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CGT events are the different types of transactions or events that attract capital gains tax. Most CGT events involve a CGT asset, from which you make a capital gain or capital loss. There are exceptions, for example, where CGT events relate directly to capital receipts (capital proceeds).
There is a wide range of CGT events. Some happen often and affect many different people, while others are rare and affect only a few people. There is a summary of CGT events from A1 to K6 at appendix 3.
The most common CGT event happens if you dispose of an asset to someone else, for example, if you sell or give away an asset. Some other CGT events from which you may make a capital gain or capital loss include 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 trust
- a company makes a payment (not a dividend) to you as a shareholder
- a liquidator declares that shares you own are worthless
- you receive an amount from a local council for disruption to your business assets by roadworks, or
- you stop being an Australian resident.
You make the capital gain or capital loss at the time of the event. Generally, your capital proceeds are what you receive from the CGT event.
For most CGT events, you make a capital gain if you receive an amount from the CGT event that is greater than your cost base, for example, if you received more for the asset than you paid. You make a capital loss if your reduced cost base is greater than your capital proceeds.
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, non-residents make a capital gain or capital loss only if a CGT event happens to a CGT asset that has a necessary connection with Australia.
Non-Australian residents also make a capital gain or capital loss where CGT events create:
- contractual or other rights (CGT event D1), or
- a trust over future property (CGT event E9).
To work out your capital gain or capital loss, you need to know which CGT event applies. The type of CGT event affects when you can include the capital gain in your assessable income and how you calculate the capital gain or capital loss.
Order in which CGT events apply
If more than one CGT event could apply to your transaction or circumstances, the most relevant CGT event applies.
Time of the CGT event
The timing of a CGT event is important because it tells you in which income year a capital gain or capital loss from the event affects your income tax.
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.
In June 2001 Sue enters into a contract to sell land. The contract is settled in October 2001.
Sue makes the gain in the 2000-01 year when she enters into the contract and not the 2001-02 income year when settlement takes place.
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.
Laurie owned a rental property that was destroyed by fire in June 2000. He received a payment under an insurance policy in October 2000. The CGT event happened in October 2000.
The CGT events relating to shares and units, and the times of the events, are dealt with in chapter 5.
Last modified: 31 Aug 2010QC 16195