Personal investors guide to capital gains tax 2023

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Appendix

Appendix

On this page

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Consumer price index (CPI)

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Definitions

Consumer price index (CPI)

All groups - weighted average of 8 capital cities

Note: If you use the indexation method to calculate your capital gain, the indexation factor is based on increases in the CPI up to September 1999 only.

Definitions

Attribution managed investment trust member annual statement

An attribution managed investment trust member annual statement (AMMA statement) is a member statement provided by an AMIT or attribution CCIV sub-fund trust to its members for an income year.

Attribution CCIV sub-fund trust

An attribution CCIV sub-fund trust is a CCIV sub-fund trust that is treated as an AMIT for an income year because it satisfies specific AMIT eligibility requirements in Division 276 of the ITAA 1997 for that income year.

Attribution managed investment trust (AMIT)

An eligible managed investment trust (MIT) may choose to apply the rules within a new specific tax system for MITs. Where that choice is made, the MIT becomes an attribution managed investment trust (AMIT). The choice can only be made for 2015-16 and later income years. Special rules apply to cost-base adjustments for unitholders of AMITs.

Capital gain

You may make a capital gain from a CGT event such as the sale of an asset. Generally, your capital gain is the difference between your asset's cost base (what you paid for it) and your capital proceeds (what you received for it). You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.

Capital gains tax

Capital gains tax (CGT) refers to the income tax you pay on any net capital gain you make. You include the net capital gain on your annual income tax return. For example, when you sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to CGT.

Capital loss

Generally, you may make a capital loss as a result of a CGT event if you received less capital proceeds for an asset than its reduced cost base (what you paid for it). Your capital loss is your reduced cost base less your capital proceeds.

Capital proceeds

Capital proceeds is the term used to describe the amount of money or the value of any property you receive or are entitled to receive as a result of a CGT event. For shares or units, capital proceeds may be:

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the amount you receive from the purchaser

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the value of shares or units you receive on a demerger

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the value of shares or units and the amount of cash you receive on a merger or takeover, or

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the market value if you give the shares or units away.

CGT asset

The CGT assets covered by this guide are shares and units. However, CGT assets also include collectables (such as jewellery), assets for personal use (such as furniture or a boat) and other assets (such as an investment property, vacant land or a holiday home). If you have made a capital gain from the sale of one or more of these assets, you may need to see Guide to capital gains tax 2023 .

CGT concession amount

This amount is the CGT discount component of any actual distribution from a managed fund.

CGT event

A CGT event happens when a transaction takes place such as the sale of a CGT asset. The result is usually a capital gain or capital loss.

Corporate collective investment vehicle (CCIV)

A CCIV is a company limited by shares that is used for funds management. It comprises one or more sub-funds and is operated by a single corporate director. A sub-fund of a CCIV is all or part of the CCIV's business that is registered as a sub-fund of the CCIV by ASIC.

Corporate Collective Investment Vehicle (CCIV) sub-fund trust

For tax purposes, a CCIV sub-fund is taken to be a separate unit trust with the following:

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the CCIV as trustee

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members of the CCIV as beneficiaries, in accordance with their shareholding that is referable to the sub-fund.

Each CCIV sub-fund trust is subject to the existing rules for the taxation of trusts.

Cost base

The cost base of an asset is generally what it costs you. It is made up of 5 elements:

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money you paid or property you gave for the asset

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certain incidental costs of acquiring or selling it (for example, brokerage, stamp duty, investment consultants fees and legal fees)

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the costs of owning it (generally this will not apply to shares or units because you will usually have claimed or be entitled to claim these costs as tax deductions)

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costs associated with increasing or preserving its value or installing or moving it

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what it has cost you to establish, preserve or defend your ownership or rights to it (for example, if you paid a call on shares).

The cost base for a share or unit may need to be reduced by the amount of any non-assessable payment you receive from the company or fund.

Demerger rollover

This may apply to CGT events that happen on or after 1 July 2002 to interests that you own in the head entity of a demerger group where a company or fixed trust is demerged from the group. Generally, the head entity undertaking the demerger will advise owners whether demerger rollover is available, but you should seek our advice if you are in any doubt. We may have provided advice in the form of a class ruling on a specific demerger, confirming that the rollover is available.

This rollover allows you to defer your CGT obligation until a later CGT event happens to your original or your new shares or units.

Demutualisation

A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an Australian insurance company (for example, AMP, IOOF or NRMA), you are not subject to CGT until you sell the shares or another CGT event happens.

Usually, the company will advise you of your cost base for the shares you received. The company may give you the choice of keeping the shares they have given you or of selling them and giving you the capital proceeds.

If you hold a policy in an overseas insurance company that demutualises, you may be subject to CGT at the time of the demutualisation.

Discount method

The discount method is one of the ways to calculate your capital gain if:

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the CGT event happened after 11:45 am AEST on 21 September 1999

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you acquired the asset at least 12 months before the CGT event.

If you use the discount method, you do not index the cost base but you can reduce your capital gain by the CGT discount of 50%. However, you must first reduce your capital gains by the amount of any capital losses made in the income year and any unapplied net capital losses from earlier income years. You discount any remaining capital gain.

If you acquired the asset before 11:45 am AEST on 21 September 1999, you can choose either the discount method or the indexation method, whichever gives you the better result.

The examples in part B of this guide show you how the discount method works.

Discounted capital gain

A discounted capital gain is a capital gain that has been reduced by the CGT discount. If the discounted capital gain has been received from a managed fund, you will need to gross up the amount before you apply any capital losses and the CGT discount.

Dividend reinvestment plans

Under these plans, shareholders can choose to use their dividend to acquire additional shares in the company instead of receiving a cash payment. For CGT purposes, you are treated as if you received a cash dividend and then used it to buy additional shares. Each share (or parcel of shares) received in this way is treated as a separate asset when the shares are issued to you.

Gross up

Grossing up applies to unit holders who are entitled to a share of the fund's income that includes a capital gain reduced by the CGT discount. In this case, you 'gross up' your capital gain by multiplying by 2 your share of any discounted capital gain you have received from the fund.

Income year

An income year is:

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the same time-period as a financial year (a period of 12 months beginning on 1 July and ending on the next 30 June), and

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the period covered by your tax return.

In particular circumstances, the Commissioner of Taxation may allow a company or other entity to adopt another 12-month period.

Indexation factor

The indexation factor is worked out based on the consumer price index (CPI) .

The indexation of the cost base of an asset is frozen as at 30 September 1999. For CGT events after that time, the indexation factor is the CPI for the September 1999 quarter (68.7) divided by the CPI for the quarter in which you incurred costs relating to the asset. The result is taken to 3 decimal places, rounding up if the fourth decimal place is 5 or more. You may have different indexation factors for different amounts included in your cost base.

Indexation method

The indexation method is one of the ways to calculate your capital gain if you bought a CGT asset before 11:45 am AEST on 21 September 1999. This method allows you to increase the cost base by applying an indexation factor to each item of expenditure in your cost base (based on increases in the CPI up to September 1999).

Some examples in part B of this guide show you how the indexation method works.

You may prefer to use the discount method for CGT events after 11:45 am AEST on 21 September 1999 if that method gives you a better result.

LIC capital gain amount

This is an amount notionally included in a dividend from a listed investment company (LIC) which represents a capital gain made by that company.

Net capital gain

A net capital gain is the difference between your total capital gains for the income year and the total of your capital losses for the income year and unapplied net capital losses from earlier income years, less any CGT discount and small business CGT concession to which you are entitled.

Net capital loss

If your total capital loss for the income year is more than your total capital gain, the difference is your net capital loss for the income year. This loss can be carried forward and deducted from capital gains you make in later income years. There is no time limit on how long you can carry forward a net capital loss.

You can only use capital losses from collectables to reduce capital gains from collectables. If your total capital losses from collectables for the income year are more than your total capital gains from collectables, you have a net capital loss from collectables for the income year. This loss is carried forward and deducted from capital gains from collectables in later income years. There is no time limit on how long you can carry forward a net capital loss from collectables.

Non-assessable payment

A non-assessable payment is a payment received from a company or fund that is not assessed as part of your income on your income tax return. This includes some distributions from unit trusts, managed funds and companies.

'Other' method

To calculate your capital gain using the 'other' method, you subtract your cost base from your capital proceeds. You must use this method for any shares or units you have bought and sold within 12 months (that is, when the indexation and discount methods do not apply).

Reduced cost base

The reduced cost base is the amount you take into account when you are working out whether you have made a capital loss when a CGT event happens. The reduced cost base may need to have amounts deducted from it such as non-assessable payments. The reduced cost base does not include indexation or costs of owning the asset, such as interest on monies borrowed to buy it.

Rollover

A rollover allows a capital gain to be deferred or disregarded until a later CGT event happens.

Scrip-for-scrip rollover

This can apply to CGT events that happened on or after 10 December 1999 in the case of a takeover or merger of a company or fund in which you have holdings. The company or fund would usually advise you if the rollover conditions have been satisfied. This rollover allows you to defer your CGT obligation until a later CGT event happens to your shares or units.

You may only be eligible for partial rollover if you received shares (or units) plus cash for your original shares. In that case, if the information provided by the company or fund is not sufficient for you to calculate your capital gain, you may need to seek advice from us.

Share buy-backs

If you disposed of shares back to a company under a buy-back arrangement, you may have made a capital gain or capital loss.

Some of the buy-back price may have been treated as a dividend for tax purposes. The time you make the capital gain or capital loss will depend on the conditions of the particular buy-back offer.

Takeovers and mergers

If a company in which you held shares was taken over or merged and you received new shares in the takeover or merged company, you may be entitled to a scrip-for-scrip rollover.

If the scrip-for-scrip rollover conditions were not satisfied, your capital proceeds for your original shares will be the total of any cash and the market value of the new shares you received.

Tax-deferred amounts

These amounts include indexation received by a managed fund on its capital gains and accounting differences in income. Tax-deferred amounts reduce both the cost base and reduced cost base of your units in a managed fund.

Tax-exempted amounts

These amounts are generally made up of non-assessable non-exempt income of the managed fund, amounts on which the fund has already paid tax or income you had to repay to the fund. Tax-exempted amounts do not affect the cost base and reduced cost base of your units in a managed fund.

Tax-free amounts

These amounts allow the managed fund to pay a greater distribution to its unit holders. This is due to certain tax concessions funds can receive. Tax-free amounts affect the reduced cost base but not the cost base of your units in a managed fund.

Unapplied net capital losses from earlier income years

This is the amount of net capital losses from earlier income years remaining after you deduct any capital gains made between the income years when the losses were made and the current income year.

You use unapplied net capital losses from earlier income years to reduce capital gains in the current income year (after those capital gains are reduced by any capital losses in the current income year).

You can only use unapplied net capital losses from collectables from earlier income years to reduce capital gains from collectables in the current income year and future income years.

References

ATO references:
NO QC 72665