Welcome to the February 2023 Edition of the BFG Report
Capital Gains Tax Explained
Capital gains tax (CGT) is the tax you pay on profits from selling assets, such as property and shares.
Assets acquired before 20 September 1985 are exempt from CGT.
You report capital gains and capital losses in your income tax return and pay tax on your capital gains. Although it is referred to as ‘capital gains tax,’ it is part of your income tax. It is not a separate tax.
You may need to report a capital gain or loss when a CGT event occurs. For example:
- you sell an asset, such as property or shares
- you make an in-specie contribution to your super fund
- shares you own are redeemed, cancelled, surrendered or they are considered valueless by a liquidator
- you receive a payment from a company as a shareholder (not a dividend), or
- you give away, transfer, lose or destroy an asset resulting in a capital gain or a capital loss.
What is a capital loss or gain?
A capital loss is when you sell an asset for less than the cost base. A capital gain is when you sell an asset for more than the cost base.
The cost base of a capital gains tax (CGT) asset is generally what it cost you to buy it, plus other costs you incur to hold and dispose of it.
A capital loss can only be deducted against a capital gain and not offset against your other income but will carry forward to future years.
If you hold your investment for more than 12 months (for assets purchased after 21 September 1999), you may be entitled to claim a 50 per cent discount on the capital gain.
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Case study 1 Isla purchased XYZ shares for $10,000 in 2011 and sold them in October 2021 for $12,000. She had no other capital gain or loss for the year and no unapplied realised capital losses from previous years. In Isla’s case her net capital gain for the 2021/22 tax year would have been: ($2,000) – ($0) – ($1,000 CGT discount*) = $1,000. * The CGT discount of $1,000 represents 50 per cent of the gross $2,000 gain. Isla has other income of $45,000 in the same year, therefore she will pay tax of 34.5% (including Medicare Levy) on the capital gain. This means she will pay $345 tax on the gain. |
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Case study 2 Liam purchased shares on 10 January 2021. He sold the shares on 16 December 2021 at a profit of $5,000. He had no other capital gain or loss for the year and no unapplied net capital loss from previous years. As he held the shares for less than 12 months, Liam was not entitled to claim the CGT discount of 50 percent. The total profit of $5,000 was taxable income within his annual tax return for 2021/22 tax year. |
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Case study 3 Marcus purchased a holiday home in 2015 for $600,000. He sold the property on 12 April 2022 for $1,000,000 and had the following expenses included in the cost base.
$ 600,000 Purchase Price $ 15,000 Incidental Costs (Stamp duty, advertising, legal fees) $ 85,000 Ownership costs (Rates, insurance, interest on loan) $ 200,000 Renovation costs $ 900,000 Cost Base
$ 1,000,000 Sale Price
$ 100,000 Gain $ 50,000 Net Gain (50% discount as held for more than 12 months)
He had no other capital gain or loss for the year and no unapplied net capital loss from previous years.
As he held the property for more than 12 months, Marcus was entitled to claim the CGT discount of 50 percent. The total profit of $50,000 was taxable income within his annual tax return for 2021/22 tax year. |
Investment Market Review – December 2022
Summary
- In their latest annual report, the World Bank, which lends money to poorer countries for development projects, said it had slashed its forecast for global growth this year by nearly half, to just 1.7%, from its previous projection of 3%. If that forecast proves accurate, it would be the third-weakest annual expansion in three decades, behind only the deep recessions that resulted from the 2008 global financial crisis and the coronavirus pandemic in 2020.
- Continuing a key theme, most forward-looking economic indicators point to a major economic downturn in the developed world during 2023. Having said that, unemployment still remains completely inconsistent with a recession scenario. Australian, U.S. and European unemployment figures are still at or near record lows.
Markets
- The S&P 500 had a solid December quarter, even though December was a poor month for equities. The S&P 500 rose by 7.08%, while the Australian S&P 200 rose by an impressive 8.72%. In Australia, Value and Value-Weighted were the best performing styles for the quarter, while globally, Equal Weight and Value were the best performers. Growth was the worst performing style, both domestically and globally.
- Within Fixed income markets, while government bonds generally produced small positive returns for the quarter, corporate bonds performed well, with high yield returning a very pleasing 6.0% and investment grade returning a solid 2.7%.
- As most global economic indicators remain negative for 2023, credit is likely to come under greater pressure. As far as composite Australian bond funds go, now that the average yield to maturity is around 3.7% versus below 1.5% a year earlier, these are more attractive than a year ago, especially since the RBA has reduced its rate of interest rate increases and any further expected rises are basically already factored into bond markets. Asset class performance to September 2022 (Total returns in AUD)
Asset class performance to 31 December 2022 (Total returns in AUD)
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Annualised |
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Asset Class |
1-mth |
3-mth |
6-mth |
1-yr |
3-yr |
5-yr |
7-yr |
10-yr |
15-yr |
20-yr |
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Australian equities (S&P/ASX 200) |
-3.20% |
9.40% |
9.80% |
-1.10% |
5.50% |
7.10% |
8.40% |
8.70% |
5.10% |
8.90% |
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International equities |
-5.50% |
3.90% |
4.30% |
-12.50% |
6.20% |
9.30% |
9.60% |
13.70% |
7.30% |
7.10% |
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Australian REITs |
-4.10% |
11.50% |
4.00% |
-20.50% |
-1.50% |
3.30% |
5.00% |
8.10% |
2.40% |
5.30% |
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Australian bonds |
-2.10% |
0.40% |
-0.30% |
-9.70% |
-2.90% |
0.50% |
1.30% |
2.30% |
4.30% |
4.30% |
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Cash (AUD) |
0.20% |
0.70% |
1.20% |
1.30% |
0.50% |
1.00% |
1.30% |
1.70% |
2.70% |
3.50% |
Sources: Bloomberg, IOOF calculations
* AUD total returns as at Dec-22 assuming reinvestment of dividends unless otherwise specified
** Returns reflect index performance excluding any fees; Actual ETF/managed fund performance will vary due to both fees and tracking error.
High Yielding Internet Savings Accounts
| Financial Institution | Interest Rate** | Financial Institution | Interest Rate** | |
| ING Savings Maximiser | 4.55% | AMP Saver Account | 4.10% | |
| RaboDirect Bank | 4.50% | BOQ Simple Saver | 4.10% | |
| Macquarie – Savings Account | 4.50% | Ubank Save Account | 4.10% |
** Rates are subject to conditions and change. Rates are correct as at 01/02/2023.
Important Note – The BFG Report is published for your interest and every effort is made to ensure it is accurate and contains general securities advice only. It is not possible, when preparing The BFG Report, to take into account individual clients’ investment objectives, circumstances, and needs. Before acting on any information or advice contained, expressly or implicitly, in The BFG Report you should consult a Representative of Baldry Financial Services Pty Ltd trading as BFG Financial Services (“BFG”). No part of The BFG Report may be reproduced without the written consent of BFG in each case. BFG, its employees or any associate are not liable for any loss or damage arising as a result of any reliance placed on the contents of The BFG Report. All such liability is excluded apart from any liability which the law does not allow to be excluded.
