Capital Gains Tax

What is capital gains tax?

Capital gains tax (CGT) is the tax you pay on profits from disposable of assets, such as sales of business, vacant land, mutual fund, rental properties, goodwill, shares, crypto currency, financial derivative (swaps, options, forwards, and futures contracts based on a interest rate bearing financial instruments, currencies, stocks, bonds, indexes, and commodities). You must report any capital gains when you disposed of asset in your income tax return and pay tax on your capital gains. At Linssy & Co Accountants, we will endeavour to help you to reduce your capital gain tax liability by offset any previous capital losses. Our accountant will work out your other cost's base associated with acquiring the asset to minimise tax paid.

When does Capital Gains not apply?

There are some exceptions from what constitutes a CGT asset. A loss or gain made when a person disposes of their main residence is exempt from CGT if the losses or gains made on assets acquired before 20 September 1985.

There are other possible CGT exceptions include:

Compensation received for injuries
Disposing of a Cars and motorcycles
Collectable items that cost less than $500
A real estate property lived for twelve months which was the taxpayer’s main residence
CGT does not apply to depreciating assets used solely for taxable purposes
Compensation received for injuries
An asset used to produce exempt income
Assets purchased for personal use which are sold for less than $10,000.

When does CGT apply?

Under section 102-20 of the Income Tax Assessment Act 1997, CGT applies to gains or losses made when a CGT event occurs. A CGT event is a transaction which results in a person making a gain or a loss when they dispose of a CGT asset.

What is a CGT event?

When you sell an asset that is subject to capital gains tax (CGT), it is called a CGT event. The identification of capital gains events will enable you to calculate the capital gain or loss.

There are 54 Capital gains tax events, such as the share disposable, loss or destruction of an asset, or creating contractual or other rights.

The identification of CGT event that applies to your business or individual situation may affect:

the time of the CGT event happens
how to calculate your capital gain or loss.
Sale or disposal of asset
If there is a contract of sale, the CGT event happens when you enter into the contract. For example, if you sell a house, the CGT event happens on the date of the contract, not when you settle.
If there is no contract of sale, the CGT event is usually when you stop being the asset's owner. For example, if you sell shares, the CGT event happens on the date of sale.

Your capital gain or loss for an asset is usually the selling price less the original cost base and other costs associated with acquiring, holding and disposing of the asset. How is CGT calculate.

Loss, theft or destruction of asset

If your CGT asset is lost, stolen or destroyed:

the CGT event happens when you first receive compensation for the loss, theft or destruction
your capital gain is the amount of compensation less the asset’s original cost.

If you do not receive any compensation, the CGT event happens when the loss is discovered or the destruction occurred.

If you replace the asset with a similar asset, you may be able to defer (or 'roll over') your capital gain until another CGT event happens, such as selling the replacement asset. See Involuntary disposal of a CGT asset.

All CGT events

All CGT events are listed below.
If more than one CGT event happens, you apply the rules for the one that best matches your situation.
The capital gains tax events listing are under Division 104 of the Income Tax Assessment Act 1997.

Disposal (A)

CGT event	Time of event	Capital gain	Captial loss
A1 - Disposal of a CGT asset	When the disposal contract is entered into or, if none, when the entity stops being the asset's owner	The capital proceeds from disposal less the asset's cost base	The asset's reduced cost base less the capital proceeds

End of a CGT asset (C) - includes loss or destrcution

CGT event	Time of event	Capital gain	Captial loss
C1 - Loss or destruction of a CGT asset	When compensation is first received or, if none. When the loss is discovered or destruction occured	The capital proceeds less the asset's cost base	The asset's reduced cost base less the capital proceeds
C2 - Cancellation, surrender and similar endings	When the contract ending an asset is entered into or, if none, when an asset ends	The capital proceeds from the ending less the asset's cost base	The asset's reduced cost base less the capital proceeds
C3 - End of an option to acquire shares etc	When the option ends	The capital proceeds from granting the option less the expenditure in granting it	The expenditure in granting the option less the capital proceeds

Trusts (E)

CGT event	Time of event	Capital gain	Captial loss
E1 - Creating a trust over a CGT asset	When the trust is created	Capital proceeds from creating the trust less the asset's cost base	The asset's reduced cost base less the capital proceeds
E2 - Transferring a CGT asset to a trust	When the asset is transferred	Capital proceeds from the transfer less the asset's cost base	The asset's reduced cost base less the capital proceeds
E3 - Converting a trust to a unit trust	When the trust is converted	Market value of the asset at that time less its cost base	The asset's reduced cost base less that market value
E4 - Capital payment for trust interest	When the trustee makes the payment	Non-assessable part of the payment less the cost base of the trust interest	No Capital loss
E5 - Beneficiary becoming entitled to a trust asset	When the beneficiary becomes absolutely entitled	For a trustee: market value of the CGT asset at that time less its cost base. For a beneficiary: that market value less the cost base of the benficiary's capital interest	For a trustee: the reduced cost base of the CGT asset at that time less that market value. For a beneficiary: the reduced cost base of the beneficiary's capital interest less that market value.
E6 - Disposal to a beneficiary to end an income right	The time of the disposal	For a trustee: market value of the CGT asset at that time less its cost base. For a beneficiary: that market value less the cost base of the benficiary's right to income.	For a trustee: the reduced cost base of the CGT asset at that time less that market value. For a beneficiary: the reduced cost base of the beneficiary's right to income less that market value.
E7 - Disposal to a beneficiary to end capital interest	The time of the disposal	For a trustee: market value of the CGT asset at that time less its cost base. For a beneficiary: that market value less the cost base of the benficiary's capital interest.	For a trustee: the reduced cost base of the CGT asset at that time less that market value. For a beneficiary: the reduced cost base of the beneficiary's capital intrest less that market value.
E8 - Disposal by a beneficiary of capital interest	When the disposal contract is entered into or, if none, when the beneficiary ceases to own the CGT asset	Capital proceeds less the appopriate proportion of the trust's net assets	The appopriate proportion of the trust's net assets less the capital proceeds
E9 - Creating a trust over future property	When the entity makes an agreement	Market value of the property (as if it existed when the agreement was made) less incidental costs in making the agreement	The incidental costs in making the agreement less the market value of the property(as if it existed when the agreement was made)
E10 - Annual cost base reduction exceeds cost base of interest in attribution managed investment trust	When the reduction happens	Excess of cost base reduction over cost base	No capital loss

Shares (G)

CGT event	Time of event	Capital gain	Captial loss
G1 - Capital payment for shares	When the company pays a non-assessable amount	Payment less the cost base of shares	No capital loss
G3 - Liquidator or administrator declares shares or financial instruments worthless	When declaration was made	No capital gain	Reduced cost base of shares or financial instruments

Cessation of residency (G)

CGT event	Time of event	Capital gain	Captial loss
I1 - Individual or company stops being an Australian resident	When the individual or company stops being an Australian resident	For each CGT asset the individual or company owns, its market value less its cost base.	For each CGT asset the individual or company owns, its reduced cost base less the its market value
I2 - Trust stops being a resident trust	When the trust ceases to be resident trust for CGT purposes	For each CGT asset the trustee owns, its market value less its cost base	For each CGT asset the trustee owns,its reduced cost base less its market value