• #### CGT and depreciating assets Warning:

This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

Under the uniform capital allowance (UCA) system, a capital gain or capital loss from the disposal of a depreciating asset will only arise to the extent that you have used the asset for a non-taxable purpose, for example, for private purposes.

You calculate a capital gain or capital loss from a depreciating asset used for a non-taxable purpose using the UCA concepts of cost and termination value, not the concepts of capital proceeds and cost base found in the CGT provisions.

If a balancing adjustment event occurs for a depreciating asset that you have at some time used for a non-taxable purpose, a CGT event happens; see CGT event K7 in appendix 1. The most common balancing adjustment event for a depreciating asset occurs when you stop holding it (for example, you sell, lose or destroy it) or stop using it.

##### Calculating a capital gain or capital loss for a depreciating asset

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, 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) x sum of reductions (note 1) total decline (note 2)

Depreciating asset not in a low-value pool: capital loss

You calculate the capital loss from a depreciating asset that is not a pooled asset as follows:

 (cost – termination value) × sum of reductions (note 1) total decline (note 2)

Example 8: Capital gain on depreciating asset

Larry purchased a truck in August 2013 for \$5,000 and sold it in June 2015 for \$7,000. He used the truck 10% of the time for private purposes. The decline in value of the truck under the UCA system 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 calculates his capital gain from CGT event K7 as follows:

 (\$7,000 – \$5,000) × 200 2,000

Capital gain from CGT event K7 = \$200 (before applying any discount).

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)

Depreciating asset in a low-value pool: capital loss

You calculate the capital loss from a depreciating asset in a low-value pool as follows:

(cost – termination value) × (1 – taxable use fraction (note 3))

Notes