Types of capital proceeds
Capital proceeds are what you receive, or are entitled to receive, from a capital gains tax (CGT) event, such as selling an asset.
For most CGT events your capital proceeds will be money. They can also be the value of any property you receive or are entitled to receive.
If you receive:
- foreign currency – work out the capital proceeds by converting it to Australian currency at the time of the CGT event
- property (including shares) subject to a deed of escrow – your capital proceeds include the market value of the property at the time of the CGT event (a deed of escrow imposes a restriction on dealing in that property).
If you give away or sell an asset for less than it is worth, your capital proceeds equal the market value of the asset.
Market value substitution
If you receive nothing in exchange for a CGT asset, you are taken to have received the market value of the asset at the time of the CGT event.
This is the market value substitution rule for capital proceeds.
You may also be taken to have received the market value if both of the following apply:
- what you received was more or less than the market value of the CGT asset
- you and the new owner were not dealing with each other at arm's length.
You are dealing at ‘arm's length’ with someone when each party acts independently. This occurs when neither party exercises influence or control over the other in connection with the transaction.
The law looks at the relationship between the parties and the quality of the bargaining between them.
The market value substitution rule may apply when transferring property to family or friends.
Example: gifting an asset
Martha and Stephen bought a block of land in 2010.
In 2022, they completed a transfer form to have the block transferred to their son, Paul, as a gift.
As Martha and Stephen received nothing for it, they are taken to have received the market value of the land at the time it was transferred to Paul.
End of exampleReducing your capital proceeds
You reduce your capital proceeds from a CGT event if:
- you are not likely to receive some or all of the proceeds
- it is not due to anything you have done or failed to do
- you took all reasonable steps to get payment.
If you repay part of the proceeds and you are not entitled to a tax deduction for the repayment, your capital proceeds are reduced by the amount you repaid. The same applies to compensation you pay that can reasonably be regarded as a repayment of the proceeds.
If you are registered for GST, any GST payable on the amount you receive is not part of the capital proceeds.
Proceeds from a depreciating asset
CGT does not apply to depreciating assets you use solely for taxable purposes. This includes assets such as business equipment or items in a rental property. If you have used a depreciating asset for private purposes, CGT may apply.
There are special rules for calculating the proceeds from a depreciating asset.
If you sold assets during the year, such as property or shares, see Calculating your CGT to work out your capital gain or loss for each asset.
Money and other types of capital proceeds, market valuation of an asset, and reductions to your capital proceeds.