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Capital gains tax

Certain capital losses, disposals and small business CGT concession claims attract our attention.

Last updated 16 July 2023

Capital losses

Situations that attract our attention include:

  • losses that appear to be excessive, incorrect or misclassified
  • changes to the company in the year the loss occurred and whether there was a change in either
    • the ownership of the company (may fail the continuity of ownership test)
    • the nature of the business (may fail the business continuity test)
  • capital losses from non-arm's length transactions, where the market value substitution rules are not considered or applied
  • capital losses artificially generated to offset capital gains, including
    • non-arm’s length transactions used to manipulate cost base
    • capital losses realised solely to offset capital gains through wash sales
  • entities that incorrectly apply capital losses
  • entities that reclassify capital losses as revenue losses to offset taxable income
  • mismatches between the tax return and the CGT schedule.

Capital gains tax – disposal

Situations that attract our attention include:

  • when capital gains reported is less than what it should be, based on our estimates using external data sources
  • entities that fail to meet their CGT schedule lodgment obligations
  • companies (other than life insurance companies) claiming a CGT discount
  • beneficiaries that fail to gross up the discounted share of capital gain distributed by a trust
  • entities that received cash (or other ineligible consideration) through a partial scrip for scrip rollover
  • entities that disposed of high value assets, but returned small capital gains or claimed unsubstantiated capital losses
  • entities that incorrectly apply CGT rollover provisions.

Small business CGT concessions

We want to ensure entities genuinely meet the eligibility criteria when claiming small business CGT concessions.

Situations that attract our attention include:

  • entities that fail the small business entity test (for example, fail to carry on a business or have an aggregated turnover greater than $2 million)
  • entities that fail the maximum net asset value test – net assets of the entity, connected entities and affiliates exceeds $6 million
  • where the asset disposed of does not meet the definition of an active asset
  • entities that do not meet the additional conditions where the CGT asset is a share or trust interest
  • entities that fail to correctly identify significant individuals and CGT concession stakeholders – see Additional conditions if the CGT asset is a share or trust interest
  • entities that restructure for the primary purpose of enabling access to small business CGT concessions, which might not otherwise be available
  • entities that claim the small business rollover, but do not report a CGT event J5 at the end of the replacement asset period when they fail to acquire a replacement asset
  • entities that do not meet the additional conditions applicable to the type of small business CGT concession claimed, such as exceeding the small business CGT retirement exemption limit of $500,000
  • entities that fail to correctly report or apply the 15–year exemption.