Think you’ve got your capital gains tax (CGT) sorted? Think again. Many Australians unknowingly make mistakes that can cost them money—or worse, get them in trouble with the ATO. Whether you’re selling an investment property, trading shares, or dealing with cryptocurrency, getting your CGT obligations right is crucial.
Let’s break down some of the most common errors and how you can avoid them.
1. Thinking a Foreign Resident Capital Gains Withholding (FRCGW) Clearance Certificate Clears All CGT Obligations
If you’ve sold a property and had a Foreign Resident Capital Gains Withholding (FRCGW) clearance certificate, you might assume that’s the end of your CGT responsibilities. It’s not.
If an amount of FRCGW was withheld from your sale, you need to:
- Inform your tax agent and provide the FRCGW payment confirmation from the purchaser.
- Include the withheld amount in the CGT section of your tax return under ‘Foreign resident capital gains withholding’ (Label 18 X) so you can claim the credit.
- Avoid incorrectly reporting the Foreign Income Tax Offset (FITO) at the FRCGW question. Instead, report it at ‘Foreign source income’ (Label 20 O).
Skipping these steps could mean you don’t get your rightful credit or, worse, end up in tax trouble down the line.
2. Misunderstanding the Main Residence Exemption and Rollovers
Selling your home? You might assume it’s fully exempt from CGT, but that’s not always the case. The main residence exemption rules can be tricky, and failing to apply them correctly could leave you paying tax unnecessarily—or accidentally underreporting.
- If you’ve used the property as your main residence but rented it out at some point, you may still qualify for a full or partial exemption under the 6-year rule. Make sure to select the correct main residence exemption code in the CGT section of your return.
- If your home sits on more than 2 hectares of land, a full exemption won’t apply—you’ll need to claim a partial exemption.
- If you’re a foreign resident, you can only access the exemption if you meet the strict life events test. Otherwise, you’re not eligible.
3. Ignoring Pre-Fill Information and Failing to Declare Asset Sales
Just because the ATO doesn’t automatically pre-fill information about your asset sales doesn’t mean you can skip reporting them. The ATO has ways to track transactions—including property sales, share trades, and crypto disposals—even if they don’t show up in your tax return automatically.
- Use the online services for agents (OSFA) reports to check for asset disposals.
- Be proactive: Even if there’s no pre-fill data, ask yourself, “Did I sell any property, shares, or crypto this year?” If the answer is yes, you need to report it.
- Don’t assume small transactions don’t matter. Selling crypto or shares—even if the profits were small—must still be reported.
4. Assuming CGT Only Applies to Property Sales
Think CGT is just about real estate? Think again. Capital gains tax applies to a range of assets, including:
- Shares and managed funds
- Cryptocurrency (yes, even those small Bitcoin trades!)
- Collectibles and personal use assets above certain thresholds
If you’ve sold any of these, you could be liable for CGT, even if you didn’t receive a formal tax statement. Failing to report gains (or losses) correctly could result in penalties or an unexpected tax bill later.
5. Failing to Keep Proper Records
Ever tried to work out your capital gain years after selling an asset, only to realise you’ve lost the paperwork? Without proper records, you could be paying more tax than necessary—or risk making incorrect claims.
Ensure you keep:
- Purchase records (including costs like stamp duty and legal fees)
- Improvement costs (e.g., renovations that add to your property’s value)
- Records of any exemptions or rollovers claimed
- Details of the sale (including contracts and settlement statements)
The ATO requires records to be kept for at least five years after the asset is sold. Losing these documents could make it difficult to prove your cost base, meaning you might end up paying more tax than necessary.
Final Thoughts
CGT mistakes can be costly, but they’re avoidable. If you’ve sold an asset this year, take the time to review your obligations. Ensure you’re correctly reporting foreign resident capital gains withholding, applying the right main residence exemption rules, checking pre-fill information, and keeping solid records.
Don’t leave money on the table—or risk an audit. If in doubt, speak to a tax professional to ensure you get it right. Avoiding these common CGT errors can save you stress, time, and money in the long run.
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