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  • Capital proceeds

    Whatever you receive as a result of a capital gains tax (CGT) event are referred to as your ‘capital proceeds’. For most CGT events, your capital proceeds are an amount of money or the value of any property you either:

    • receive
    • are entitled to receive.

    If you receive (or are entitled to receive) foreign currency, you work out the capital proceeds by converting it to Australian currency at the time of the CGT event.

    If you receive property (including shares) subject to a deed of escrow (which imposes a restriction on dealing in that property), you include the market value of the property at the time of the relevant CGT event in your capital proceeds.

    On this page:

    Reducing your capital proceeds

    You reduce your capital proceeds from a CGT event if:

    • you're not likely to receive some or all of the proceeds
    • the non-receipt of some or all of the proceeds is not due to anything you have done or failed to do
    • you took all reasonable steps to get the payment.

    Provided you're not entitled to a tax deduction for the amount you repaid, your capital proceeds are also reduced by either:

    • any part of the proceeds that you repay
    • any compensation you pay that can reasonably be regarded as a repayment of the proceeds.

    If you're registered for GST and you receive payment when you dispose of a CGT asset, any GST payable is not part of the capital proceeds.

    Market value substitution rule

    In some cases, if you receive nothing in exchange for a CGT asset (for example, if you give it away as a gift), you're taken to have received the market value of the asset at the time of the CGT event. You may also be taken to have received the market value if both of the following apply:

    • your capital proceeds are more or less than the market value of the CGT asset
    • you and the purchaser were not dealing with each other at arm's length in connection with the event.

    This is known as the market value substitution rule for capital proceeds.

    You're said to be dealing at ‘arm's length’ with someone if each party acts independently and neither party exercises influence or control over the other in connection with the transaction. The law looks at not only the relationship between the parties, but also the quality of the bargaining between them.

    Example: Gifting an asset

    On 7 May 2007, Martha and Stephen bought a block of land.

    In November 2018, they completed a transfer form to have the block transferred to their adult son, Paul, as a gift.

    Because they received nothing for it, Martha and Stephen are taken to have received the market value of the land at the time it was transferred to Paul.

    End of example

    See also:

    Proceeds from a depreciating asset

    CGT doesn't apply to most depreciating assets you use solely for taxable purposes (such as business equipment or items in a rental property). However, if you've used a depreciating asset for a non-taxable purpose (for private purposes, for example), CGT may apply.

    There are special rules for calculating the proceeds from a depreciating asset.

    See also:

    Last modified: 01 Jul 2020QC 17160