Do you, like most small business owners, find navigating the complexities of Capital Gains Tax (CGT) an anxiety-inducing ordeal? If so, the good news is you don’t have to. We strongly advise you let professionals take care of your taxes so you can focus on what you do best: running your business!
In a nutshell, CGT is a tax levied on the gain from the sale of assets. When you dispose of or sell fixed assets and investments, you will be liable for CGT. You don’t need to register separately for CGT – the capital gain or loss is included in your annual income tax return.
Although the basics of CGT are easy to understand, in practice, the complexities start to emerge. Here are 4 things to consider when calculating CGT:
- Firstly, you need to know which company assets are affected by CGT. At face value this may sound simple but depending on the transaction, the CGT may or may not be applicable.
- Secondly, you need to know whether the transaction is “income of nature” or “capital of nature”. CGT applies to disposals of a capital nature, but not to those that are income of nature. This is where confusion may occur, and it is up to you to prove that certain sums were capital and not revenue. For instance, if a property was intentionally purchased with the aim of generating a profit, it would be considered revenue. But if the intention was a financial investment, this would be capital.
- If you have receipts and invoices, you will also be able to add the costs of improvements, alterations and renovations to your assets “base cost” which will assist you to reduce your CGT.
- To calculate capital gains, you need to deduct the “base cost” from the “proceeds”.
When selling or disposing of assets, it is highly advisable to seek the advice of a professional tax consultant. Should you require assistance regarding CGT, email us on firstname.lastname@example.org and let us know your specific needs.