Amount of capital gains from a trust (including a managed fund)
Distributions from trusts can include different amounts but only the following types of amounts are relevant for CGT purposes:
- distributions of all or a part of the trust’s income where the trust’s net income for tax purposes includes a net capital gain
- distributions or other entitlements described as being referable to a specific capital gain or gains
- distributions of non-assessable amounts.
Assessable income is all the income you have received and that you include on your tax return. Generally, assessable income does not include non-assessable payments from a unit trust, including a managed fund.
A beneficiary's adjusted Division 6 percentage is the percentage of the income of the trust estate (disregarding any amount of a capital gain or a franked distribution to which any beneficiary or the trustee is specifically entitled) that they are presently entitled to.
Attribution managed investment trust
An attribution managed investment trust (AMIT) is a managed investment trust (MIT) whose trustee has chosen to apply the attribution rules in Division 276 of the Income Tax Assessment Act 1997.
Attribution managed investment trust member annual statement
An attribution managed investment trust member annual statement (AMMA) is a member statement provided by an attribution managed investment trust (AMIT) to its members for an income year.
Bonus shares are additional shares a shareholder receives wholly or partly as a dividend. You may also be required to pay an amount to get them.
Bonus units are additional units a unit holder receives from the trust. You may also be required to pay an amount to get them.
Call on shares
A company may sometimes issue a partly paid share and then make a call to pay up part or all of the remaining outstanding balance.
You may make a capital gain from a CGT event such as the sale of an asset. Generally, your capital gain is the difference between your asset’s cost base (what you paid for it) and your capital proceeds (what you received for it). You can also make a capital gain if a managed fund distributes an amount described as a capital gain to you.
Under the trust provisions, you may make a capital gain if you are:
- specifically entitled to an amount of a capital gain made by the trust, and/or
- there is an amount of capital gain included in the income of the trust to which no entity is specifically entitled and you are presently entitled to a share of that income.
Capital gains disregarded by a foreign resident
If a foreign resident or the trustee of a foreign trust for CGT purposes had a CGT event happen in 2020–21, to a CGT asset that is not considered to be taxable Australian property, any capital gain or capital loss made is disregarded under Division 855 of the Income Tax Assessment Act 1997.
Capital gains tax
Capital gains tax (CGT) refers to the income tax you pay on any net capital gain which you make and include on your annual income tax return. For example, when you sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to CGT.
A capital improvement does not include a repair that is deductible for income tax purposes.
Generally, you may make a capital loss as a result of a CGT event if you received less capital proceeds for an asset than its reduced cost base (what you paid for it).
Capital proceeds is the term used to describe the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event. For shares or units, capital proceeds may be:
- the amount you receive from the purchaser of the shares or units
- the value of the shares or units you receive on a demerger
- the value of the shares or units and the amount of cash you receive on a merger or takeover
- the market value of the shares or units which you give away.
CGT assets include shares, units in a unit trust, collectables (such as jewellery), assets for personal use (such as furniture or a boat) and other assets (such as an investment property).
These amounts are the CGT discount component of any actual distribution from a managed fund.
The CGT discount is the amount (or percentage) by which a capital gain may be reduced under the discount method, see The discount method.
A CGT event happens when a transaction takes place such as the sale of a CGT asset. The result is usually a capital gain or capital loss.
A collectable is an artwork, an item of jewellery, an antique, a coin, a medallion, a rare folio, a rare manuscript, a rare book, a postage stamp or a first day cover that is used or kept mainly for personal use or enjoyment. Collectables also include an interest in any of the listed items, a debt that arises from any of those items or an option or right to acquire any of those items.
From 1 July 2002, consolidation refers to taxing wholly owned groups as single entities, and enables assets to be transferred between members of a group without triggering capital gains or requiring cost base adjustments for membership interests. Subsidiary members are treated as part of the head company. Intra-group transactions are disregarded for income tax purposes.
A convertible note is a type of investment you can make in a company or unit trust. A convertible note earns interest on the amount you pay to acquire the note until the note’s expiry date. On expiry of the note, you can either ask for the return of the money paid or convert that amount to acquire new shares or units.
The cost base of an asset is generally what it costs you. It is made up of five elements:
- money you paid, or property you gave, for the asset
- incidental costs of acquiring or selling the asset (for example, brokerage and stamp duty)
- costs of owning the asset (generally this will not apply to shares or units because you will usually have claimed or be entitled to claim these costs as tax deductions)
- costs associated with
- increasing or preserving the value of the asset, or
- installing or moving the asset
- costs to preserve or defend your title or rights to the asset, such as you paying for a call on shares.
You may need to reduce the cost base for a share or unit by the amount of any non-assessable payment you receive from the company or fund.
A debt is forgiven if you are freed from the obligation to pay it. A commercial debt that is forgiven may reduce your capital loss, your cost base or your reduced cost base.
A demerger involves the restructuring of a corporate or trust group by splitting its operations into two or more entities or groups. Under a demerger, the owners of the head entity of the group acquire a direct interest in the demerged entity that was formerly part of the group.
A demerger exemption applies to disregard certain capital gains or capital losses made by a demerging entity in a demerger group. A demerger group comprises the head entity of a group of companies or trusts and at least one demerger subsidiary. Discretionary trusts and superannuation funds cannot be members of a demerger group.
A demerger rollover may apply to CGT events that happened on or after 1 July 2002 to interests that you own in the head entity of a demerger group where a company or trust is demerged from the group. Generally, the head entity undertaking the demerger will advise owners whether demerger rollover is available but you should seek our advice if you are in any doubt. We may have provided advice in the form of a class ruling on a specific demerger, confirming that the rollover is available.
This rollover allows you to defer your CGT obligation until a later CGT event happens to your original or your new shares or units.
A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an Australian insurance company (for example, AMP, IOOF or NRMA), you are not subject to CGT until you sell the shares or another CGT event happens.
Usually the company will advise you of your cost base for the shares you received. The company may give you the choice of keeping the shares they have given you or of selling them and giving you the capital proceeds.
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include items such as computers, tools, furniture and motor vehicles.
Land and items of trading stock are specifically excluded from the definition of depreciating asset, as are most intangible assets such as options, rights and goodwill.
The discount method is one of the ways to calculate your capital gain if:
- the CGT event happened after 11.45am AEST on 21 September 1999
- you acquired the asset at least 12 months before the CGT event.
If you use the discount method, you do not index the cost base but you may be able to reduce your capital gain by the CGT discount. However, you must first reduce your capital gains by the amount of any capital losses made in the year and any unapplied net capital losses from earlier years. You discount any remaining capital gain.
If you acquired the asset before 11.45am AEST on 21 September 1999, you may be able to choose either the discount method or the indexation method, whichever gives you the better result.
Discounted capital gain
A discounted capital gain is a capital gain that has been reduced by the CGT discount. If you received the discounted capital gain from a managed fund you will need to gross up the amount before you apply any capital losses and then the CGT discount.
You can apply a rollover if a trust restructures and disposes of all of its assets to a company and the units or interests in the trust are replaced by shares in the company. This rollover is not available for a restructure undertaken by a discretionary trust.
If you are an individual or a trustee, you can choose to obtain a rollover to defer the capital gain if:
- you dispose of a CGT asset, or all the assets of a business, to a company in which you own all the shares, or you create a CGT asset in such a company
- all the partners in a partnership dispose of partnership property to a company in which they all own shares or the partners create a CGT asset in such a company.
Dividend reinvestment plans
Under dividend reinvestment plans, shareholders can choose to have their dividend used to acquire additional shares in the company instead of receiving a cash payment. For CGT purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset when the shares are issued to you.
A dwelling is anything that is used wholly or mainly for residential accommodation. Examples of a dwelling are a home, an apartment, a strata title unit or a unit in a retirement village.
Early stage innovation company
You may be entitled to the early stage investor tax incentives for eligible investments you make in an early stage innovation company (ESIC). A company will qualify as an ESIC if it meets both:
- the early stage test
- either the
- 100-point innovation test, or
- Principles-based innovation test.
Employee share schemes
Employee share schemes (ESS) give employees benefits such as shares or the opportunity to buy shares (such as rights or options) in the company they work for at a discounted price. These benefits are known as ESS interests. In most cases, ESS interests are exempt from CGT implications until the discount on the ESS interest has been taxed. When you sell your ESS interests (or resulting shares), they are taxed under the CGT rules (or if you are a share trader, the trading stock rules).
You may apply a rollover to defer the capital gain when you exchange rights or options to acquire shares in a company or units in a unit trust.
This rollover is a type of replacement asset rollover.
You may apply a rollover to defer the capital gain when you exchange shares in one company for shares in an interposed company.
This rollover is a type of replacement asset rollover.
A rollover may be chosen to defer the capital gain if you exchange shares in the same company or units in the same unit trust.
This rollover is a type of replacement asset rollover.
You can apply a rollover to defer the capital gain when you exchange units in a unit trust for shares in a company due to a reorganisation.
An excluded foreign resident is a person who, at the time of the CGT event, is a foreign resident and has been a foreign resident for tax purposes for a continuous period of more than six years.
Extra capital gain
A beneficiary of a trust who has a share of a capital gain that was included in the net income of the trust for tax purposes, will include an amount of extra capital gain when working out their own net capital gain. The amount of extra capital gain will depend on the beneficiary's share of a capital gain, the amount of the taxable income of the trust that relates to the beneficiary's share of the capital gain and whether any discounts or concessions were applied by the trustee when working out the amount of the capital gain for tax purposes.
Foreign resident capital gains withholding
For foreign residents who entered into transactions from 1 July 2017 onwards, a 12.5% withholding obligation applies to the disposal of:
- taxable Australian real property
- an indirect Australian real property interest
- an option or right to acquire such property or such an interest.
Grossing up applies to unit holders who are entitled to a share of the trust’s income that includes a capital gain reduced by the CGT discount. In this case, you ‘gross up’ your capital gain by multiplying by two your share of any discounted capital gain you have received from the trust. You may also have to gross up a capital gain that was reduced by the small business 50% active asset reduction.
An income year is the period covered by your tax return, generally 1 July to the next 30 June. However, in particular circumstances, the Commissioner may allow a company or other entity to adopt a different 12-month period for their income year.
The indexation factor is worked out based on the consumer price index (CPI) at Appendix 2.
The indexation of the cost base of an asset is frozen on 30 September 1999. For CGT events after that time, the indexation factor is the CPI for the September 1999 quarter (68.7), divided by the CPI for the quarter in which you incurred costs relating to the asset. The result is taken to three decimal places rounding up if the fourth decimal place is five or more.
The indexation method is one of the ways to calculate your capital gain if you acquired a CGT asset before 11.45am AEST on 21 September 1999. This method allows you to increase the cost base by applying an indexation factor (based on increases in the consumer price index up to September 1999).
You cannot use the indexation method for:
- CGT assets acquired after 11.45am AEST on 21 September 1999
- expenditure relating to a CGT asset acquired after 11.45am AEST on 21 September 1999.
For CGT events after 11.45am AEST on 21 September 1999 the discount method may give you the better result.
A same asset rollover is available where a company transfers or creates (CGT event) a CGT asset in another company that is a member of the same wholly-owned group, but one of the companies is a non-resident.
Legal personal representative
A legal personal representative can be either:
- the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will)
- an administrator appointed to wind up the estate if the person does not leave a will.
LIC capital gain amount
An LIC capital gain amount is an amount notionally included in a dividend from a listed investment company (LIC) which represents a capital gain made by that company. The amount is not included as a capital gain at item 18 on the tax return (supplementary section). See example 47 and the instructions for dividend income for question 11 in Individual tax return instructions 2021.
Your main residence is your home, that is, the dwelling you regard as your main place of residence and nominate as such for any CGT concessions dealing with the disposal of a main residence.
Main residence exemption
Generally, you can disregard a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (also referred to as ‘your home’). Subject to certain conditions, you may not be able to disregard a capital gain or capital loss if:
- you have used your home to produce income
- your home was not your main residence for the full period you owned it
- you were an excluded foreign resident at the time you sold your main residence
- the land around your home is more than two hectares.
A managed fund is a unit trust. The types of managed funds available include cash management trusts, fixed interest trusts, mortgage trusts, property trusts, equity trusts, international trusts and diversified trusts. Attribution managed investment trusts (AMITs) have separate tax rules.
Managed investment trust
A trust is a managed investment trust (MIT) if:
- the trustee of the trust is an Australian resident, or the central management and control of the trust is in Australia
- the trust does not carry on or control an active trading business
- the trust is a managed investment scheme under section 9 of the Corporations Act
- the trust is sufficiently widely-held and not closely-held (special counting rules apply where investors in a MIT are specified widely held entities)
- the trust is operated or managed by an appropriately regulated entity.
Market value substitution rule for capital proceeds
In some cases, if you receive nothing in exchange for a CGT asset (for example, if you give it away as a gift) you are 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 your capital proceeds are more or less than the market value of the CGT asset, and you and the purchaser were not dealing with each other at arm’s length in connection with the event.
You are 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.
Market value substitution rule for cost base and reduced cost base
In some cases, the general rules for calculating the cost base and reduced cost base have to be modified. For example, the market value may be substituted for the first element of the cost base and reduced cost base if:
- you did not incur expenditure to acquire the asset
- some or all of the expenditure you incurred cannot be valued, or
- you did not deal at arm’s length with the previous owner in acquiring the asset.
Net capital gain
A net capital gain is the difference between your total capital gains for the year and the total of your capital losses for the year and unapplied net capital losses from earlier years, less any CGT discount and small business CGT concessions to which you are entitled.
Net capital loss
A net capital loss occurs when your total capital losses for the year are more than your total capital gains for the year. This loss can be carried forward and deducted from capital gains you make in later years. There is no time limit on how long you can carry forward a net capital loss.
Capital losses from collectables can only be used to reduce capital gains from collectables. If your total capital losses from collectables for the year are more than your total capital gains from collectables, you have a net capital loss from collectables for the year. This loss is carried forward and deducted from capital gains from collectables in later years. There is no time limit on how long you can carry forward a net capital loss from a collectable.
A non-assessable payment is a payment received from a company, trust or fund that is not assessed as part of your income on your tax return.
This includes some distributions from unit trusts, managed funds and companies.
To calculate your capital gain using the 'other' method, you subtract your cost base from your capital proceeds. You must use this method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply).
Other CGT assets and any other CGT events
Other CGT assets refers to the capital gain or capital loss that you have made and that does not fit into any of the more specific categories listed at item 1 of the CGT schedule – such as the disposal of your forestry interests in a forestry managed investment scheme or hedging financial arrangements.
Other real estate
Any real estate including land and buildings that are situated outside of Australia, for example, a rental property situated in the United States.
Other exemptions and rollovers are exemptions and rollovers that you have applied that are not listed in one of the more specific codes under the question 'Have you applied an exemption or rollover?' of the individual tax return (supplementary section) or your entity's tax return.
Other shares are shares that are not listed on an Australian securities exchange, such as privately held shares or shares listed on a foreign securities exchange, but not also on an Australian securities exchange, for example, shares listed on the New York Stock Exchange (NYSE).
Other units are units in a unit trust that are not listed on an Australian securities exchange, such as privately held units or units listed on a foreign securities exchange, but not also on an Australian securities exchange, for example, units listed on the NYSE.
You have an ownership interest if you own a dwelling or land. For other circumstances where you may have an ownership interest, see What is an ownership interest?
Post-GST assets are assets acquired on or after 20 September 1985.
Pre-GST assets are assets acquired before 20 September 1985. They are generally exempt from CGT. An exception occurs where CGT event K6 applies.
Prior year net capital losses
Real estate situated in Australia
Real estate situated in Australia is any real property, including land and buildings, that is in Australia.
Reduced cost base
The reduced cost base is the amount you take into account when you are working out whether you have made a capital loss when a CGT event happened.
The reduced cost base may need to have amounts deducted from it such as non-assessable payments.
The reduced cost base does not include indexation or costs of owning the asset such as interest on monies borrowed to buy it.
A replacement asset rollover may apply to defer the capital gain when you replace an asset in certain circumstances.
A rollover allows a capital gain to be deferred or disregarded until a later CGT event happens.
A same asset rollover allows a capital gain that you make to be deferred when you transfer or dispose of assets in certain circumstances.
Scrip for scrip rollover
A scrip for scrip rollover can apply to CGT events that happened on or after 10 December 1999 in the case of a takeover or merger of a company or fund in which you have holdings. The company or fund would usually advise you if the rollover conditions have been satisfied.
This rollover allows you to defer your CGT obligation until a later CGT event happens to your shares or units.
You may only be eligible for partial rollover if you received shares (or units) plus cash for your original shares. In that case, if the information provided by the company or fund is not sufficient for you to calculate your capital gain, you may need to seek advice from us.
If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.
Some of the buy-back price may have been treated as a dividend for tax purposes. The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.
Shares in companies listed on an Australian securities exchange
Shares in companies listed on an Australian securities exchange do not include shares in privately owned companies whose shares are not publicly traded. Include shares in privately owned companies under Other Shares.
Small business CGT concessions
There are four small business CGT concessions available where certain conditions are satisfied. They are, the:
- small business 15-year exemption
- small business 50% active asset reduction
- small business retirement exemption
- small business rollover.
These concessions apply to CGT events that happened after 11.45am AEST on 21 September 1999.
In addition to the four small business CGT concessions, there is a small business restructure rollover allowing the transfer of active assets – including CGT assets – from one entity to another, on or after 1 July 2016, without incurring an income tax liability.
A beneficiary that is specifically entitled to the whole or part of a capital gain made by the trust will be assessable on the amount of the net (taxable) income of the trust that relates to that gain.
Generally, a beneficiary will be taken to be specifically entitled to an amount of a capital gain if they have received or are likely to receive the benefit of that capital gain.
Your 'spouse' includes another person (of any sex) who:
- you were in a relationship with that was registered under a prescribed state or territory law
- although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.
Takeovers and mergers
If a company in which you held shares was taken over or merged and you received new shares in the takeover or merged company, you may be entitled to a scrip for scrip rollover.
If the scrip for scrip conditions were not satisfied, your capital proceeds for your original shares is the total of any cash and of the market value of the new shares you received.
A tax-advantaged entity is a tax-exempt entity, or the trustee of:
- a complying superannuation fund
- a complying approved deposit fund
- a pooled superannuation fund.
Unapplied net capital losses from earlier years
Unapplied net capital losses from earlier years is the amount of net capital losses from earlier years remaining after you have deducted the capital gain made between the year when the losses were made and the current income year.
To reduce capital gains in the current year, use unapplied net capital losses from earlier years (after first taking out from the current year capital gain any current year capital losses).
To reduce capital gains from collectables in the current year, you can use only the unapplied net capital losses from collectables from earlier years.
A unit trust is a trust or fund that is divided into units representing capital and income entitlements. Units may be traded or redeemed (including switching and transferring units). A managed fund is a type of unit trust.
Units in unit trusts listed on an Australian securities exchange
Units in unit trusts listed on an Australian securities exchange do not include units in private equity trusts or family trusts, whereby the trust is established for the benefit of one or more ascertainable beneficiaries, rather than for the promotion of the welfare of the general public or for the advancement of a cause. Include units in a private trust under Other units.