Podcast Episode: What is Capital Gains Tax?

Tax has been in the world for hundreds and hundreds of years, and back in ‘ye olden days, ‘ it often had a discontinuous history mainly because it was usually associated with some sort of national emergency.

The oldest types of direct taxation were either to pay off invaders or to fund a war so you could go off and invade some other country.
In these ancient times, a city or region would run over and launch an attack on their neighbouring area, and if the battle went well and they overthrew the locals, they would make them pay so the attack would stop. This payment was often referred to as a tribute.
The imposers of these taxes were the leaders of the times, either the government or a good old bloodthirsty royal family.
After a while, the leaders realised that it might be a good idea to continue the Tax even after the extinction of its original purpose; normally this would be under the heading of defending the kingdom.

Today, Tax is money that we (the people) have to pay to the government.
When we sell an asset, such as investment properties, shares or a business, this triggers what’s called a ‘Capital Gains Tax event’.
You buy an asset for one price and sell it for another price, the difference between the amounts is your capital gain, or if you didn’t make any profit, that’s a ‘Capital Loss’.
But let’s say you do receive more for your asset than you paid for it; congratulations, you’ve made money, but you’ll have made a capital gain, and now you may need to pay this Capital Gains Tax.

How much Capital Gains Tax will I pay?
The amount of Capital Gains Tax you’ll pay depends on factors including how long you’ve owned the asset, your marginal tax rate, and whether you’ve also made any capital losses.
Your marginal tax rate is essential because your capital gain will be added to your total income in that financial year’s tax return.
The length of time you’ve held your asset is relevant because if you’ve held the asset for over 12 months, certain taxpayers can generally get a 50% discount on their capital gains tax.

What if I make a capital loss?
If you’ve sold your assets for less than you paid for it, you’ve made a capital loss. However, the good news is if you make a capital loss, you can potentially use it to reduce a capital gain in the same financial year.