A capital gain is a profit from selling an asset (e.g., stocks, bonds, or real estate, or even intangible assets such as goodwill), for more than the purchase price. A capital loss is a loss that results when selling an asset for less than the purchase price.
Capital gains are taxed (a capital gains tax) as income in most countries (e.g., the United States, United Kingdom, and Canada) but not all countries (for example, not in Singapore). Country tax codes differ greatly regarding exemptions for capital gains taxes, the impact of asset ownership time on tax liabilities, and other factors.
In cases where capital gains taxes are applicable, a capital loss can result in a tax savings when used to offset other positive income or capital games.
On the Income statement, capital gains taxes are entered along with the capital gains or losses that bring them.
In the income statement example in Exhibit 1 below, for instance, capital gains taxes (income tax on gain) are taxes on a gain from an "Extraordinary item," sale of land, during the reporting period. For more on the several meanings of capital in business, finance, and economics, see Capital.
|Grande Corporation Figures in $1,000's
Income Statement for Year Ended 31 December 20YY
Gross sales revenues
Less returns & allowances
Net sales revenues
Cost of goods sold
Depreciation, mfr equipment
Other mfr overhead
Net mfr overhead
Net cost of goods sold
Depreciation, Store equip
Other selling expenses
Total selling expenses
General & Admin expenses
Other general & admin expenses
Total general & admin exp
Total operating expenses
Operating Income Before Taxes
|Financial revenue & Expenses
Revenue from investments
Less interest expense
Net financial gain (expense)
Income before tax & ext items
Less income tax on operations
Income before extraordinary items
Sale of land
Less initial cost
Net gain on sale of land
Less income tax on gain
Extraord items after tax
|Net Income (Profit)||2,126|
Exhibit 2. Detailed example Income statement, showing how Revenue and Expense account items represent the Income statement equation:
Income = Revenues – Expenses.
For more specifics on tax consequences of capital gains or losses, consult your country's tax authorities. The following table is included only to show that capital gains tax requirements are sometimes complex and that they differ greatly between countries.
Capital Gains Tax By Country
gains tax in Australia is payable upon realized capital gains, but
liability is subject to many exemptions and special
adjustments depending on length of time the asset was held, the year in
which acquired, and the kind of asset. Gains from the sale of
family homes, especially are subject to exemptions. For complete details
consult the Australian Taxation Office at //www.ato.gov.au/
For individuals, Canada generally taxes capital gains at 50% of an individual's income tax rate. Capital gains for corporations, however, are taxed at the company's full tax rate. For complete details consult Revenue Canada at www.cra-arc.gc.ca
|Denmark||Denmark imposes capital gains taxes on gains from share dividends, interest income from bank deposits and bonds, and a few other kinds of gains, although the tax rate varies greatly depending on the amount of gain, and whether the gain is realized by an individual or by a corporation. For complete details consult the Danish Ministry of Finance at //www.fm.dk/|
France imposes capital gains taxes on individuals for gains on the sale of financial instruments such as stock shares or bonds, at a 30.1%, rate. There are special conditions, however (for example, holding funds in a PEA account),which reduces the tax rate. Capital gains tax on sale of a principal residence are generally not taxed, depending on length of ownership. For complete details on capital gains taxes for individuals and corporations, consult French tax authorities at //www.impots.gouv.fr/portal/dgi/home?pageId=home&sfid=00
imposes capital gains taxes on profits from selling financial
instruments, such as stock shares or bonds, only if they were
bought after 2008. Taxation on other capital gains depends on the
length of time held. Profits from real estate sales are generally
not taxed, if the property has been held for ten years or more. For
complete details, consult the German Federal Ministry of Finance at //www.bundesfinanzministerium.de
Capital gains on the sale of equities are tax exempt if shares are sold through recognized stock exchange and ST Tax is paid on the sale, and if the equities were held for a year or more. Gains from shorter term ownership may be taxable. Tax requirements for sale of other capital investments, such as real estate, or bank deposits, may be taxed depending again on the period of ownership. For complete details, consult the Indian Department of Revenue at //www.incometaxindia.gov.in/
In the Republic of Ireland there is a 25% tax on capital gains, but there are some exclusions and deductions (for example, if the gain is from sale of agricultural land, or of a primary residence, or for transfers between spouses). The tax rate on certain kinds of investments, however, ranges from 23% to 40%. For complete details consult Irish Tax and Customers Revenue at //www.revenue.ie/en/index.html .
Israel imposes a flat 20% tax rate on capital gains.
Italy imposes a capital gain tax of 27.5% on corporations and a capital gains tax of 12.55% on individuals, with certain exemptions and conditions. For complete details consult the Italian Ministry of Finance at //www.finanze.it/export/finanze/index.htm
Malaysia currently does not impose a capital gains tax for sale of equities, but it does require a 5% tax on profits from real estate sales if the property was held for less than 5 years. For complete details consult the Inland Revenue Board of Malaysia at //www.hasil.gov.my/index.php?lgv=2&chg=1 .
With certain exceptions, there is no capital gains tax in the Netherlands. For complete details consult the Netherlands Ministry of Finance.
| New |
New Zealand generally does not have a capital gains tax, per se, except that a few class of gains such as those from sale of shares may be taxed as ordinary income. For complete details consult New Zealand Inland Revenue at //www.ird.govt.nz/.
In Norway, individuals are taxed at a 28% rate for capital gains, although there are exemptions (e.g., from sale of a principal home). Companies are taxed for profits from sale of shares, but they may be taxed for interest income, including sale of bonds. For complete details consult the Norwegian Ministry of Finance at //www.skatteetaten.no/.
Singapore does not generally impose a capital gains tax. For more details consult the inland Revenue Authority of Singapore at //www.iras.gov.sg/irashome/default.aspx .
Sweden imposes a 30% tax on capital income. For complete details consult the Swedish Tax Agnecy at //www.skatteverket.se/.
Swiss residents pay no capital gains tax, except in some cases for a capital gains tax on property sales, depending on how long the property was held, and also depending on which canton the sale occurs in. Corporations pay the same tax on capital gains as they pay on ordinary income. For complete details consult the Swiss Federal Department of Finance at //www.efd.admin.ch/.
Individuals and corporations in the UK are liable for capital gains taxes, under a complex rate system, which takes into account such factors as the nature of asset or property sold (e.g., stock shares or private residence), the taxpayers basic tax rate, year of asset acquisition, and many other factors. For complete coverage consult the UK Department of inland Revenue at //www.hmrc.gov.uk/. Search for capital gain.
In the United States, individuals and corporations are generally taxed for capital gains at the same rate as for ordinary income, except that individuals may receive a reduced rate if the property was held for more than one year. For complete details, consult the US Internal Revenue Service at www.irs.gov, and especially IRS publication 550, Investment Income and Expenses, at //www.irs.gov/publications/p550/index.html