• How to meet your CGT obligation

    Attention

    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

    To meet your CGT obligations, follow these three main steps:

    1. Decide whether a CGT event has happened.
    2. Work out the time of the CGT event.
    3. Calculate your capital gain or capital loss.

    Keep your records

    You need to keep good records of any assets you have bought or sold so you can correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. You must keep these records for five years after the CGT event has happened, or, if you have a net capital loss, you should keep records for five years after the time you apply the net capital loss against a capital gain.

    Step 1  Decide whether a CGT event has happened

    CGT events are the different types of transactions or events that may result in a capital gain or capital loss. A CGT event has happened if you have sold (or otherwise disposed of) your shares or units or other assets during 2004-05. Although CGT events may happen to certain assets, such as assets acquired before 20 September 1985, any capital gains or losses from them are generally disregarded.

    Examples of other CGT events that can happen to shares or units include:

    • when a company makes a payment other than a dividend to you as a shareholder, or when a trust or fund makes a non-assessable payment to you as a unit holder
    • when a liquidator or administrator declares that shares or financial instruments relating to a company are worthless (see appendix 1 for examples), and
    • when shares in a company are cancelled because the company is wound up.

    For information about other CGT events, see the Guide to capital gains tax 2004-05 (NAT 4151-6.2005).

    If a managed fund makes a capital gain and distributes part of that gain to you, you are treated as if you made a capital gain from a CGT event.

    If you did not make a capital gain or capital loss from a CGT event during 2004-05, print X in the No box at G item 17 on your Tax return (supplementary section) 2005, or at G item 9 if you use the Tax return for retirees 2005. (Note: You cannot use the Tax return for retirees 2005 if you had a distribution from a managed fund during the year.)

    If you did make a capital gain or capital loss from a CGT event during 2004-05, print X in the Yes box. If the CGT event happened to your shares or units and the event is covered in this guide (see About this guide), read on. Otherwise, see the Guide to capital gains tax 2004-05.

    Step 2  Work out the time of the CGT event

    The timing of a CGT event is important because it determines which income year you show your capital gain or capital loss in. If you sell or otherwise dispose of an asset to someone else, the CGT event happens when you enter into the contract of sale. If there is no contract, the CGT event happens when you stop being the asset's owner.

    If you received a distribution of a capital gain from a managed fund, you are taken to have made the capital gain in the income year shown on your statement from the managed fund.

    Step 3  Calculate your capital gain or capital loss

    There are three ways of calculating your capital gain from the sale of your shares or units:

    The indexation method allows you to increase the amount that your asset has cost (the cost base) by applying an indexation factor that is based on increases in the consumer price index (CPI) up to September 1999.

    The indexation method can only apply to assets that you acquired before 11.45am (by legal time in the ACT) on 21 September 1999.

    If you use the discount method, you do not apply the indexation factor to the cost base but you can reduce your capital gain by the CGT discount of 50% (after deducting any capital losses for the year and any unapplied net capital losses from earlier years) provided you have owned the shares or units for at least 12 months.

    For assets that qualify for both the indexation and discount methods, you can choose the method that gives you the better result. You do not have to choose the same method for all your shares or units even if they are in the same company or fund. Because you must offset capital losses against capital gains before you apply the discount, your choice may also depend on the amount of capital losses that you have available - see Example 7.

    You must use the 'other' method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply). To calculate your capital gain using the 'other' method, you simply subtract your cost base from what you have received - your capital proceeds.

    You make a capital loss from the sale of your shares or units if their reduced cost base is greater than your capital proceeds. You cannot index amounts included in your reduced cost base.

    If you received a distribution of a capital gain from a managed fund, Part C of this guide explains how you calculate the amount of that capital gain. You must use the same method as that chosen by the fund.

    The following table explains and compares the three methods of calculating your capital gain.

     

    Indexation method

    Discount method

    'Other' method

    Description of method

    Allows you to increase the cost base by applying an indexation factor based on CPI.

    Allows you to halve your capital gain.

    Basic method of subtracting the cost base from the capital proceeds.

    When to use the method

    Use for shares or units held for 12 months or more, if this method produces a better result than the discount method. Use only with assets acquired before 11.45am (by legal time in the ACT) on 21 September 1999.

    Use for shares or units held for 12 months or more, if this method produces a better result than the indexation method.

    Use for shares or units if you have bought and sold them within 12 months (that is, when the indexation and discount methods do not apply).

    How to calculate your capital gain using the method

    Apply the relevant indexation factor (see CPI table in appendix 2), then subtract the indexed cost base from the capital proceeds (see the worked examples in chapter B2).

    Subtract the cost base from the capital proceeds, deduct any capital losses, then divide by two (see the worked examples in chapter B2).

    Subtract the cost base from the capital proceeds (see the worked examples in chapter B2).

    Last modified: 06 Oct 2009QC 27583