• #### CGT and depreciating assets

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) × (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 2015 for \$5,000 and sold it in June 2017 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