There are a number of provisions in the CGT laws that allow you to make a choice.
Some of the provisions allow you to defer or roll over a capital gain you make when a CGT event happens (such as exchanging an asset for a replacement asset) until a later CGT event (such as selling the replacement asset).
When and how you make a choice
The general rule under CGT law is that you must make a choice by the day you lodge your income tax return for the income year in which the relevant CGT event happened.
The way you prepare your tax return is sufficient evidence of your choice. However, there are some exceptions:
- companies must make some decisions about replacement asset rollovers earlier
- choices relating to the small business retirement exemption must be made in writing
- choices relating to the assessment of capital gains of resident testamentary trusts must be made by a trustee within a specific period.
Once you make such a choice, it cannot be changed. Your choice is binding.
However, there are some circumstances when we consider that you have not made a choice. These are if you lodge your tax return without being aware that:
- events have happened that required you to make a choice, or
- a choice was available.
In these circumstances, we may allow you more time to make a choice.
Factors to be considered for an extension of time
To determine if more time should be allowed, we consider factors such as whether:
- you have an acceptable explanation for not making the choice by the time it should have been made
- it would be fair and equitable in the circumstances to allow you more time to make a choice
- prejudice to the Commissioner of Taxation (Commissioner) may result from additional time being allowed to you (note that the absence of prejudice by itself is not enough to justify the granting of an extension)
- it would be fair and equitable to people in similar positions and the wider public interest
- any mischief is involved.
Each case is decided on its own merits.
How to request an extension of time to make a choice
If you have lodged a tax return without knowing a choice was available to you under CGT law and you want to find out how to make a request for more time to make the choice, see Making choices and requesting extensions.
Examples of choices available under capital gains tax
CGT choices you can make include:
- You may use the indexation method rather than the CGT discount method if a CGT event happens to a CGT asset you acquired before 21 September 1999 (or are taken to have acquired before that date for the purpose of using those methods). See Choosing the indexation or discount method.
- You may make a capital loss for the income year in which a liquidator or administrator declares in writing that shares or securities held in a company are worthless. See Shares in a company in liquidation or administration.
- You may roll over a capital gain if a company in which you hold shares is taken over and you receive shares in the takeover company and the takeover meets certain conditions. This is known as a scrip for scrip rollover. It can also apply if a trust or fund in which you hold units is taken over and you receive units in the takeover trust or fund. The company, trust or fund will usually advise investors if the conditions for rollover are met. See Scrip for scrip rollover.
- You may roll over a capital gain if you hold shares in a company that demerges (or splits), you receive shares in the demerged company, and the demerger meets certain conditions. A rollover can also apply if you hold units in a trust or fund that demerges and you receive units in the demerged trust or fund. The head company or head trust or fund will usually advise investors if the conditions for a rollover are met. See Demergers.
- You may rollover a capital gain if you receive money or property (or both) as compensation for the loss or destruction of an asset or for the compulsory acquisition of property if certain conditions are met. See Loss, destruction or compulsory acquisition of an asset.
- You may treat a dwelling as your main residence even though
- you no longer live in it (see Continuing main residence status after dwelling ceases to be your main residence), or
- you are yet to live in it but will do so as soon as practicable after it is constructed, repaired or renovated and will continue to live in it for at least three months (see Constructing, renovating or repairing a dwelling on land you already own).
You make the choice when you prepare your income tax return for the income year in which you enter into the contract to sell the dwelling. If you own both:
- the dwelling that you can choose to treat as your main residence for one of the periods above, and
- the dwelling you actually lived in during that period
then you make the choice for the income year in which you enter into the contract to sell the first of those dwellings.