CGT events are the different types of transactions or events that may result in a capital gain or capital loss. Many CGT events involve a CGT asset while other CGT events relate directly to capital receipts (capital proceeds).
To work out your capital gain or capital loss, you need to know which CGT event applies. The type of CGT event affects when you include the capital gain or capital loss in your net capital gain or net capital loss and how you calculate the capital gain or capital loss.
There is a wide range of CGT events. Some happen often and affect many different people while others are rare and affect only a few people. There is a summary of CGT events A1 to L7 at Appendix 1.
The most common CGT event happens if you dispose of an asset to someone else-for example, if you sell or give away an asset. Subdividing land does not result in a CGT event if you retain ownership of the subdivided blocks. Therefore, you do not make a capital gain or a capital loss at the time of the subdivision.
Some other CGT events from which you may make a capital gain or capital loss include when:
- an asset you own is lost or destroyed (the destruction may be voluntary or involuntary)
- shares you own are cancelled, surrendered or redeemed
- you enter into an agreement not to work in a particular industry for a set period of time
- a trustee makes a non-assessable payment to you from a managed fund or other unit trusts
- a company makes a payment (not a dividend) to you as a shareholder
- a liquidator declares that shares you own are worthless
- you receive an amount from a local council for disruption to your business assets by roadworks
- you stop being an Australian resident
- you enter into a conservation covenant, or
- you dispose of a depreciating asset that you used for private purposes.
Australian residents make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world. As a general rule, non-residents make a capital gain or capital loss only if a CGT event happens to a CGT asset that has a necessary connection with Australia.
Non-Australian residents may also make a capital gain or capital loss where CGT events create:
- contractual or other rights (CGT event D1), or
- a trust over future property (CGT event E9).
Order in which CGT events apply
If more than one CGT event could apply to your transaction or circumstances, the most relevant CGT event applies.
Time of the CGT event
The timing of a CGT event is important because it tells you in which income year a capital gain or capital loss from the event affects your income tax.
If you dispose of a CGT asset to someone else, the CGT event happens when you enter into the contract for disposal. If there is no contract, the CGT event generally happens when you stop being the asset's owner.
Example: Contract
In June 2003, Sue enters into a contract to sell land. The contract is settled in October 2003.
Sue makes the capital gain in the 2002-03 income year when she enters into the contract and not the 2003-04 income year when settlement takes place.
End of exampleIf a CGT asset you own is lost or destroyed, the CGT event happens when you first receive compensation for the loss or destruction. If you do not receive any compensation, the CGT event happens when the loss is discovered or the destruction occurred.
Example: Insurance policy
Laurie owned a rental property that was destroyed by fire in June 2002. He received a payment under an insurance policy in October 2002. The CGT event happened in October 2002.
End of exampleThe CGT events relating to shares and units, and the times of the events, are dealt with in chapter 5.