What is a capital gains tax event?
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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; some relate directly to capital receipts (capital proceeds).
You need to know which type of CGT event applies in your situation because it affects how you calculate your capital gain or capital loss and when you include it in your net capital gain or net capital loss.
The range of CGT events is wide. Some happen often and affect many people while others are rare and affect only a few people. There is a summary of the various types of CGT events at appendix 1.
The most common CGT event happens if you dispose of a CGT asset to someone else, for example, if you sell it or give it away, including to a relative.
If you are registered for goods and services tax (GST), or required to be registered for GST, a GST liability may also arise when you dispose of a business asset.
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A CGT event also happens 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 or administrator declares that shares or financial instruments 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
- you dispose of a depreciating asset that you used for private purposes.
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.
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, foreign residents make a capital gain or capital loss only if a CGT event happens to a CGT asset that is taxable Australian property.
Order in which CGT events apply
If more than one CGT event can happen, use the one that is most specific to your situation.
Time of the CGT event
The timing of a CGT event is important because it determines in which income year you report your capital gain or capital loss.
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 1: Contract
In June 2014, Sue enters into a contract to sell land. The contract is settled in October 2014.
Sue makes the capital gain in the 2013–14 year (the income year she enters into the contract), not the 2014–15 year (the income year settlement takes place).
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If 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 2: Insurance policy
Laurie owned a rental property that was destroyed by fire in June 2013. He received a payment under an insurance policy in October 2013. The CGT event happened in October 2013.
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CGT events relating to shares and units, and the times of the events, are dealt with in Investments in shares and units.
Last modified: 01 Sep 2014QC 39804