• Compensation payments that constitute a CGT event

    A compensation payment for the loss, destruction or compulsory acquisition of a CGT asset may give rise to a CGT event.

    If the compensation is in relation to the loss of an underlying asset (such as a government payment for the compulsory acquisition of a property), the payment is treated as capital proceeds from the asset’s disposal.

    If the payment relates to permanent damage to, or permanent reduction in the value of, an underlying asset (such as an insurance payout for major damage to a rental property), it is treated as a recoupment of all or part of the asset’s acquisition cost. The cost base and reduced cost base are reduced by the amount of the compensation.

    Where a compensation payment doesn't relate to an underlying asset but instead compensates for disposal of the right to compensation, the capital gain or capital loss is the difference between your incidental costs and the amount of compensation.

    If you make a capital gain resulting from compensation for the loss, destruction or compulsory acquisition of a CGT asset you may be able to defer it.

    See also:

    Last modified: 10 Jun 2015QC 22156