Few people like talking or thinking about taxes. However, if you never spend any time thinking about them, you’re probably paying too much. Or, you could make an expensive error by not declaring monies and paying the taxes that are due.

For example, do you know what capital gains tax is or when you have to pay it? Read on to learn important information about CGT.

Capital Gains Tax Explained

Capital gains tax (CGT) is paid on the profits you earn after selling certain types of assets. For example:

• * Investment properties or another type of real estate that is not your primary residence

• * Shares

• * Investments

• *Some personal items worth more than $10,000

However, you don’t have to pay CGT on all types of assets. A few examples include:

• * A house that is your primary residence

• * Vehicles like cars or motorcycles

• * Depreciating investment property assets

• * Assets that you got before 20 September 1985

It’s important to know about CGT. You are responsible for declaring the profit you earned from the sale as part of your income when you lodge your annual tax return. You’ll then pay the tax based on your marginal tax rate.

Minimising Your CGT

Though tax avoidance is illegal, it is legitimate and financially smart to reduce your CGT liability as much as possible. There are various ways you can do this.

1. Get Your House Revalued Before Renting It

Planning to turn your primary residence into a rental property? Get it revalued first. With this information in hand, you can calculate your CGT based on how much the property value increased from when you started renting it, not when you bought it.

2. Individuals Should Hold Assets Long-Term

Businesses don’t get this break, but individuals get a 50% discount on their CGT liability when they held the asset for longer than 12 months. Plan your investments in the long term to take advantage of this discount.

3. Offset Gains with Losses

Losing on an investment is always sad, but you can use it to your advantage in the future. Keep track of that loss and use it to reduce a capital gain later on. For example, if you logged a $2,000 loss one year, you can reduce a $5,000 gain later on and only pay CGT on $3,000.

4. Use Small Business CGT Concessions

If you owe CGT as a small business, you may be eligible for various small business CGT concessions and exemptions. Talk with an advisor or do your research to find out what you can take advantage of.

5. Raise the Asset Cost Base

You get to deduct the cost of the asset from the money you make when selling it. In other words, if you sell an asset for $5,000 but spend $3,000 to acquire it, you only have to pay CGT on $2,000.

Various costs count as part of your asset cost base. These include the purchase price, cost of improvements or maintenance, and even buying and selling expenses (such as a real estate agent commission).

Raise your asset cost base as much as you can to lower the amount of CGT you have to pay.