In the area of Capital Gains Tax the importance of record keeping cannot be underestimated. Yes, we agree, it's tedious. However, penalties do apply if you don't have records. The Australian Tax Office (ATO) expects taxpayers to “keep records of every transaction, event or circumstance that may be relevant to working out whether you have made a capital gain or capital loss from a CGT event". Further, CGT records need to be held for at least five years after the CGT event.
So…what is Capital Gains Tax (CGT)?
A capital gain or capital loss on an asset is the difference between what it costs you to purchase (cost base) and what you receive when you dispose of it (capital proceeds). CGT is the tax you pay on your capital gains.
What is a CGT event?
When you sell or otherwise dispose of an asset it's called a CGT event. This is the point at which you make a capital gain or capital loss. There are also other CGT events, such as when a managed fund or other trust distributes a capital gain to you.
Good records for your benefit
It is in your best interests to keep accurate records in order to be able to determine whether you have made a capital gain or capital loss. If you make a capital loss you can use it to reduce a capital gain in the same income year. And if your capital losses exceed your capital gains in an income year, you can generally carry the loss forward and deduct it against capital gains in the future years.
Good records for your future beneficiaries
If you leave an asset to another person it may be subject to CGT as a result of a future CGT event so good records can also help your beneficiaries deal with the impact of CGT. For example if you leave shares to a family member in your will and this person sells them, he or she will need your records to determine the cost base for the shares and therefore how much CGT to pay.
Take the worry away
Feeling unsure? Talk to our advisors. As part of our service offering at O'Brien's we can provide you with confidence that your records are compliant because we fully understand the legislation and technicalities which can be confusing. Plus we will assist you in creating efficiencies in the area of record keeping across all aspects of your affairs, not just CGT, ensuring your time is spent doing more important things.
Meet Fiona Phoon, experienced in CGT and skilled easing the worry of tax compliance for you.