16th Dec, 2021
Most of Australia has been experiencing a building boom, fuelled by government policy such as the HomeBuilder scheme and a general desire to make our living spaces better as we spend more time working, educating and living at home. However, with global supply chains and transport routes disrupted due to the effects of COVID-19, there have been well publicised material shortages and builder collapses in the sector. If you’re building or substantially renovating your home, any related delays you experience may also end up costing you when you decide to sell.
For most individual Australian tax residents, there’s an automatic exemption from CGT for the capital gain (or loss) that arises when you sell your home, known as the “main residence exemption”. Generally, the home must have been your main residence for the entire ownership period; however, exemptions may apply where you’ve had to move out while building, renovating or repairing.
The related building concession allows you to treat a dwelling as your main residence from the time that the land was acquired for a maximum period of up to four years, applying from either the time you acquire the ownership interest in the land or the time you cease to occupy a dwelling already on the land. If it takes more than four years to construct or repair the residence, you may only be entitled to a partial main residence exemption. This means that if you later sell the residence, the period when you didn’t live there during construction or renovation will be subject to CGT.
If you’re unable to complete your main residence construction or renovation project within the four-year maximum timeframe either due to the builder becoming bankrupt or due to severe illness of a family member, you may be able to apply to the ATO for discretion to extend the four-year period so you don’t get penalised financially.
16th Dec, 2021
As investing in cryptocurrency becomes more popular in Australia, there is also a corresponding increase in the number of scams being reported. Due to the unregulated nature of cryptocurrency and the recent failure of two Australian cryptocurrency exchanges, this investment space has become a risky free-for-all, with Scamwatch estimating that around $35 million was lost to cryptocurrency scams in the first half of 2021. If you’re one of the unlucky ones to have been scammed, depending on the circumstances you may be able to claim a capital loss deduction.
Cryptocurrency scams come in a variety of forms, the most common being impersonation, where scammers pretend to be from a reputable trading platform and have legitimate-looking digital assets – like fake trading platforms which look like the real thing and email addresses that impersonate a genuine company – to lure people in. Investors who fall into this trap will usually see the initial money they invested skyrocket on fake trading platforms and may even be allowed to access a small return. Once people are hooked, though, the scammers will typically ask for further investments of large sums of money before cutting off contact and disappearing completely.
Whether you can deduct a loss all boils down to whether you actually owned an asset. For example, if you actually owned cryptocurrency such as Bitcoin in a digital wallet and due to the collapse of an exchange all the cryptocurrency you owned has disappeared, then it is likely you can claim a capital loss. This is likely to also apply if the cryptocurrency you own is stolen in a scam.
Unfortunately, it’s unlikely that a deduction can be claimed for people who have been scammed into handing over money for supposed “cryptocurrency investment” in schemes where no actual cryptocurrency ownership occurred. This is because they have not technically lost an asset, as they did not own the cryptocurrency in the first place, and the money invested is not considered a capital gains tax (CGT) asset under Australian tax law.
16th Dec, 2021
Recently, the ATO has noticed that some larger and wealthier businesses have mistakenly claimed small business capital gains tax (CGT) concessions when they weren’t entitled. By incorrectly applying the concessions, these businesses were able to either reduce or completely eliminate their capital gains. The ATO has urged all taxpayers that have applied the small business CGT concessions to check their eligibility. Primarily, this means that the business should meet the definition of a CGT small business entity or pass the maximum net asset value test.
Australia’s tax law provides four concessions to enable eligible small businesses to eliminate or at least reduce the capital gain on a CGT asset, provided certain conditions are met.
To be eligible to apply these CGT concessions, the business must have a maximum net asset value of less than $6 million. Failing that, the business must qualify as a “CGT small business entity”. That is, it must be carrying on a business, and have an aggregate turnover of less than $2 million.
The CGT asset that gives rise to the gain must be an active asset, which just means it is an asset used in carrying on a business by either you or a related entity. Shares in a company or trust interests in a trust can also qualify as active assets.
Once the basic conditions are satisfied, your small business can choose to apply one or all of the four CGT concessions provided the additional conditions to each concession is also met. Meeting all the conditions means that the concessions can be applied one after another, in some cases eliminating the entire capital gain.
01st Jul, 2021
Over 600,000 Australian taxpayers have invested in crypto-assets in recent years. The ATO has recently issued a reminder that although many people may believe that gains made through cryptocurrency trading are tax-free, or only taxable when the holdings are cashed back into “real” Australian dollars, this is not the case – capital gains tax (CGT) does apply to crypto-asset gains or losses.
While it may appear that cryptocurrencies operate in an anonymous digital world, the ATO does closely track where these assets interact with the “real” financial world through data from banks, financial institutions and cryptocurrency online exchanges, following the money back to the taxpayer.
This year the ATO will write to around 100,000 people with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns. It also expects to prompt 300,000 taxpayers to report their cryptocurrency capital gains or losses as they lodge their 2021 tax returns.
Alongside these communications, the ATO is beginning a new data-matching program focused on crypto-asset transactions. It will acquire account identification and transaction data from cryptocurrency designated service providers for the 2021 financial year through to the 2023 financial year inclusively. The ATO estimates that the records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year.
10th Mar, 2020
In recent months, parts of Australia have been battered by a combination of fire and floods. As people try to piece their lives together in the aftermath, insurance payouts can go a long way in helping rebuild homes and replace lost items.
However, if you receive an insurance payout in relation to your business, home business or rental property you need to be aware there may be associated tax consequences. For example, if you keep a home office or run a business from home, or make money from renting out your home on a short-stay website, you may be subject to capital gains tax (CGT) when receiving an insurance payout on the home.
Businesses that receive an insurance payment may be subject to varying tax consequences depending on what the payment is designed to replace.
10th Mar, 2020
Laws limiting foreign residents’ ability to claim the CGT main residence exemption are now in place. This means that if you’re a foreign resident for tax purposes at the time you sign a contract to sell a property that was your main residence, you may be liable for tens of thousands of dollars in CGT. Some limited exemptions apply for “life events”, as well as property purchased before 9 May 2017 and disposed of before 30 June 2020.
According to the ATO, a person’s residency status in earlier income years will not be relevant and there will be no partial CGT main residence exemption. Therefore, not only are current foreign residents affected, but current Australian residents who are thinking of spending extended periods overseas for work or other purposes may also need to factor in this change to any plans related to selling a main residence while overseas.