Guide to capital gains tax 2013
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Appendixes
Appendix 1 Summary of CGT events
Disposal
CGT event | Time of event | Capital gain | Capital loss | |
A1 | Disposal of a CGT asset | when the disposal contract is entered into or, if none, when the entity stops being the asset's owner | capital proceeds from disposal less the asset's cost base | asset's reduced cost base less capital proceeds |
Hire purchase and similar agreements
CGT event | Time of event | Capital gain | Capital loss | |
B1 | Use and enjoyment before title passes | when use of the CGT asset passes | capital proceeds less the asset's cost base | asset's reduced cost base less capital proceeds |
End of a CGT asset
CGT event | Time of event | Capital gain | Capital loss | |
C1 | Loss or destruction of a CGT asset | when compensation is first received or, if none, when the loss is discovered or destruction occurred | capital proceeds less the asset's cost base | asset's reduced cost base less capital proceeds |
C2 | Cancellation, surrender and similar endings | when the contract ending an asset is entered into or, if none, when an asset ends | capital proceeds from the ending less the asset's cost base | asset's reduced cost base less capital proceeds |
C3 | End of an option to acquire shares and so on | when the option ends | capital proceeds from granting the option less expenditure in granting it | expenditure in granting the option less capital proceeds |
Bringing a CGT asset into existence
CGT event | Time of event | Capital gain | Capital loss | |
D1 | Creating contractual or other rights | when the contract is entered into or the right is created | capital proceeds from creating the right less incidental costs of creating the right | incidental costs of creating the right less capital proceeds |
D2 | Granting an option | when the option is granted | capital proceeds from the grant less expenditure to grant it | expenditure to grant the option less capital proceeds |
D3 | Granting a right to income from mining | when the contract is entered into or, if none, when the right is granted | capital proceeds from the grant of right less the expenditure to grant it | expenditure to grant the right less capital proceeds |
D4 | Entering into a conservation covenant | when covenant is entered into | capital proceeds from covenant less cost base apportioned to the covenant | reduce cost base apportioned to the covenant less capital proceeds from covenant |
Trusts
CGT event | Time of event | Capital gain | Capital loss | |
E1 | Creating a trust over a CGT asset | when the trust is created | capital proceeds from creating the trust less the asset's cost base | asset's reduced cost base less capital proceeds |
E2 | Transferring a CGT asset to a trust | when the asset is transferred | capital proceeds from the transfer less the asset's cost base | asset's reduced cost base less capital proceeds |
E3 | Converting a trust to a unit trust | when the trust is converted | market value of the asset at that time less its cost base | asset's reduced cost base less that market value |
E4 | Capital payment for trust interest | when the trustee makes the payment | non-assessable part of the payment less the cost base of the trust interest | no capital loss |
E5 | Beneficiary becoming entitled to a trust asset | when the beneficiary becomes absolutely entitled | for a trustee, market value of the CGT asset at that time less its cost base; for a beneficiary, that market value less the cost base of the beneficiary's capital interest | for a trustee, reduced cost base of the CGT asset at that time less that market value; for a beneficiary, reduced cost base of the beneficiary's capital interest less that market value |
E6 | Disposal to a beneficiary to end an income right | the time of the disposal | for a trustee, market value of the CGT asset at that time less its cost base; for a beneficiary, that market value less the cost base of the beneficiary's right to income | for a trustee, reduced cost base of the CGT asset at that time less that market value; for a beneficiary, reduced cost base of the beneficiary's right to income less that market value |
E7 | Disposal to a beneficiary to end capital interest | the time of the disposal | for a trustee, market value of the CGT asset at that time less its cost base; for a beneficiary, that market value less the cost base of the beneficiary's capital interest | for a trustee, reduced cost base of the CGT asset at that time less that market value; for a beneficiary, reduced cost base of the beneficiary's capital interest less that market value |
E8 | Disposal by a beneficiary of capital interest | when the disposal contract is entered into or, if none, when the beneficiary ceases to own the CGT asset | capital proceeds less the appropriate proportion of the trust's net assets | appropriate proportion of the trust's net assets less the capital proceeds |
E9 | Creating a trust over future property | when the entity makes an agreement | market value of the property (as if it existed when the agreement was made) less incidental costs in making the agreement | incidental costs in making the agreement less the market value of the property (as if it existed when the agreement was made) |
Leases
CGT event | Time of event | Capital gain | Capital loss | |
F1 | Granting a lease | for granting a lease, when the entity enters into the lease contract or, if none, at the start of the lease; for a lease renewal or extension, at the start of the renewal or extension | capital proceeds less the expenditure on grant, renewal or extension | expenditure on grant, renewal or extension less capital proceeds |
F2 | Granting a long-term lease | for granting a lease, when the lessor grants the lease; for a lease renewal or extension, at the start of the renewal or extension | capital proceeds from the grant, renewal or extension less the cost base of the leased property | reduced cost base of the leased property less the capital proceeds from the grant, renewal or extension |
F3 | Lessor pays lessee to get lease changed | when the lease term is varied or waived | no capital gain | amount of expenditure to get lessee's agreement |
F4 | Lessee receives payment for changing a lease | when the lease term is varied or waived | capital proceeds less the cost base of lease | no capital loss |
F5 | Lessor receives payment for changing a lease | when the lease term is varied or waived | capital proceeds less expenditure for variation or waiver | expenditure for variation or waiver less capital proceeds |
Shares
CGT event | Time of event | Capital gain | Capital loss | |
G1 | Capital payment for shares | when the company pays a non-assessable amount | payment less cost base of shares | no capital loss |
G3 | Liquidator or administrator declares shares or financial instruments worthless | when declaration is made | no capital gain | shares' or financial instruments' reduced cost base |
Special capital receipts
CGT event | Time of event | Capital gain | Capital loss | |
H1 | Forfeiture of a deposit | when the deposit is forfeited | deposit less expenditure in connection with the prospective sale | expenditure in connection with the prospective sale less deposit |
H2 | Receipt for an event relating to a CGT asset | when the act, transaction or event occurred | capital proceeds less the incidental costs | incidental costs less capital proceeds |
Cessation of residency
CGT event | Time of event | Capital gain | Capital loss | |
I1 | Individual or company stops being an Australian resident | when the individual or company stops being an Australian resident | for each CGT asset the person owns, its market value less its cost base | for each CGT asset the person owns, its reduced cost base less its market value |
I2 | Trust stops being a resident trust | when the trust ceases to be a resident trust for CGT purposes | for each CGT asset the trustee owns, its market value less its cost base | for each CGT asset the trustee owns, its reduced cost base less its market value |
Reversal of rollover
CGT event | Time of event | Capital gain | Capital loss | |
J1 | Company stops being a member of a wholly owned group after a rollover | when the company stops being a member of a wholly owned group after a rollover | market value of the asset at the time of the event less its cost base | reduced cost base of the asset less that market value |
J2 | Change for replacement asset or improved asset after a rollover under Subdivision 152-E | when the change happens | the amount mentioned in subsection 104-185(5) | no capital loss |
J4 | Trust failing to cease to exist after rollover under Subdivision 124-N | when the failure to cease to exist happens | for the company, market value of the asset at the time the company acquired it less its cost base at that time for a shareholder, market value of the share at the time the shareholder acquired it less its cost base at that time | for the company, reduced cost base of the asset at the time the company acquired it less its market value at that time for a shareholder, reduced cost base of the share at the time the shareholder acquired it less its market value at that time |
J5 | Failure to acquire replacement asset and to incur fourth element expenditure after a rollover under Subdivision 152-E | at the end of the replacement asset period | the amount of the capital gain that you disregarded under Subdivision 152-E | no capital loss |
J6 | Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain | at the end of the replacement asset period | the amount mentioned in subsection 104-198(3) | no capital loss |
Other CGT events
CGT event | Time of event | Capital gain | Capital loss | |
K2 | Bankrupt pays an amount for debt | when payment is made | no capital gain | that part of the payment that relates to the denied part of a net capital loss |
K3 | Asset passing to a tax-advantaged entity | when an individual dies | market value of the asset at death less its cost base | reduced cost base of the asset less that market value |
K4 | CGT asset starts being trading stock | when the asset starts being trading stock | market value of asset less its cost base | reduced cost base of asset less that market value |
K5 | Special capital loss from a collectable that has fallen in market value | when CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable | no capital gain | market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8 |
K6 | Pre-CGT shares or trust interest | when another CGT event involving the shares or interest happens | capital proceeds from the shares or trust interest that are attributable to post-CGT assets owned by the company or trust, less the assets' cost bases | no capital loss |
K7 | Balancing adjustment occurs for a depreciating asset that you used for purposes other than taxable purposes | when the balancing adjustment event occurs | termination value less cost times fraction | cost less termination value times fraction |
K8 | Direct value shifts affecting your equity or loan interests in a company or trust | the decrease time for the interests | the capital gain worked out under section 725-365 | no capital loss |
K9 | Entitlement to receive payment of a carried interest | when you become entitled to receive the payment | capital proceeds from the entitlement | no capital loss |
K10 | You make a forex realisation gain as a result of forex realisation event 2 and item 1 of the table in subsection 775-70(1) applies | when the forex realisation event happens | equal to the forex realisation gain | no capital loss |
K11 | You make a forex realisation loss as a result of forex realisation event 2 and item 1 of the table in subsection 775-75(1) applies | when the forex realisation event happens | no capital gain | equal to the forex realisation loss |
K12 | Foreign hybrid loss exposure adjustment | just before the end of the income year | no capital gain | the amount stated in subsection 104-270(3) |
Consolidations
CGT event | Time of event | Capital gain | Capital loss | |
L1 | Reduction under section 705-57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group or MEC group | just after entity becomes subsidiary member | no capital gain | amount of reduction |
L2 | Amount remaining after step 3A etc of 'joining allocable cost amount is negative' | just after entity becomes subsidiary member | amount remaining | no capital loss |
L3 | Tax cost setting amounts for retained cost base assets exceed joining allocable cost amount | just after entity becomes subsidiary member | amount of excess | no capital loss |
L4 | No reset cost base assets against which to apply excess of net allocable cost amount on joining | just after entity becomes subsidiary member | no capital gain | amount of excess |
L5 | Amount remaining after step 4 of 'leaving allocable cost amount is negative' | when entity ceases to be subsidiary member | amount remaining | no capital loss |
L6 | Error in calculation of tax cost setting amount for joining entity's assets | start of the income year when the Commissioner becomes aware of the errors | the net overstated amount resulting from the errors, or a portion of that amount | the net understated amount resulting from the errors, or a portion of that amount |
L8 | Reduction in tax cost setting amount for reset cost base assets on joining cannot be allocated | just after entity becomes subsidiary member | no capital gain | amount of reduction that cannot be allocated |
Appendix 2 Consumer price index (CPI)
All groups - weighted average of eight capital cities
Year | Quarter ending | |||
31 Mar | 30 Jun | 30 Sep | 31 Dec | |
1985 | - | - | 71.3 | 72.7 |
1986 | 74.4 | 75.6 | 77.6 | 79.8 |
1987 | 81.4 | 82.6 | 84.0 | 85.5 |
1988 | 87.0 | 88.5 | 90.2 | 92.0 |
1989 | 92.9 | 95.2 | 97.4 | 99.2 |
1990 | 100.9 | 102.5 | 103.3 | 106.0 |
1991 | 105.8 | 106.0 | 106.6 | 107.6 |
1992 | 107.6 | 107.3 | 107.4 | 107.9 |
1993 | 108.9 | 109.3 | 109.8 | 110.0 |
1994 | 110.4 | 111.2 | 111.9 | 112.8 |
1995 | 114.7 | 116.2 | 117.6 | 118.5 |
1996 | 119.0 | 119.8 | 120.1 | 120.3 |
1997 | 120.5 | 120.2 | 119.7 | 120.0 |
1998 | 120.3 | 121.0 | 121.3 | 121.9 |
1999 | 121.8 | 122.3 | 123.4 | N/A* |
For an explanation of indexation and how it applies, see The indexation method .
* 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.
Appendix 3 Flowcharts
Treatment of bonus shares issued on or after 20 September 1985 | |
Treatment of bonus units issued on or after 20 September 1985 | |
Treatment of rights or options:
| |
Treatment of rights or options:
| |
Treatment of rights or options to acquire shares or units:
| |
The capital gains tax (CGT) main residence exemption rules when you sell a dwelling you inherited. Real estate and main residence needs to be read with this flowchart. |
Flowchart 3.1
Treatment of bonus shares issued on or after 20 September 1985
1. Did you acquire the original shares on or after 20 September 1985?
Yes
| Read on from question 2 . |
No
| Read on from question 4 . |
2. Is any part of the bonus shares a dividend or treated as a dividend?
Yes
| Read on from question 3 . |
No
| Read answer 1 . |
3. Were the bonus shares issued before 1 July 1987?
Yes
| Read answer 1 . |
No
| Read answer 3 . |
4. Is any part of the bonus shares a dividend or treated as a dividend?
Yes
| Read on from question 5 . |
No
| Read on from question 6 . |
5. Were the bonus shares issued before 1 July 1987?
Yes
| Read on from question 6 . |
No
| Read answer 3 . |
6. Are the bonus shares partly paid?
Yes
| Read on from question 7 . |
No
| Read answer 4 . |
7. Were the bonus shares issued before 10 December 1986?
Yes
| Read answer 4 . |
No
| Read on from question 8 . |
8. Before sale of the bonus shares, were any further call payments made to the company?
Yes
| Read answer 5 . |
No
| Read answer 4 . |
Answer 1
1. The bonus shares are subject to capital gains tax.
2. The bonus shares are acquired when the original shares were acquired.
3. The cost base of each original and bonus share is equal to
- the cost base of the original shares divided by the total number of original and bonus shares, plus
- any calls on partly paid bonus shares.
Answer 2
1. The bonus shares are subject to capital gains tax if issued on or after 20 September 1985.
2. The acquisition date of the bonus shares is their date of issue.
3. The cost base is the amount of the dividend plus any calls on partly paid bonus shares.
Answer 3
1. The bonus shares are subject to capital gains tax.
2. The acquisition date of the bonus shares is their date of issue.
3. The cost base is the amount of the dividend, plus any calls on partly paid bonus shares.
Answer 4
You are taken to have acquired the bonus shares before 20 September 1985 and they are not subject to capital gains tax.
Answer 5
1. The bonus shares are subject to capital gains tax.
2. The acquisition date of the bonus shares is the date when the liability to pay the first call arises.
3. The cost base is the market value of the bonus shares just before the liability to pay the first call arises, plus the amount of call payments made.
Flowchart 3.2
Treatment of bonus units issued on or after 20 September 1985
1. Did you acquire the original units on or after 20 September 1985?
Yes
| Read on from question 2 . |
No
| Read on from question 3 . |
2. Is any part of the bonus units included in your assessable income?
Yes
| Read answer 1 . |
No
| Read answer 2 . |
3. Is any part of the bonus units included in your assessable income?
Yes
| Read on from question 4 . |
No
| Read on from question 5 . |
4. Were the bonus units issued on or after 20 September 1985?
Yes
| Read answer 1 . |
No
| Read answer 4 . |
5. Are the bonus units partly paid?
Yes
| Read on from question 6 . |
No
| Read answer 4 . |
6. Were the bonus units issued before 10 December 1986?
Yes
| Read answer 4 . |
No
| Read on from question 7 . |
7. Before the sale of the bonus units were any further call payments made to the trust?
Yes
| Read answer 3 . |
No
| Read answer 4 . |
Answer 1
- The bonus units are subject to capital gains tax.
The acquisition date of the bonus units is their date of issue.
The cost base is the amount included in assessable income, plus any calls on partly paid bonus units.
Answer 2
- The bonus units are subject to capital gains tax.
The bonus units are acquired when the original units were acquired.
The cost base of each original and bonus unit is equal to
- the cost of the original units divided by the total number of original and bonus units, plus
- any calls on partly paid bonus units.
Answer 3
- The bonus units are subject to capital gains tax.
The acquisition date of the bonus units is the date when the liability to pay the first call arises.
The cost base is the market value of the bonus units just before the liability to pay the first call arises, plus the amount of call payments made.
Answer 4
You are taken to have acquired the bonus units before 20 September 1985 and they are not subject to capital gains tax.
Flowchart 3.3
Treatment of rights or options:
- to acquire shares where the rights or options were issued directly to you by the company (but not under an employee share scheme) for no payment because you were a shareholder, or
- to acquire units where the rights or options were issued directly to you after 28 January 1988 by the trust for no payment because you were a unit holder.
1. Did you acquire the original shares or units before 20 September 1985?
Yes
| Read question 2 . |
No
| The acquisition date of the rights or options is the date of acquisition of the original shares or units. Read question 3 . |
2. Did you exercise the rights or options on or after 20 September 1985?
Yes
| Read answer 1 . |
No
| Read answer 2 . |
3. Did you exercise the rights or options?
Yes
| Read answer 3 . |
No
| Read answer 4 . |
Answer 1
- The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
The acquisition date of the shares or units is the date of exercise of the rights or options to acquire the shares or units.
The first element of the cost base and the reduced cost base of the shares or units is:
- the market value of the rights or options at the time you exercise them, plus
- the amount you pay for the shares or units on exercising the rights or options, plus
- any amount that was included in your assessable income as a result of the rights or options being exercised on or after 1 July 2001.
Note:
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.
Answer 2
- If you did not exercise the rights or options, you disregard any capital gain or capital loss on the sale or expiry of the rights or options.
If you exercised the rights or options before that date, you disregard any capital gain or capital loss you make when you dispose of the shares or units that you acquired.
Answer 3
- The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
The acquisition date of the shares or units is the date of the exercise.
The first element of the cost base and the reduced cost base of the shares or units is
- the cost base of the rights or options at the time of exercise, plus
- the amount you pay for the shares or units on exercising the rights or options, plus
- any amount that was included in your assessable income as a result of the rights or options being exercised on or after 1 July 2001.
Note
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.
Answer 4
If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain.
If the capital proceeds are less than their reduced cost base, you make a capital loss.
Flowchart 3.4
Treatment of rights or options:
- to acquire shares where the rights or options were acquired by you from an individual or entity that acquired them as a shareholder in the company, or
- to acquire units where the rights or options were issued after 28 January 1988 and were acquired by you from an individual or entity that acquired them as a unit holder in the trust.
1. Did you acquire the rights or options before 20 September 1985?
Yes
| Read question 3 . |
No
| The acquisition date of the rights or options was the date of the contract to acquire the rights or options or, if there was no contract, the date the other individual or entity stopped being the owner of the rights or options. Read question 2 . |
2. Did you exercise the rights or options?
Yes
| Read answer 4 . |
No
| Read answer 1 . |
3. Did you exercise the rights or options on or after 20 September 1985?
Yes
| Read answer 3 . |
No
| Read answer 2 . |
Answer 1
If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain.
If the capital proceeds are less than their reduced cost base, you make a capital loss.
Answer 2
- If you did not exercise the rights or options, you disregard any capital gain or capital loss on the sale or expiry of the rights or options.
If you exercised the rights or options before that date, you disregard any capital gain or capital loss when you dispose of the shares or units that you acquired.
Answer 3
- The shares acquired on exercise of the rights or options are subject to capital gains tax.
The acquisition date of the shares is the date of exercise of the rights or options to acquire the shares or units.
The first element of the cost base and the reduced cost base of the shares is:
- the market value of the rights or options at the time you exercise them, plus
- the amount you pay for the shares on exercising the rights or options, plus.
- if the rights or options were exercised on or after 1 July 2001 (and as a result, an amount is included in your assessable income) that amount.
Note
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.
Answer 4
- The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
The acquisition date of the shares or units is the date of exercise of the rights or options.
The first element of the cost base and the reduced cost base of the shares or units is:
Note
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.
Flowchart 3.5
Treatment of rights or options to acquire shares or units:
- you paid for and which were issued directly to you from the company (but not under an employee share scheme) or trust, or
- you acquired from an individual or entity that was not a shareholder or unit holder.
Note
This flowchart does not apply to rights or options for the issue of units by the grantor of the rights or options if they were exercised before 27 May 2005.
1. Did you acquire the rights or options before 20 September 1985?
Yes
| Read question 2 . |
No
| Read question 4 . |
2. Did you exercise the rights or options?
Yes
| Read question 3 . |
No
| Read answer 1 . |
3. Did you exercise the rights or options on or after 20 September 1985?
Yes
| Read question 5 . |
No
| Read answer 4 . |
4. Did you exercise the rights or options?
Yes
| Read answer 3 . |
No
| Read answer 2 . |
5. Were the rights or options ones which were renewed or extended after 20 September 1985?
Yes
| Read question 6 . |
No
| Read answer 5 . |
6. Were they exercised before 27 May 2005?
Yes
| Read answer 5 . |
No
| Read answer 3 . |
Answer 1
You disregard any capital gain or capital loss you make on the sale or expiry of the rights or options.
Answer 2
If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain. If the capital proceeds are less than their reduced cost base, you make a capital loss.
Answer 3
- The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
The acquisition date of the shares or units is the date of exercise of the rights or options.
The first element of the cost base and the reduced cost base of the shares or units is:
- the amount you paid for the rights or options, plus
- the amount you paid for the shares or units on exercising the rights or options.
Note
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.
Answer 4
You disregard any capital gain or capital loss on the shares or units acquired from the exercise of the rights or options because the shares or units were acquired before 20 September 1985.
Answer 5
- The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
The acquisition date of the shares or units is the date of exercise of the rights or options.
The first element of the cost base and the reduced cost base of the shares or units is:
- the market value of the rights or options at the time you exercised them, plus
- the amount you paid for the shares on exercising the rights or options.
Note
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.
Flowchart 3.6
The capital gains tax (CGT) main residence exemption rules when you sell a dwelling you inherited.
Real estate and main residence needs to be read with this flowchart.
1. Did the deceased person acquire the dwelling before 20 September 1985?
Yes
| Read question 2 . |
No
| Read question 3 . |
2. Did settlement of your contract to sell the dwelling happen within two years of the person dying (or did the Commissioner allow you further time)?
Yes
| Read answer 1 . |
No
| Read question 5 . |
3. Was the dwelling the deceased person's main residence just before they died?
Yes
| Read question 4 . |
No
| Read answer 2 . |
4. Just before they died, was the dwelling being used to produce income
Yes
| Read answer 2 . |
No
| Read question 2 . |
5. From the deceased person's death until settlement of your contract to sell the inherited dwelling, was it your main residence (or the main residence of an individual who had a right to occupy it under the will or the spouse of the deceased person)?
Yes
| Read question 6 . |
No
| Read answer 2 . |
6. From the deceased person's death until settlement of your contract to sell the inherited dwelling, was any part of the dwelling used to produce income?
Yes
| Read answer 2 . |
No
| Read answer 1 . |
Answer 1
Dwelling is fully exempt
Answer 2
Dwelling is not fully exempt (but you may qualify for a part exemption)
- Dwellings that passed to you before 21 August 1996
This flowchart does not apply to a dwelling that passed to you before 21 August 1996. Real estate and main residence sets out the rules that apply in that situation.
- Where the deceased person died before 20 September 1985
If the deceased person died before 20 September 1985, the dwelling is fully exempt when you sell it. However, if you made a major capital improvement to the dwelling on or after 20 September 1985 and have used it to produce assessable income it may be subject to CGT (see Real estate and main residence ).
Appendix 4 Definitions
Amount of capital gains from a trust (including a managed fund)
Distributions from trusts can include different amounts but only the following types of amounts are relevant for CGT purposes:
- distributions of all or a part of the trust's income where the trust's net income for tax purposes includes a net capital gain,
- distributions or other entitlements described as being referable to a specific capital gain or gains
- distributions of non-assessable amounts.
For more information on trusts, see Trust distributions .
Assessable income
Assessable income is all the income you have received that should be included on your tax return. Generally, assessable income does not include non-assessable payments from a unit trust, including a managed fund.
Adjusted Division 6 percentage
Under recently enacted legislation relating to trusts, a beneficiary's adjusted Division 6 percentage is the percentage of the income of the trust estate (disregarding any amount of a capital gain or a franked distribution to which any beneficiary or the trustee is specifically entitled) that they are presently entitled to.
For more information see Improving the taxation of trust income . |
Bonus shares
Bonus shares are additional shares a shareholder receives wholly or partly as a dividend. You may also be required to pay an amount to get them.
Bonus units
Bonus units are additional units a unit holder receives from the trust. You may also be required to pay an amount to get them.
Call on shares
A company may sometimes issue a partly paid share and then make a call to pay up part or all of the remaining outstanding balance.
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 distributes an amount described as a capital gain to you.
Under recently enacted legislation, you may make a capital if you are:
- specifically entitled to an amount of a capital gain made by the trust, and/or
- there is an amount of capital gain included in the income of the trust to which no entity is specifically entitled and you are presently entitled to a share of that income.
For more information see Improving the taxation of trust income . |
Capital gains disregarded by a foreign resident
If a foreign resident or the trustee of a foreign trust for CGT purposes has a CGT event happen during the income year, to a CGT asset that is not considered to be taxable Australian property, any capital gain or capital loss made is disregarded under Division 855 of the Income Tax Assessment Act 1997 .
For more information see foreign residents and taxable Australian property .
Capital gains tax
Capital gains tax (CGT) refers to the income tax you pay on any net capital gain you make and include 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 improvement
A capital improvement does not include a repair that is deductible for income tax purposes.
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).
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:
- the amount you receive from the purchaser
- the value of shares (or units) you receive on a demerger
- the value of shares (or units) and the amount of cash you receive on a merger or takeover, or
- their market value if you give them away.
CGT asset
CGT assets include shares, units in a unit trust, collectables (such as jewellery), assets for personal use (such as furniture or a boat) and other assets (such as an investment property).
CGT-concession amounts
These amounts are the CGT discount component of any actual distribution from a managed fund.
CGT discount
The CGT discount is the amount (or percentage) by which a capital gain may be reduced under the discount method (see The discount method ).
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.
Collectables
A collectable is an artwork, an item of jewellery, an antique, a coin, a medallion, a rare folio, a rare manuscript, a rare book, a postage stamp or a first day cover that is used or kept mainly for personal use or enjoyment. Collectables also include an interest in any of the listed items, a debt that arises from any of those items or an option or right to acquire any of those items.
Consolidation rules
Effective from 1 July 2002. Consolidation refers to taxing wholly owned groups as single entities, and enables assets to be transferred between members of a group without triggering capital gains or requiring cost base adjustments for membership interests. Subsidiary members are treated as part of the head company. Intra-group transactions are disregarded for income tax purposes.
Convertible note
A convertible note is another type of investment you can make in a company or unit trust. A convertible note earns interest on the amount you pay to acquire the note until the note's expiry date. On expiry of the note, you can either ask for the return of the money paid or convert that amount to acquire new shares or units.
Cost base
The cost base of an asset is generally what it costs you. It is made up of five elements:
- money you paid or property you gave for the asset
- incidental costs of acquiring or selling it (for example, brokerage and stamp duty)
- 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)
- costs associated with increasing or preserving its value or installing or moving it, and
- what it has cost you to preserve or defend your title or rights to it, for example, if you paid a call on shares.
You may need to reduce the cost base for a share or unit by the amount of any non-assessable payment you receive from the company or fund.
Debt forgiveness
A debt is forgiven if you are freed from the obligation to pay it. A commercial debt that is forgiven may reduce your capital loss, your cost base or your reduced cost base.
Demerger
A demerger involves the restructuring of a corporate or trust group by splitting its operations into two or more entities or groups. Under a demerger, the owners of the head entity of the group acquire a direct interest in an entity (demerged entity) that was formerly part of the group.
Demerger exemption
This exemption applies to disregard certain capital gains or capital losses made by a demerging entity in a demerger group. A demerger group comprises the head entity of a group of companies or trusts and at least one demerger subsidiary. Discretionary trusts and superannuation funds cannot be members of a demerger group.
Demerger rollover
This may apply to CGT events that happened on or after 1 July 2002 to interests that you own in the head entity of a demerger group where a company or 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.
Depreciating assets
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include items such as computers, tools, furniture and motor vehicles.
Land and items of trading stock are specifically excluded from the definition of depreciating asset, as are most intangible assets such as options, rights and goodwill.
Discount method
The discount method is one of the ways to calculate your capital gain if:
- the CGT event happened after 11.45am (by legal time in the ACT) on 21 September 1999
- 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 may be able to reduce your capital gain by the CGT discount. However, you must first reduce your capital gains by the amount of any capital losses made in the year and any unapplied net capital losses from earlier years. You discount any remaining capital gain.
If you acquired the asset before 11.45am (by legal time in the ACT) on 21 September 1999, you may be able to choose either the discount method or the indexation method, whichever gives you the better result.
Discounted capital gain
A discounted capital gain is a capital gain that has been reduced by the CGT discount. If you received the discounted capital gain from a managed fund you will need to gross up the amount before you apply any capital losses and then the CGT discount.
Disposal of assets by a trust to a company
You can apply a rollover if a trust restructures and disposes of all of its assets to a company and the units or interests in the trust are replaced by shares in the company.
Disposal or creation of assets in a wholly-owned company
A rollover may be chosen to defer the capital gain if:
- you dispose of a CGT asset, or all the assets of a business, to a company in which you own all the shares, or you create a CGT asset in such a company
- all the partners in a partnership dispose of partnership property to a company in which they all own shares or the partners create a CGT asset in such a company.
Dividend reinvestment plans
Under these plans, shareholders can choose to have their dividend used 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.
Dwelling
A dwelling is anything that is used wholly or mainly for residential accommodation. Examples of a dwelling are a home, an apartment, a strata title unit or a unit in a retirement village.
Employee share schemes (ESS)
If you acquired shares or rights at a discount under an ESS and the scheme complies with the income tax rules for certain ESSs, you may reduce the amount of the discount that you include in your assessable income by up to $1,000 when certain conditions are met. There are special CGT rules relating to the calculation of the cost base of these shares or rights and, in some circumstances, you disregard the capital gain or capital loss that you make.
Exchange of rights or options
You may apply a rollover to defer the capital gain when you exchange rights or options to acquire shares in a company or units in a unit trust.
This rollover is a type of replacement asset rollover.
Exchange of share in one company for share in another company
You may apply a rollover to defer the capital gain when you exchange shares in one company for shares in an interposed company.
This rollover is a type of replacement asset rollover.
Exchange of shares or units
A rollover may be chosen to defer the capital gain if you exchange shares in the same company or units in the same unit trust.
This rollover is a type of replacement asset rollover.
Exchange of units in a unit trust for share in a company
You can apply a rollover to defer the capital gain when you exchange units in a unit trust for shares in a company due to a reorganisation.
Extra capital gains
Under recently enacted legislation, a beneficiary of a trust who has a share of a capital gain that was included in the net income of the trust for tax purposes, will include an amount of extra capital gains when working out their own net capital gain. The amount of extra capital gains will depend on the beneficiary's share of a capital gain/s, the amount of the taxable income of the trust that relates to beneficiary's share of the capital gain/s and whether any discounts or concessions were applied by the trustee when working out the amount of the capital gain for tax purposes.
For more information see Improving the taxation of trust income . |
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 two your share of any discounted capital gain you have received from the fund. You may also have to gross up a capital gain that was reduced by the small business 50% active asset reduction.
Income year
A financial year in Australia is a period of 12 months beginning on 1 July and ending on the next 30 June. An income year is the period covered by your tax return, generally 1 July to the next 30 June. However, in particular circumstances, the Commissioner may allow a company or other entity to adopt another 12-month period for their income year.
Indexation factor
The indexation factor is worked out based on the consumer price index (CPI) at appendix 2 .
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 (123.4), divided by the CPI for the quarter in which you incurred costs relating to the asset. The result is taken to three decimal places rounding up if the fourth decimal place is five or more.
Indexation method
The indexation method is one of the ways to calculate your capital gain if you acquired a CGT asset before 11.45am (by legal time in the ACT) on 21 September 1999. This method allows you to increase the cost base by applying an indexation factor (based on increases in the consumer price index up to September 1999).
You cannot use the indexation method for:
- CGT assets acquired after 11.45am (by legal time in the ACT) on 21 September 1999
- expenditure relating to a CGT asset acquired after that date.
For CGT events after 11.45am (by legal time in the ACT) on 21 September 1999 the discount method may give you the better result.
Inter-company asset rollover
A same asset rollover is available where a company transfers or creates (CGT event) a CGT asset in another company that is a member of the same wholly-owned group, but one of the companies is a non-resident.
Legal personal representative
A legal personal representative can be either:
- the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will)
- an administrator appointed to wind up the estate if the person does not leave a will.
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. The amount is not included as a capital gain at item 18 on the tax return (supplementary section). See example 47 and the instructions for dividend income for question 11 in Individual tax return instructions 2013 .
Main residence
Your main residence is your home, that is, the dwelling you regard as your main place of residence and nominate as such for any CGT concessions dealing with the disposal of a main residence. See Is the dwelling your main residence? for more information.
Main residence exemption
Generally, you can ignore a capital gain or capital loss from a CGT event that happens to a dwelling that is your main residence (also referred to as 'your home'). You may make a capital gain or capital loss if you have used your home to produce income, if it was not your home for the full period you owned it or if the land around your home is more than two hectares.
Managed fund
A managed fund is a unit trust. The types of managed funds available include cash management trusts, fixed interest trusts, mortgage trusts, property trusts, equity trusts, international trusts and diversified trusts.
Market value substitution rule for capital proceeds
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.
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.
Market value substitution rule for cost base and reduced cost base
In some cases, the general rules for calculating the cost base and reduced cost base have to be modified. For example, the market value may be substituted for the first element of the cost base and reduced cost base if:
- you did not incur expenditure to acquire the asset
- some or all of the expenditure you incurred cannot be valued, or
- you did not deal at arm's length with the previous owner in acquiring the asset.
Net capital gain
A net capital gain is the difference between your total capital gains for the year and the total of your capital losses for the year and unapplied net capital losses from earlier years, less any CGT discount and small business CGT concessions to which you are entitled.
Net capital loss
If your total capital losses for the year are more than your total capital gains, the difference is your net capital loss for the year. This loss can be carried forward and deducted from capital gains you make in later years. There is no time limit on how long you can carry forward a net capital loss.
Capital losses from collectables can only be used to reduce capital gains from collectables. If your total capital losses from collectables for the year are more than your total capital gains from collectables, you have a net capital loss from collectables for the year. This loss is carried forward and deducted from capital gains from collectables in later years. There is no time limit on how long you can carry forward a net capital loss from a collectable.
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 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).
Other CGT assets and any other CGT events
Any capital gain or capital loss that you have made that does not fit into any of the more specific categories listed in item 1 of the CGT schedule. For example, disposal of your forestry interests in a forestry managed investment scheme or hedging financial arrangements.
Other real estate
Any real estate including land and buildings that are situated outside of Australia, for example, a rental property situated in the United States.
Other exemptions and rollovers
Any exemption or rollover that you have applied that is not listed in one of the more specific codes under the question 'Have you applied an exemption or rollover?' of the individual tax return (supplementary section) or your entity's tax return.
Other shares
Any shares that are not listed on an Australian securities exchange, such as privately held shares or shares listed on a foreign securities exchange, but not also on an Australian securities exchange, for example, shares listed on the New York Stock Exchange.
Other units
Any units in a unit trust that are not listed on an Australian securities exchange, such as privately held units or units listed on a foreign securities exchange, but not also on an Australian securities exchange, for example, units listed on the New York Stock Exchange.
Ownership interest
You have an ownership interest if you own a dwelling or land. For other circumstances where you may have an ownership interest, see What is an ownership interest?
Pre-CGT
Acquired before 20 September 1985. Assets acquired before this date are generally exempt from CGT. An exception is if CGT event K6 applies.
Prior year net capital losses
See Unapplied net capital losses .
Post-CGT
Acquired on or after 20 September 1985.
Real estate situated in Australia
Any real property including land and buildings that are situated in Australia.
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.
Replacement asset rollovers
A replacement asset rollover may apply to defer the capital gain when you replace an asset in certain circumstances.
For more information see Other replacement asset rollovers .
Rollover
A rollover allows a capital gain to be deferred or disregarded until a later CGT event happens.
Same asset rollover
A same asset rollover allows a capital gain that you make to be deferred when you transfer or dispose of assets in certain circumstances.
For more information see Other same asset rollovers .
Scrip for scrip rollover
A scrip for scrip rollover 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-back
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.
Share in companies listed on an Australian securities exchange
These do not include shares in privately owned companies whereby those shares are not publicly traded. Shares in a privately owned company should be included in the Other Shares label.
Small business CGT concessions
There are four small business CGT concessions available if certain conditions are satisfied. They are, the:
- small business 15-year exemption
- small business 50% active asset reduction
- small business retirement exemption
- small business rollover.
These concessions apply to CGT events that happened after 11.45am (by legal time in the ACT) on 21 September 1999. For information on these concessions, see Capital gains tax (CGT) concessions for small business - overview .
Specifically entitled
Under recently enacted legislation relating to trust, a beneficiary that is specifically entitled to the whole or part of a capital gain made by the trust will be assessable on the amount of the net (taxable) income of the trust that relates to that gain.
Generally, a beneficiary will be taken to be specifically entitled to an amount of a capital gain if they have received or are likely to receive the benefit of that capital gain.
Spouse
Your 'spouse' includes another person (whether of the same sex or opposite sex) who:
- you were in a relationship with that was registered under a prescribed state or territory law,
- although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.
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 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-advantaged entity
A tax-advantaged entity is a tax-exempt entity, or the trustee of:
- a complying superannuation fund
- a complying approved deposit fund
- a pooled superannuation fund.
Tax-deferred amounts
These amounts include indexation allowed to a trust on its capital gains and accounting differences in income.
Tax-exempted amounts
These amounts are generally made up of exempt income and non-assessable non-exempt income of the trust, amounts on which the trust has already paid tax or income you had to repay to the trust. Tax-exempted amounts do not affect your cost base or your reduced cost base.
Tax-free amounts
These amounts arise where certain tax concessions allowed to the trust enable it to pay greater distributions to its beneficiaries.
Unapplied net capital losses from earlier years
This is the amount of net capital losses from earlier years remaining after you have deducted any capital gains made between the years when the losses were made and the current year.
You use unapplied net capital losses from earlier years to reduce capital gains in the current year (after those capital gains have been reduced by any capital losses in the current year).
You can only use unapplied net capital losses from collectables from earlier years to reduce capital gains from collectables in the current and future years.
Unit trust
A unit trust is a trust or fund that is divided into units representing capital and income entitlements. Units may be traded or redeemed (including the switching and transferring of units). A managed fund is a type of unit trust.
Units in unit trusts listed on an Australian securities exchange
These do not include units in private equity trusts or family trusts, whereby the trust is created for the benefit of one or more ascertainable beneficiaries, and not for the promotion of the welfare of the general public or for the advancement of a cause. Units in a private trust should be included in the Other units label.
Appendix 5 Abbreviations
ACT | Australian Capital Territory |
CGT | capital gains tax |
CPI | consumer price index |
CYCG | current year capital gains |
CYCL | current year capital losses |
ESS | employee share scheme |
FMIS | forestry managed investment scheme |
GST | goods and services tax |
GVSR | general value shifting regime |
LIC | listed investment company |
MDO | medical defence organisation |
PYNCL | prior year net capital losses |
SIC | shortfall interest charge |
TFN | tax file number |
TOFA | taxation of financial arrangements |
UNCL | unapplied net capital losses |
UCA | uniform capital allowance |
ATO references:
NO NAT 4151
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