Capital gains tax in Australia

• A. To tax the regular income earned from wages and salaries
• B. To tax the profit made when an asset is sold for more than it cost ✓
• C. To tax the value of a person's home every year
• D. To tax the money a business spends on running costs

Why: CGT applies to the capital gain, which is the profit made when a CGT asset is disposed of for more than its cost base. It is not a separate tax on income, property value, or business expenses.

• A. Your salary received from an employer
• B. Shares held in a publicly listed company ✓
• C. Cash held in a everyday bank account
• D. Personal use items such as your household furniture

Why: Shares are CGT assets. Salary is ordinary income, cash in a transaction account is not a CGT asset, and personal use assets (like most furniture) are generally exempt from CGT.

• A. When you first purchase the asset
• B. Each year on 30 June
• C. When a CGT event happens, such as the sale or disposal of the asset ✓
• D. When the asset's market value is publicly reported in the news

Why: A capital gain or loss is generally triggered by a CGT event, most commonly the disposal (such as selling) of the asset. Simply owning the asset or seeing its value change on paper does not trigger CGT.

• A. Only the original purchase price of the asset
• B. The total of the asset's purchase price plus certain associated costs, such as brokerage and stamp duty ✓
• C. The current market value of the asset at the time of sale
• D. The amount of tax paid on the asset each year

Why: The cost base includes the purchase price plus incidental costs of acquisition and disposal, such as brokerage, legal fees, and stamp duty. It is not limited to the purchase price alone and is not the sale value or annual tax paid.

• A. It means you never pay CGT on any property you own
• B. It generally exempts the gain on your main home that you live in, subject to certain conditions ✓
• C. It only applies to investment properties rented out to tenants
• D. It requires you to pay double the usual CGT rate on your home

Why: The main residence exemption generally means that a gain on the sale of the home you live in is exempt from CGT, subject to conditions such as the home being your main residence. It does not apply to investment properties or remove CGT on all property.

• A. Your principal place of residence
• B. Shares listed on the Australian Securities Exchange ✓
• C. Personal use assets worth less than $10,000
• D. Cash held in a savings account in Australian dollars

Why: Shares held on the ASX are CGT assets because they are property acquired for the purpose of making a capital gain. The main residence is exempt under the main residence exemption, personal use assets under $10,000 are excluded from CGT, and Australian dollar cash is not a CGT asset because it is the currency in which CGT is calculated.

• A. A rental property held for investment
• B. A collectable such as a painting valued at $5,000 and kept for personal use ✓
• C. Units in a managed investment trust
• D. Goodwill of a small business

Why: Personal use assets (such as household goods, or collectables) acquired for under $10,000 are generally exempt from CGT when the asset is used or kept mainly for personal use or enjoyment. A rental property, managed fund units and business goodwill are all CGT assets.

• A. Selling a share parcel on the ASX
• B. Receiving a dividend from an Australian company ✓
• C. Gifting an investment property to a family member
• D. Having a rental property destroyed and receiving insurance proceeds

Why: Receiving a dividend is generally taxed as income, not as a CGT event, since the shareholder still owns the shares. Selling, gifting (disposal by way of CGT event A1) and destruction of an asset with insurance proceeds (CGT event C2) are all CGT events.

• A. Any increase in an asset's value, whether or not it has been sold
• B. The amount by which the capital proceeds from a CGT event exceed the asset's cost base ✓
• C. The total income earned from holding an asset during the year
• D. The difference between the market value and the face value of an asset

Why: A capital gain arises when a CGT event happens and the capital proceeds exceed the asset's cost base. Unrealised increases in value are not taxed, and income such as rent or interest is assessed separately.

• A. A personal car used for private travel
• B. Cryptocurrency held as an investment ✓
• C. Your salary received in the bank
• D. Australian government bonds held to maturity for a fixed interest return

Why: Cryptocurrency held as an investment is treated as property and is a CGT asset, so disposing of it can create a capital gain or loss. A private car is a personal use asset typically exempt from CGT, salary is ordinary income, and while bonds are generally CGT assets, the question's focus on the most clear-cut CGT asset points to cryptocurrency as the best answer.

• A. Capital proceeds minus the cost base ✓
• B. Capital proceeds minus the reduced cost base
• C. Market value at year end minus the purchase price
• D. Sale price plus brokerage fees minus the purchase price

Why: Under the ATO's CGT rules, a capital gain or loss is generally calculated as capital proceeds minus the asset's cost base. The reduced cost base is used only for capital losses in certain situations, such as when calculating losses for assets acquired before 20 September 1999 or in other specific circumstances.

• A. Only the purchase price paid to the seller
• B. The purchase price plus incidental costs such as stamp duty and brokerage ✓
• C. The purchase price plus annual management fees paid while holding the asset
• D. The purchase price plus any income tax paid on dividends received

Why: The cost base includes the purchase price plus incidental costs of acquisition and disposal, such as stamp duty, legal fees, valuation fees, and brokerage. Ongoing holding costs like annual management fees are generally not part of the cost base, and income tax paid on investment income is not included.

• A. $8,000
• B. $7,650 ✓
• C. $7,800
• D. $8,150

Why: Capital proceeds are $20,000 less the $150 selling brokerage, giving $19,850. The cost base is $12,000 plus the $200 purchase brokerage, giving $12,200. The gain is $19,850 minus $12,200, which equals $7,650.

• A. A capital loss can be offset against ordinary income such as salary in the same year
• B. A capital loss can only be offset against capital gains, and unused losses can be carried forward indefinitely ✓
• C. A capital loss must be claimed in the year it occurs or it is forfeited
• D. A capital loss is refunded by the ATO as a tax credit

Why: Capital losses can only be applied against capital gains, not ordinary income. Net capital losses that cannot be used in the current year are carried forward indefinitely to offset future capital gains, provided the company or individual continues to meet the relevant tests.

• A. 25 per cent
• B. 33.3 per cent
• C. 50 per cent ✓
• D. No discount applies to individuals

Why: Resident individuals and trusts who hold a CGT asset for at least 12 months before disposal can reduce the capital gain by 50 per cent. Companies do not receive this discount, and the discount is applied after the gain is calculated and any capital losses are offset.

• A. 25%
• B. 50% ✓
• C. 33.3%
• D. 75%

Why: The CGT discount for individuals, trusts and eligible investors is 50%. If an asset is held for at least 12 months before disposal, half of the net capital gain can be excluded from assessable income.

• A. 6 months
• B. 12 months ✓
• C. 18 months
• D. 24 months

Why: The asset must be held for at least 12 months, measured from the date of acquisition to the date of disposal, excluding the day of acquisition and the day of disposal.

• A. An individual resident taxpayer
• B. A family trust distributing gains to resident individuals
• C. A company ✓
• D. A complying superannuation fund in the accumulation phase

Why: Companies are not eligible for the 50% CGT discount. Companies are taxed on the full capital gain, while individuals, trusts and certain other entities can apply the discount.

• A. $6,000
• B. $3,000 ✓
• C. $8,000
• D. $16,000

Why: The capital gain is $16,000 minus $10,000, which equals $6,000. Because the shares were held for more than 12 months, the 50% discount applies, leaving a net capital gain of $3,000.

• A. It is applied after the 50% discount is applied to the gain
• B. It is applied to the gain before the 50% discount is applied ✓
• C. It cannot be offset against discountable gains
• D. It is carried forward only and never offsets current year gains

Why: Current year capital losses are offset against capital gains first, before the 50% discount is applied. Prior year losses are applied after the current year losses but before the discount is applied to the remaining gain.

• A. The owner must have lived in the dwelling for at least five years before selling
• B. The dwelling must have been the taxpayer's main residence for the whole period of ownership ✓
• C. The dwelling must be the taxpayer's main residence on the date of purchase only
• D. The dwelling must have been rented out for no more than 50% of the ownership period

Why: To qualify for the full main residence exemption, the dwelling must have been the taxpayer's main residence for the entire period of ownership. There is no five-year residency rule, and renting out the property affects eligibility rather than being measured by a 50% threshold.

• A. No land area is covered; only the building is exempt
• B. Up to 2 hectares of land surrounding the dwelling ✓
• C. Up to 5 hectares of land surrounding the dwelling
• D. The entire property regardless of size

Why: The main residence exemption extends to land up to 2 hectares (including the dwelling's footprint) in total. Land beyond this limit is not exempt and may be subject to capital gains tax on the excess portion.

• A. Indefinitely, as long as the property is not sold
• B. Six years from the date they stopped living in it ✓
• C. Two years from the date they stopped living in it
• D. Only for the first 12 months after moving out

Why: Under the six-year absence rule, a taxpayer who stops living in their home and rents it out can continue to treat it as their main residence for up to six years, provided they do not nominate another property as their main residence during that time.

• A. A house the taxpayer lived in as their home
• B. A residential unit in a retirement village occupied by the taxpayer
• C. A holiday home that the taxpayer never lived in and only used occasionally ✓
• D. A townhouse that was the taxpayer's home for the full ownership period

Why: A holiday home that was never lived in as the taxpayer's main residence does not qualify for the exemption. The property must genuinely be the taxpayer's home, not simply a property used occasionally for holidays.

• A. The entire property loses its exemption permanently
• B. Only the portion used for income production may lose its exemption, and the rest remains exempt ✓
• C. The exemption is doubled to compensate for the business use
• D. The exemption is unaffected because business use never impacts CGT

Why: If part of the home is used exclusively for income-producing purposes, that part may not qualify for the full exemption, while the rest of the dwelling can continue to be exempt. This apportionment reflects the proportion of the property used for income production.

• A. The amount by which the cost base of an asset exceeds its capital proceeds when the asset is disposed of
• B. The amount by which the capital proceeds from disposing of an asset are less than its reduced cost base ✓
• C. Any decrease in the market value of an asset while you still own it
• D. The total income tax paid on investment earnings during the financial year

Why: A capital loss arises on disposal when capital proceeds are less than the asset's reduced cost base. Unrealised decreases in value (option C) do not create a capital loss until the asset is actually sold or otherwise disposed of.

• A. They are refunded to the taxpayer as cash in the same year
• B. They can be offset against ordinary salary income in the same year only
• C. They are carried forward indefinitely to offset future capital gains ✓
• D. They expire at the end of the financial year in which they occur

Why: Net capital losses cannot be offset against ordinary income such as salary. Instead, they are carried forward indefinitely and applied against future net capital gains, subject to the rules in the tax legislation.

• A. A capital loss on a personal use asset, such as a boat used for recreation
• B. A capital loss on a rental property that was sold at a loss ✓
• C. A loss on a gambling activity that is not carried on as a business
• D. A loss from a private motor vehicle that was sold for less than purchase price

Why: Capital losses on investment assets such as rental property can be offset against capital gains. Losses on personal use assets (like private vehicles and boats) generally cannot be offset against capital gains, and gambling losses are generally not deductible or offsettable.

• A. Capital losses of the current year are applied first, then prior year losses are applied in the order they were incurred ✓
• B. The taxpayer can choose any order they prefer each year
• C. Prior year net capital losses are applied first, then current year capital losses
• D. Losses are applied to the largest capital gain first regardless of when they occurred

Why: Current year capital losses are offset against current year capital gains first. Any remaining losses from earlier years are then applied against the net capital gain, in the order in which they were incurred.

• A. The original purchase price of the asset with no adjustments
• B. The market value of the asset on the date of disposal
• C. The cost base of an asset adjusted to exclude certain non-deductible costs such as capital works deductions previously claimed ✓
• D. The cost base after applying the 50% discount for assets held over 12 months

Why: The reduced cost base is generally the cost base adjusted to exclude certain amounts, such as deductions previously claimed for capital works or certain other costs. It is used when calculating a capital loss, and the 50% CGT discount is applied only to net capital gains, not to the cost base itself.

• A. Item 12 of the Tax Return for Individuals
• B. Item 18 of the Tax Return for Individuals (Capital gains tax schedule) ✓
• C. Item 9 of the Tax Return for Individuals
• D. Item 21 of the Tax Return for Individuals

Why: Capital gains are reported in the Capital gains tax (CGT) schedule, which is linked from Item 18 of the individual tax return. Item 18 is where the CGT schedule is referenced, making it the correct section for reporting.

• A. 25 per cent
• B. 33.33 per cent
• C. 50 per cent ✓
• D. 100 per cent

Why: Individuals who hold a CGT asset for at least 12 months can generally reduce their net capital gain by 50 per cent before it is included in their assessable income.

• A. The date the asset was purchased
• B. The date the contract was entered into for the disposal ✓
• C. The date the tax return is lodged
• D. The date the cash was received in the bank account

Why: For most CGT events involving disposal, the timing is generally based on the date the contract is entered into, not the settlement or payment date. This determines the income year in which the capital gain must be reported.

• A. Only the original purchase price
• B. Incidental costs such as stamp duty and legal fees incurred to acquire or dispose of the asset ✓
• C. Interest paid on a loan used to buy an asset that is not an investment
• D. Annual council rates paid on a rental property

Why: The cost base includes the purchase price plus incidental costs of acquisition and disposal, such as stamp duty, legal fees, valuation fees, and transfer costs. Ordinary ongoing expenses like rates are generally deductible rather than added to the cost base.

• A. It is refunded to you in cash by the ATO
• B. It is lost and cannot be used in any future year
• C. It is carried forward to offset future capital gains ✓
• D. It is offset against your salary income in the same year

Why: Net capital losses cannot be offset against ordinary income such as salary. Instead, they are carried forward indefinitely to offset future capital gains, subject to the relevant rules.