Calculating capital gain or capital loss for a depreciating asset
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You make a capital gain if the termination value of your depreciating asset is greater than its cost; you make a capital loss if the reverse is the case and the asset's cost is more than its termination value.
You use different formulas to calculate a capital gain or capital loss depending on whether the asset is in a low-value pool or not.
Depreciating asset not in a low-value pool: capital gain
If your depreciating asset is not a pooled asset, you calculate the capital gain as follows:
(Termination value − cost) × (sum of reductions [see note 1] ÷ total decline [see note 2])
Depreciating asset not in a low-value pool: capital loss:
Calculate the capital loss from a depreciating asset that is not a pooled asset as follows:
(Cost − termination value) × (sum of reductions [see note 1] ÷ total decline [see note 2])
Example: Capital gain on depreciating asset
Larry purchased a truck in August 2003 for $5,000. He used the truck 10% for private purposes. The decline in value of the truck up to the date of sale was $2,000. Therefore, the sum of his reductions relating to his private use is $200 (10% of $2,000). Larry disposes of the truck in June 2004 for $7,000. Larry calculates his capital gain from CGT event K7 as follows:
($7,000 − $5,000) × (200 ÷ 2,000)
Capital gain from CGT event K7 = $200
End of example
Depreciating asset in a low-value pool: capital gain
You calculate the capital gain from a depreciating asset in a low-value pool as follows:
(Termination value − cost) × (1 − taxable use fraction (See note 3))
Depreciating asset in a low-value pool: capital loss
Calculate the capital loss from a depreciating asset in a low-value pool as follows:
(Cost − termination value) × (1 − taxable use fraction (See note 3))
The sum of the reductions in your deductions for the asset's decline in value that is attributable to your use of the asset, or having it installed ready for use, for a non-taxable purpose.
The decline in the value of the depreciating asset since you started to hold it.
'Taxable use fraction' is the percentage of the asset's use that is for producing your assessable income, expressed as a fraction. This is the percentage you reasonably estimate at the time the asset is allocated to the low-value pool.
Last modified: 04 Mar 2016QC 27527