• What are capital proceeds?

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    Whatever you receive as a result of a CGT event is referred to as your 'capital proceeds'. For most CGT events, your capital proceeds are an amount of money or the value of any property you receive (or are entitled to receive).

    If you receive (or are entitled to receive) foreign currency, you work out the capital proceeds by converting it to Australian currency at the time of the relevant CGT event.

    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.

    This is known as the market value substitution rule for capital proceeds.

    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 not only at the relationship between the parties but also at the quality of the bargaining between them.

    Example: Gifting an asset

    On 7 May 2004, Martha and Stephen bought a block of land.

    In November 2005 they complete a transfer form to have the block transferred to their adult son, Paul, as a gift.

    Because they received nothing for it, Martha and Stephen are taken to have received the market value of the land at the time it was transferred to Paul.

    You reduce your capital proceeds from a CGT event if:

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

    Provided you are not entitled to a tax deduction for the amount you repaid, your capital proceeds are also 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 goods and services tax (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. For more information, see CGT and depreciating assets.

    Last modified: 06 Oct 2009QC 18504