What are capital proceeds?



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Capital proceeds is the term used to describe what you receive from a CGT event. This is usually an amount of money or the value of any property you receive (or are entitled to receive) as a result of a CGT event.

In some cases, if you receive nothing in exchange for a CGT asset (for example, if you give the CGT asset 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
  • 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.

Capital proceeds from a CGT event are reduced if:

  • you are not likely to receive some or all of those proceeds
  • the non-receipt is not due to anything you have done or failed to do
  • you took all reasonable steps to obtain payment.

Provided you are not entitled to a tax deduction for the amount you repaid, capital proceeds are reduced by:

  • any part of the proceeds that you repay or
  • any compensation you pay that can reasonably be regarded as a repayment of the proceeds.

If you are registered for GST and you receive payment when you dispose of a CGT asset, any GST payable is not part of the capital proceeds.

There are special rules for calculating the proceeds from a depreciating asset. A depreciating asset is a tangible asset (other than land or trading stock) that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Certain intangible assets are also depreciating assets.

For more information, refer to the Guide to depreciating assets.

Last modified: 06 Oct 2009QC 27417