary. You probably already know that what you sell your investment for isn’t your full gain.
Basically, your capital gain is the sale price minus what it cost you — but do you really know what it cost?
The most obvious cost to track is the asset purchase price (also called the acquisition cost), but there are several lesser-known costs that are often forgotten.
CGT record keeping tips
You should keep records of anything falling under the following four categories:
1. Incidental Costs of Acquisition
These are costs directly associated with acquiring the asset, including:
- Fees paid to brokers, auctioneers, or accountants
- Stamp duty paid on the purchase
- Advertising costs incurred when acquiring the asset
- Conveyancing fees or conveyancing kit costs
- Brokerage fees if buying shares
2. Non-Capital Ownership Costs
In some cases, you can add ownership costs to your cost base if they haven’t already been claimed as tax deductions. These include:
- Interest on borrowed money used to acquire the asset (if not already claimed)
- Maintenance, repair, or insurance costs
- Rates or land tax (if the asset is land)
3. Capital Expenditure on Improvements
Expenses that increase or preserve the value of the asset can also be included. Examples:
- Costs for zoning changes (whether successful or not)
- Renovations or other structural improvements
4. Costs of Establishing, Preserving, or Defending Ownership
Hopefully, you haven’t had too many legal dramas — but if you’ve incurred costs defending your ownership (e.g., legal fees for title disputes), these can also reduce your capital gain.
Can you reduce the gain even further?
That capital loss you made earlier in the year might not have felt great at the time, but it comes with a silver lining: it can be used to offset your capital gain.
If that’s not enough to eliminate the gain entirely, dig deeper into your records:
- Do you have any unused losses from prior years? You can apply them too!
- Did you buy the asset before 20 September 1985? If so, you’re in luck — no CGT applies.
- Have you held the asset for more than 12 months? If yes, then only 50% of the net gain (after costs and losses) is assessable.
If you’re considering selling an asset you’ve held for less than a year, you might want to wait a little longer to benefit from the CGT discount.
More information
Capital gains tax information
By understanding what your investment truly cost and keeping thorough records, you can legally minimise your CGT liability.
Speak to us about what documents and costs you should be tracking to take full advantage of any deductions and exemptions available to you.
Based in Noosa, on the Sunshine Coast Queensland, we work with clients throughout Australia.