Capital Gains Explained

A capital gain is the profit realised when you sell an investment or asset for a higher price than its original purchase price. It is the difference between the selling price and the original cost or “basis” of the investment. Capital gains can be generated from various types of investments, including stocks, bonds, mutual funds, real estate, and other assets. When you sell an investment at a higher price, the capital gain is considered taxable income and is added to your other earnings, such as wages, rental income, and interest.

For example – if purchase a CBA stock at $100. And then you sell at a later date for $110. You would have made a capital gain of $10.00. From there, that profit of $10.00 would be added to your wages and other incomes when tax is calculated at tax time. The tax rate applied to capital gains may vary depending on factors such as the holding period of the investment and your overall income level. In some cases, if you hold an investment for a certain period, you may qualify for lower tax rates known as long-term capital gains rates.

It’s important to note that not all investments result in capital gains. If you sell an investment for a lower price than what you paid for it, it results in a capital loss, which can be used to offset capital gains and potentially reduce your tax liability. It’s advisable to consult with a tax professional or financial advisor to understand options for investing for capital gains.

If you would like to learn more, please contact a financial planner or financial advisor who services the Yarraville, Seddon, Williamstown, and Altona areas.