Choices

There are a number of provisions in the CGT laws that allow you to make a choice.

Some of the provisions allow you to defer or roll over a capital gain you make when a CGT event happens (such as exchanging an asset for a replacement asset) until a later CGT event (such as selling the replacement asset).

When and how you make a choice

The general rule under CGT law is that you must make a choice by the day you lodge your income tax return for the income year in which the relevant CGT event happened.

The way you prepare your tax return is sufficient evidence of your choice. However, there are some exceptions:

• companies must make some decisions about replacement asset rollovers earlier
• choices relating to the small business retirement exemption must be made in writing, and
• choices relating to the assessment of capital gains of resident testamentary trusts must be made by a trustee within a specific period.

Once you make such a choice, it cannot be changed. Your choice is binding.

However, there are some circumstances when we consider that you have not made a choice. These are if you lodge your tax return without being aware that:

• events have happened that required you to make a choice, or
• a choice was available.

In these circumstances, we may allow you more time to make a choice.

Factors to be considered for an extension of time

To determine if more time should be allowed, we consider factors such as whether:

• you have an acceptable explanation for not making the choice by the time it should have been made
• it would be fair and equitable in the circumstances to allow you more time to make a choice
• prejudice to the Commissioner of Taxation (Commissioner) may result from additional time being allowed to you (note that the absence of prejudice by itself is not enough to justify the granting of an extension)
• it would be fair and equitable to people in similar positions and the wider public interest
• any mischief is involved.

Each case is decided on its own merits.

How to request an extension of time to make a choice

If you have lodged a tax return without knowing a choice was available to you under CGT law and you want to find out how to make a request for more time to make the choice, see Choices you make under capital gains tax.

Examples of choices available under capital gains tax

CGT choices you can make include:

• You may use the indexation method rather than the CGT discount method if a CGT event happens to a CGT asset you acquired before 21 September 1999 (or are taken to have acquired before that date for the purpose of using those methods). See Choosing the indexation or discount method.
• You may make a capital loss for the income year in which a liquidator or administrator declares in writing that shares or securities held in a company are worthless. See Shares in a company in liquidation or administration.
• You may roll over a capital gain if a company in which you hold shares is taken over and you receive shares in the takeover company and the takeover meets certain conditions. This is known as a scrip for scrip rollover. It can also apply if a trust or fund in which you hold units is taken over and you receive units in the takeover trust or fund. The company, trust or fund will usually advise investors if the conditions for rollover are met. See Scrip for scrip rollover.
• You may roll over a capital gain if you hold shares in a company that demerges (or splits), you receive shares in the demerged company, and the demerger meets certain conditions. A rollover can also apply if you hold units in a trust or fund that demerges and you receive units in the demerged trust or fund. The head company or head trust or fund will usually advise investors if the conditions for a rollover are met. See Demergers.
• You may rollover a capital gain if you receive money or property (or both) as compensation for the loss or destruction of an asset or for the compulsory acquisition of property if certain conditions are met. See Loss, destruction or compulsory acquisition of an asset.
• You may treat a dwelling as your main residence even though    
  • you no longer live in it (see Continuing main residence status after dwelling ceases to be your main residence), or
  • you are yet to live in it but will do so as soon as practicable after it is constructed, repaired or renovated and will continue to live in it for at least three months (see Constructing, renovating or repairing a dwelling on land you already own).
   

You make the choice when you prepare your income tax return for the income year in which you enter into the contract to sell the dwelling. If you own both:

• the dwelling that you can choose to treat as your main residence for one of the periods above, and
• the dwelling you actually lived in during that period

then you make the choice for the income year in which you enter into the contract to sell the first of those dwellings.

Exemptions and rollovers

There are exemptions and rollovers that may allow you to reduce, defer or disregard your capital gain or capital loss.

If you are required to complete a CGT schedule, you may be required to provide information regarding the capital gains disregarded: see part B of this guide for individuals or part C for companies, trusts and funds.

There is no rollover or exemption for a capital gain you make when you sell an asset and put the proceeds into a superannuation fund, use the proceeds to purchase an identical or similar asset, or transfer an asset into a superannuation fund. For example, if you sell a rental property and put the proceeds into a superannuation fund, or use the proceeds to purchase another rental property, a rollover is not available. However, an asset, or the capital proceeds from the sale of an asset, may be transferred into a superannuation fund in order to satisfy certain conditions under the small business retirement exemption. For more information about the CGT concessions for small business, see the Guide to capital gains tax concessions for small business 2015.

To find out when a rollover is available, see Rollovers.

Exemptions

Generally, capital gains and capital losses from pre-CGT assets (that is, an asset you acquired before 20 September 1985) are exempt. However, CGT event K6 can result in capital gains if certain CGT events happen to pre-CGT shares in a company or to pre-CGT interests in a trust. See Taxation Ruling TR 2004/18– Capital gains: application of CGT event K6 (about pre-CGT shares and pre-CGT trust interests) in section 104-230 of the Income Tax Assessment Act 1997.

Another important exemption is for a capital gain or capital loss you make from a CGT event relating to a dwelling that was your main residence. This rule can change, however, depending on how you came to own the dwelling and what you have done with it, for example, if you rented it out. For more information see Real estate and main residence.

Capital gains and capital losses that are also disregarded include those you make from:

• a car (that is, a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers) or motorcycle or similar vehicle
• a decoration awarded for valour or brave conduct, unless you paid money or gave any other property for it
• collectables acquired for $500 or less
• a capital gain from a personal use asset acquired for $10,000 or less
• any capital loss from a personal use asset
• CGT assets used solely to produce exempt income or some amounts of non-assessable non-exempt income (that is, tax-free income)
• a CGT asset that is your trading stock at the time of a CGT event
• certain profits, gains or losses resulting from the disposal of shares in a pooled development fund, see appendix 4 of the Company tax return instructions 2015 (NAT 0669)
• compensation or damages you receive for any    
  • wrong or injury you suffer in your occupation
  • wrong, injury or illness you or your relatives suffer
   
• compensation you receive under the firearms surrender arrangements
• winnings or losses from gambling, a game or a competition with prizes
• transferring an asset into a Special Disability Trust for no consideration
• a reimbursement or payment of your expenses (but not for the loss, destruction or transfer of an asset) under a scheme established    
  • by an Australian government agency, a local government body or foreign government agency
  • under an Act or legislative instrument (for example, regulations or local government by-laws)
   
• a reimbursement or payment of expenses under the Unlawful Termination Assistance Scheme or the Alternative Dispute Resolution Assistance Scheme
• a reimbursement or payment of your expenses under the General Practice Rural Incentives Program
• a reimbursement or payment made under the M4/M5 Cashback Scheme
• a re-establishment grant made under section 52A of the Farm Household Support Act 1992
• a right or entitlement to a tax offset, deduction or a similar benefit under an Australian law, under the law of a foreign country or part of a foreign country
• payments made under the German Forced Labour Compensation Programme (GFLCP), and certain payments or property received by Australian residents as a result of persecution during the Second World War
• some types of testamentary gifts
• assignment of a right under, or for, a general insurance policy held with an HIH company, to the Commonwealth, the trustee of the HIH trust or a prescribed entity
• your rights being created or your rights ending for making a superannuation agreement (as defined in the Family Law Act 1975), the termination or setting aside of such an agreement or such an agreement otherwise coming to an end
• the ending of rights that directly relate to the breakdown of your marriage or relationship, including cash you receive as part of your marriage or relationship breakdown settlement
• a CGT event happening for a segregated current pension asset (made by a complying superannuation entity)
• in certain circumstances, a general insurance policy, a life insurance policy or an annuity instrument
• your share of certain profits, gains or losses arising from disposal of investments by a venture capital limited partnership (VCLP), an early stage venture capital limited partnership (ESVCLP) or an Australian venture capital fund of funds (AFOF), see Venture capital tax concessions
• a financial arrangement where gains and losses are calculated under the TOFA rules, see section 118-27 of ITAA 1997
• ceasing to hold an eligible vessel to the extent it is used to produce certain exempt income, see subsection 104-235(1AA) of ITAA 1997.

Other exemptions: capital gains

You may reduce your capital gain if, because of a CGT event, you have included an amount in your assessable income other than as a capital gain. For example, if you make a profit on the sale of land that is included in your assessable income as ordinary income, you don’t also include that profit as a capital gain.

There is a range of concessions that allow you to disregard part or all of a capital gain made from an active asset you use in your small business. For more information, see Capital gains tax (CGT) concessions for small business – overview.

Other exemptions: capital losses

You disregard any capital loss you make:

• from the expiry, forfeiture, surrender or assignment of a lease if the lease is not used solely or mainly for the purpose of producing assessable income
• from a payment to any entity of personal services income that is included in an individual’s assessable income under the alienation of personal services income provisions, or any other amount attributable to that income
• as an exempt entity.

Rollovers

You may defer or disregard (that is, rollover) a capital gain or capital loss until a later CGT event happens. The types of rollovers available are listed below. Only the first four types are covered in detail in this guide. If you would like information on the others, contact us.

Marriage or relationship breakdown

In certain cases where an asset or a share of an asset is transferred from one spouse to another after their marriage or relationship breaks down, any CGT is automatically deferred until a later CGT event happens (for example, until the former spouse sells the asset to someone else). For more examples of how CGT obligations are affected by marriage or relationship breakdown, see Marriage or relationship breakdown.

Loss, destruction or compulsory acquisition of an asset

You may defer a capital gain in some cases where a CGT asset has been lost or destroyed or is compulsorily acquired, see Loss, destruction or compulsory acquisition of an asset.

Scrip for scrip

You may be able to defer a capital gain if you dispose of your shares in a company or interest in a trust as a result of a takeover, see Investments in shares and units.

Demergers

You may be able to defer a capital gain or capital loss if a CGT event happens to your shares in a company or interest in a trust as a result of a demerger, see Investments in shares and units.

Other replacement asset rollovers

You may be able to defer a capital gain or capital loss when you replace an asset in the following circumstances:

• an individual or trustee disposes of assets to, or creates assets in, a wholly owned company
• partners dispose of assets to, or create assets in, a wholly owned company
• a CGT event happens to small business assets and you acquire replacement assets
• your statutory licence ends and is replaced with another statutory licence or licences which authorises substantially similar activity to the original licence or licences
• you are a financial service provider who had assets (for example, licences) replaced on transition to the financial services reform (FSR) regime
• your property is converted to strata title
• you exchange shares in the same company or units in the same unit trust
• you exchange rights or options to acquire shares in a company or units in a unit trust
• you exchange shares in one company for shares in an interposed company
• you exchange units in a unit trust for shares in a company
• a body is converted to an incorporated company
• you acquire a Crown lease
• you acquire a depreciating asset
• you acquire prospecting and mining entitlements
• you dispose of a security under a securities lending arrangement
• a trust restructure ends your ownership of units or interests
• a membership interest in a medical defence organisation (MDO) is replaced with a similar membership interest in another MDO and both MDOs are companies limited by guarantee
• you replace an entitlement to water with one or more different water entitlements.

If you would like information on these rollovers, contact us or your recognised tax adviser.

Other same asset rollovers

You may be able to defer a capital gain or capital loss when you transfer or dispose of assets in the following circumstances:

• an individual or trustee transfers a CGT asset to a wholly owned company
• a partner transfers their interest in a CGT asset to a wholly owned company
• a CGT asset is transferred between related companies
• a trust disposes of a CGT asset to a company under a trust restructure
• a CGT event happens because of a change to a trust deed of a complying approved deposit fund, a complying superannuation fund or a fund that accepts worker entitlement contributions
• a CGT asset is transferred from one small superannuation fund to another complying superannuation fund because of a marriage or relationship breakdown
• a trustee of a trust creates a trust over a CGT asset or transfers a CGT asset to another trust where both the transferring and receiving trusts meet certain requirements.

If you would like information on these rollovers, contact us or your recognised tax adviser.