Bitesize: Everything You Need to Know About Capital Gains Tax with Charlie Viola

Bryce: [00:00:06] Welcome to bite sized on Get Started Investing feed. In this series we feature some of our favourite lessons, quotes and moments from the podcast. If you'd like to listen to the full episode, we've included the link in the show notes. If we stick with the basics, Isabelle in the Equity Mates community asked How is capital gains tax calculated? 

Charlie Viola: [00:00:27] Right? So if you sell an asset for more than you bought it, then you have a capital gain. So look really simple maths and we'll do the maths example. So if you bought something for say $5 and you sold it for $15, then you've made a $10 capital gain. That $10 of capital gain is effectively taxable, so it's taxable income. So now probably the right time to say this, that $10 will turn up in your tax return. Now, whether it's all of the $10 it turns up in your tax return or half of it turns up depends on how long you've held the asset for. So we've held the asset for more than 12 months. You get a 50% discount. So again, simply if we buy an asset for five, we sell it for 15, we make a $10 capital gain. If you've done that within a 12 month period, the $10 gets added to your income for the year and gets taxed as part of your normal income when you do your tax return at the end of the year. If you've held the asset for more than 12 months, then you get a 50% discount. So that ten point gain that you made, only $5 gets added to your tax return at the end of the year. And that ignores any of the the loss provisions where you've made a capital loss. Previously on Another Asset. 

Bryce: [00:01:43] Let's put a pin in that and get to that later. Let's stick with the basics for now. I think that capital gains discount point is important, though. It's not that your tax rate changes is just the amount of the gain that is tax changes. 

Charlie Viola: [00:01:57] If you think about tax in the really simplest fashion, all that happens at the end of the year is the tax office just seeks to add up all of the income that event. So if you think about it in like Bryce a spreadsheet, all you're doing is sum. All of the sum of all you're doing is adding your employment income to your dividend income to your distributions, to the income from your gardening and your cleaning job. And then the income that you get added to that from a capital gain is, is either the whole amount or half the amount, depending upon how long you held the asset for. And then you get a sum total at the end of what your taxable income is. It's that taxable income number that determines what your marginal tax rate is. Yeah. So some people will go, oh, capital gains tax. If I hold off more than 12 months, my tax rates 23 and a half per cent or it's 24%, it's not. That's simply by virtue of you're on the top marginal tax rate that people are just assuming that it's 50%, simply you add the 50% to your income. 

Alec: [00:02:59] Just be nice if you cut your tax in half. And just on that capital gains tax discount, is that applied to like all asset classes? It's not discriminatory, it's just. 

Charlie Viola: [00:03:10] Not discriminatory on the basis that the asset is considered for want of a better term property. Yeah. So shares are in that, in that same bucket and we'll get to it. But crypto is in that same bucket. It's treated like property. So whether it's whether you've bought shares for a dollar and sold them for five, you've made a capital gain. So the $4 of gain gets adapted to your taxable income unless you've had more than 12 months at which $2 would. Same with crypto. Same with property. And really same with virtually every asset class. The only one that's not is foreign currency. The only one that's not as foreign currency. Foreign currency is basically traded as income. So if you buy a foreign currency for one thing, and you sell it for another, it's that's treated as income.

Bryce: [00:03:57] There you go.