Capital gains tax (CGT) events are the different types of transactions or events that may result in a capital gain or capital loss. Many CGT events involve a CGT asset while other CGT events relate directly to capital receipts (capital proceeds).
You need to know which type of CGT event applies in your situation because it affects how you calculate your capital gain or capital loss and when you include it in your net capital gain or net capital loss.
There is a wide range of CGT events. Some happen often and affect many people while others are rare and affect only a few people. There is a table of CGT events A1 to L8 in Summary of capital gains tax events.
The most common CGT event happens when you dispose of an asset to someone else – for example, if you sell or give it away, including to a relative. Note: If you are registered for GST, or required to be registered for GST, a GST liability may also arise when you dispose of a business asset.
Subdividing land does not result in a CGT event if you retain ownership of the subdivided blocks. Therefore, you do not make a capital gain or a capital loss at the time of the subdivision.
A CGT event also happens when:
- an asset you own is lost or destroyed (the destruction may be voluntary or involuntary)
- shares you own are cancelled, surrendered or redeemed
- you enter into an agreement not to work in a particular industry for a set period of time
- a trustee makes a non-assessable payment to you from a managed fund or other unit trust
- a company makes a payment (not a dividend) to you as a shareholder
- a liquidator or administrator declares that shares or financial instruments you own are worthless
- you receive an amount from a local council for disruption to your business assets by roadworks
- you stop being an Australian resident
- you enter into a conservation covenant, or
- you dispose of a depreciating asset that you used for private purposes.
Australian residents make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world. As a general rule, foreign residents make a capital gain or capital loss only if a CGT event happens to a CGT asset that is ‘taxable Australian property’
If more than one CGT event can happen, you use the one most specific to your situation.
The timing of a CGT event is important because it determines in which income year you report your capital gain or capital loss.
If you dispose of a CGT asset to someone else, the CGT event happens when you enter into the contract for disposal. If there is no contract, the CGT event generally happens when you stop being the asset's owner.
Example
Sale contract
In June 2009, Sue enters into a contract to sell land. The contract is settled in October 2009.
Sue makes the capital gain in the 2008-09 income year when she enters into the contract and not the 2009-10 income year when settlement takes place.
If a CGT asset you own is lost or destroyed, the CGT event happens when you first receive compensation for the loss or destruction. If you do not receive any compensation, the CGT event happens when the loss is discovered or the destruction occurred.
Example
Insurance policy
Laurie owned a rental property that was destroyed by fire in June 2008. He received a payment under an insurance policy in October 2008. The CGT event happened in October 2008, and therefore, in the 2008-09 income year.
The CGT events relating to shares and units, and the times of the events, are dealt with in CGT on shares or units.
For help applying this to your own situation, phone us on 13 28 61.
Last Modified: Tuesday, 6 October 2009
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