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Capital Gains Tax
CGT Events

There are 54 CGT Events listed in ITAA 1997. These include

Event A1

Disposal of a CGT Asset

Event B1

The purchaser obtains the use and enjoyment of the CGT Asset before title passes.

Events C1 to C3

CGT Assets lost, destroyed, cancelled or finalised.

Events D1 to D3

Creating of rights, granting options

Events E1 to E9

Creating a trust over a CGT Asset, transferring a CGT Asset to a trust, converting to a unit trust, capital payments, beneficiaries becoming entitled, creating a trust over future property.


Categories of assets

Assets fall into three categories for CGT purposes:

Collectables
  • kept mainly for personal use or enjoyment,

  • its cost of acquisition on or after 1 July 1995 exceeded $500, (Collectables acquired for $500 or less are CGT exempt)

  • Jewellery

  • A rare folio, manuscript or book

  • A coin or medallion

  • A postage stamp or first day cover

  • A print, painting, sculpture or similar work of art

  • An antique (aged 100 years or more)

  • A debt owing for any of these items

Personal-use assets

e.g. clothing, electrical appliances, sporting equipment, furniture

are CGT exempt where acquired for less than $10,000

Separate CGT assets

land, buildings and structures, strata title units, and capital improvements on land – s.108-50

5 elements of the cost base
  • First element: Acquisition costs

  • Second element: Incidental costs

  • Third element: Non-capital costs associated with owning the asset

  • Fourth element: Enhancement costs

  • Fifth element: Title costs
Indexation Factor

uses the Consumer Price Index (CPI)

is calculated as follows:

CPI for quarter when event happened
CPI for quarter when expenditure incurred

The Indexation Factor must be rounded to 3 decimal places

Capital Gains Tax

Capital Gains Tax (CGT) applies to CGT assets that have been acquired and disposed of after 19 September 1985

Assets acquired before the 20 September 1985 are outside the CGT provisions

A taxpayer’s assessable income includes any net capital gain

CGT Assets

A CGT asset includes any form of property or a legal or equitable right that is not property, and includes:
e.g. shares, currency, goodwill, land, buildings

or legal or equitable right that is not property – s.108-5
e.g. debts owed

Specific exemptions
  • Sale of main place of residence

  • "Motor vehicles"

  • Trading stock

  • Betting and gambling wins

  • Compensation for damages or injury


To determine whether there has been a taxable capital gain or capital loss, you need to determine:

  • Has a CGT Event occurred?

  • Was this event in relation to a CGT Asset?

  • Is the event covered by an exemption or concession?

  • Was there a capital gain or a capital loss?

  • Is rollover relief available?
Capital losses

A capital loss must be offset against a capital gain as follows:
  • In the same income year, or

  • If no capital gain in the same year, the capital loss must be carried forward to a future year when it can be offset
Calculation of capital gains

Capital proceeds from disposal
less
Cost base of asset
equals
Capital gain

The cost base of an asset CGT is made up of five elements, including the capital costs of acquisition and disposal

Methods of calculation
  • Frozen Indexation method

  • Discount method

  • Other method
Frozen Indexation method
  • The Frozen Indexation method may be used to calculate a capital gain if:

  • A CGT event happened before 11.45am on 21 September 1999

  • The asset was owned for 12 months or more

  • Under this method each element of the cost base (except costs in the third element) are increased by an indexation factor
Discount method

This method applies a discount percentage by which to reduce the capital gain as follows:
  • 50% for individuals and trusts

  • 33 1/3% for complying superannuation funds

  • the taxpayer is an individual, trust, or complying superannuation fund

  • the CGT event happened either before or after 11.45am on 21 September 1999

  • the CGT asset was held for 12 months or more

Other method

This method is used only where a CGT asset is acquired and disposed of within 12 months

Using this method, a capital gain is calculated simply by subtracting the cost base of the CGT asset from the capital proceeds from disposal