Capital Gains Tax (CGT) is the tax you pay on the profit made from the sale of an asset, such as real estate or shares. It is not a separate tax, but rather part of your income tax assessment for the year the asset was sold.
The CGT Formula
To determine your liability, you must first establish the "Cost Base." This includes the original purchase price plus incidental costs like stamp duty, legal fees, and capital improvements.
Capital Gain = Sale Price – (Purchase Price + Costs)
Applying the Discount
In many jurisdictions (such as Australia), if you have held an asset for longer than 12 months, you may be eligible for a 50% CGT discount. This effectively halves the capital gain that is added to your taxable income.
Step-by-Step Example
Identify Purchase Price: You bought shares for $10,000.
Add Costs: You paid $100 in brokerage fees. Your cost base is $10,100.
Identify Sale Price: You sold them 2 years later for $15,000.
Calculate Gross Gain: $15,000 – $10,100 = $4,900.
Apply Discount: Because you held them for over a year, the taxable gain is $2,450 (50% of $4,900).
Calculate Tax: If your tax rate is 30%, you pay $735 in tax ($2,450 x 0.30).
Important Considerations
Primary Residence: Most countries exempt your main home from CGT.
Capital Losses: If you sell an asset for less than its cost base, you have a capital loss. This can usually be used to offset other capital gains, but cannot be used to reduce tax on regular income.
Keep Records: Always maintain receipts for improvements and transaction fees to ensure your cost base is as high as legally possible, which reduces your tax.
function calculateCGT() {
var purchasePrice = parseFloat(document.getElementById('purchasePrice').value);
var salePrice = parseFloat(document.getElementById('salePrice').value);
var costs = parseFloat(document.getElementById('associatedCosts').value) || 0;
var taxRate = parseFloat(document.getElementById('taxRate').value);
var isDiscounted = document.getElementById('holdingDiscount').checked;
if (isNaN(purchasePrice) || isNaN(salePrice) || isNaN(taxRate)) {
alert("Please enter valid numbers for prices and tax rate.");
return;
}
var totalGain = salePrice – (purchasePrice + costs);
if (totalGain <= 0) {
document.getElementById('resTotalGain').innerText = "$" + totalGain.toLocaleString();
document.getElementById('resTaxableGain').innerText = "$0";
document.getElementById('resTaxPayable').innerText = "$0 (Capital Loss)";
document.getElementById('resNetProfit').innerText = "$" + totalGain.toLocaleString();
document.getElementById('cgtResult').style.display = 'block';
return;
}
var taxableGain = totalGain;
if (isDiscounted) {
taxableGain = totalGain * 0.5;
}
var taxPayable = taxableGain * (taxRate / 100);
var netProfit = totalGain – taxPayable;
document.getElementById('resTotalGain').innerText = "$" + totalGain.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTaxableGain').innerText = "$" + taxableGain.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTaxPayable').innerText = "$" + taxPayable.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resNetProfit').innerText = "$" + netProfit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('cgtResult').style.display = 'block';
}