This chapter explains your capital gains tax (CGT) obligation if your CGT asset is lost, destroyed or compulsorily acquired.
Generally, there is no CGT obligation for assets acquired before 20 September 1985 (pre-CGT).
There may be a situation where you receive money or another CGT asset (or both) as compensation when you dispose of an asset involuntarily (or under an insurance policy against the risk of such an event happening). In this case, you may be able to choose to:
- defer your liability to pay tax on any capital gain arising on the disposal, and
- get a CGT exemption for any replacement asset if you acquired the original asset before 20 September 1985.
This concession is known as rollover. It may be available if one of the following events happens:
- all or part of your CGT asset is lost or destroyed
- your CGT asset is compulsorily acquired by an Australian government agency (that is, the Commonwealth, a state, a territory or one of their authorities)
- you dispose of your CGT asset to an Australian government agency after they serve a notice on you inviting you to negotiate a sale agreement. They must have informed you that, if the negotiations are unsuccessful, the asset will be compulsorily acquired, or
- a lease that had been granted to you by an Australian government agency under a Commonwealth, state or territory law expires and is not renewed.
This rollover is not available for plant disposed of after 11.45am (by legal time in the ACT) on 21 September 1999 and other depreciating assets from 1 July 2001. Instead, where a depreciating asset is lost or destroyed or an Australian government agency acquires it compulsorily or by forced negotiation, the capital allowances provisions may allow for a balancing charge offset.
This means that rather than including an amount in your assessable income by way of a balancing adjustment, you can offset that amount against the cost of a replacement asset (or assets).
If you choose to take rollover, you do not need to lodge a written election stating your choice – it will be clear from the way you prepare your tax return.
You cannot choose to defer a capital loss but you can use it to reduce any capital gain made in the current income year or a later year.
For rollover relief to apply, the replacement asset you receive cannot be a car, motor cycle or similar vehicle.
Further, from 1 July 2001, for rollover relief to apply, the replacement asset you receive cannot become an item of your trading stock nor can it be a depreciating asset.
Time of the CGT event
You need to know the time of a CGT event to work out in which income year a capital gain or capital loss affects your income tax.
If an asset is lost or destroyed and you receive compensation, the time of the CGT event is when you first receive the compensation.
If you do not receive any compensation, the time of the CGT event is when the loss is discovered or the destruction occurred.
If an Australian government agency compulsorily acquires your asset, the time of the CGT event is when:
- you first received compensation from the agency, or
- the agency enters the asset (for example, land) or takes possession of it.
If an Australian government agency acquires your asset following negotiation (rather than compulsorily acquiring it), the time of the CGT event is:
- the date the contract to acquire it is made, or
- the date of the change of ownership if there is no contract.
If a lease that had been granted to you by an Australian government agency expires and is not renewed, the time of the CGT event is when the lease expires.