What is a capital gains tax asset?

Many CGT assets are easily recognisable, for example, land, shares in a company, and units in a unit trust. Other CGT assets are not so well understood, for example, contractual rights, options, foreign currency and goodwill. All assets are subject to the CGT rules unless they are specifically excluded.

CGT assets fall into one of three categories:

• collectables
• personal use assets
• other assets.

Collectables

Collectables include the following items that you use or keep mainly for the personal use or enjoyment of yourself or your associates:

• paintings, sculptures, drawings, engravings or photographs, reproductions of these items or property of a similar description or use
• jewellery
• antiques
• coins or medallions
• rare folios, manuscripts or books
• postage stamps or first day covers.

A collectable is also:

• an interest in any of the items listed above
• a debt that arises from any of those items
• an option or right to acquire any of those items.

You can only use capital losses from collectables to reduce capital gains (including future capital gains) from collectables. However, you disregard any capital gain or capital loss you make from a collectable if any of the following apply:

• you acquired the collectable for $500 or less
• you acquired an interest in the collectable for $500 or less before 16 December 1995
• you acquired an interest in the collectable when it had a market value of $500 or less.

If you dispose of a number of collectables individually that you would usually dispose of as a set, you are exempt from paying CGT only if you acquired the set for $500 or less. This does not apply to an individual collectable you acquired before 16 December 1995, which is exempt from CGT if you acquired it for less than $500, irrespective of whether or not it would usually be disposed of as part of a set.

Personal use assets

A personal use asset is:

• a CGT asset, other than a collectable, that you use or keep mainly for the personal use or enjoyment of yourself or your associates
• an option or a right to acquire a personal use asset
• a debt resulting from a CGT event involving a CGT asset kept mainly for your personal use and enjoyment
• a debt resulting from you doing something other than gaining or producing your assessable income or carrying on a business.

Personal use assets may include such items as boats, furniture, electrical goods and household items. Land and buildings are not personal use assets. Any capital loss you make from a personal use asset is disregarded.

If a CGT event happened to a personal use asset, you disregard any capital gain you make if you acquired the asset for $10,000 or less. If you disposed of a number of personal use assets individually that would usually be sold as a set, you get the exemption only if you acquired the set for $10,000 or less.

Other assets

Assets that are not collectables or personal use assets include:

• land
• shares in a company
• rights and options
• leases
• units in a unit trust
• goodwill
• licences
• convertible notes
• your home (see Exemptions)
• contractual rights
• foreign currency
• any major capital improvement made to certain land or pre-CGT assets.

Partnerships

It is the individual partners who make a capital gain or capital loss from a CGT event, not the partnership itself. For CGT purposes, each partner owns a proportion of each CGT asset. Each partner calculates a capital gain or capital loss on their share of each asset.

Tenants in common

Individuals who own an asset as tenants in common may hold unequal interests in the asset. Each tenant in common makes a capital gain or capital loss from a CGT event in line with their interest in the asset. For example, a couple could own a rental property as tenants in common with one having a 20% interest and the other having an 80% interest. The capital gain or capital loss made when the rental property they dispose of (or another CGT event happens) is split between the individuals according to their legal interest in the property.

Joint tenants

For CGT purposes, individuals who own an asset as joint tenants are each treated as if they own an equal interest in the asset as a tenant in common. Each joint tenant makes a capital gain or capital loss from a CGT event in line with their interest in the asset. For example, a couple owning a rental property as joint tenants split the capital gain or capital loss equally between them.

When a joint tenant dies, their interest in the asset is taken to have been acquired in equal shares by the surviving joint tenants on the date of death.

Separate assets

For CGT purposes, there are exceptions to the rule that what is attached to the land is part of the land. In some circumstances, a building or structure is considered to be a CGT asset separate from the land.

Improvements to an asset (including land) acquired before 20 September 1985 may also be treated as a separate CGT asset.

Buildings, structures and other capital improvements to land you acquired on or after 20 September 1985

A building, structure or other capital improvement on land that you acquired on or after 20 September 1985 is a separate CGT asset, not part of the land, if a balancing adjustment provision applies to it. For example, a timber mill building is subject to a balancing adjustment if it is sold or destroyed, so it is treated as an asset separate from the land it is on.

Buildings and structures on land acquired before 20 September 1985

A building or structure on land that you acquired before 20 September 1985 is a separate asset if:

• you entered into a contract for the construction of the building or structure on or after that date, or
• there was no contract for its construction, and construction began on or after that date.

Other capital improvements to pre-CGT assets

If you make a capital improvement to a CGT asset you acquired before 20 September 1985, this improvement is treated as a separate asset and is subject to CGT if, at the time a CGT event happens to the original asset, the cost base of the capital improvement is:

• more than the improvement threshold for the year in which the event happens (see table below), and
• more than 5% of the amount of money and property you receive from the event.

If there is more than one capital improvement and they are related, they are treated as one separate CGT asset if the total of their cost bases is more than the threshold.

The improvement threshold is adjusted to take account of inflation. The thresholds for 1985–86 to 2014–15 are shown in table 1.

Table 1: Improvement thresholds for 1985–86 to 2014–15

Income year	Threshold ($)	Income year	Threshold ($)
1985–86	50,000	1999–2000	91,072
1986–87	53,950	2000–01	92,802
1987–88	58,859	2001–02	97,721
1988–89	63,450	2002–03	101,239
1989–90	68,018	2003–04	104,377
1990–91	73,459	2004–05	106,882
1991–92	78,160	2005–06	109,447
1992–93	80,036	2006–07	112,512
1993–94	80,756	2007–08	116,337
1994–95	82,290	2008–09	119,594
1995–96	84,347	2009–10	124,258
1996–97	88,227	2010–11	126,619
1997–98	89,992	2011–12	130,418
1998–99	89,992	2012–13	134,200
		2013–14	136,884
		2014–15	140,443

What are capital proceeds?

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

• receive, or
• are entitled to receive.

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

You reduce your capital proceeds from a CGT event if:

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

Provided you are not entitled to a tax deduction for the amount you repaid, your capital proceeds are also reduced by:

• any part of the proceeds that you repay, or
• any compensation you pay that can reasonably be regarded as a repayment of the proceeds.

If you are registered for GST and you receive payment when you dispose of a CGT asset, any GST payable is not part of the capital proceeds.

Market value substitution rule

In some cases, if you receive nothing in exchange for a CGT asset (for example, if you give it away as a gift), you are taken to have received the market value of the asset at the time of the CGT event. You may also be taken to have received the market value if:

• your capital proceeds are more or less than the market value of the CGT asset, and
• you and the purchaser were not dealing with each other at arm’s length in connection with the event.

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

You are said to be dealing at arm’s length with someone if each party acts independently and neither party exercises influence or control over the other in connection with the transaction. The law looks not only at the relationship between the parties but also at the quality of the bargaining between them.

For more information see Transferring real estate to family or friends.

There are special rules for calculating the proceeds from a depreciating asset. For more information, see CGT and depreciating assets.

The market value substitution rule for capital proceeds is subject to a number of exceptions. For example, the substitution rule for capital proceeds does not apply to the following examples of CGT event C2 (about cancellation, surrender and similar endings):

• the expiry of a CGT asset that the taxpayer owns
• the cancellation of a statutory licence held by the taxpayer.

It also does not apply where CGT event C2 happens for interests held in companies and unit trusts that have at least 300 members or unit holders and do not have concentrated ownership.

If the taxation of financial arrangements (TOFA) rules apply to you, there are special rules for calculating proceeds from a CGT asset, where you start or cease to have a financial arrangement as consideration for providing that CGT asset. For more information, see Guide to the taxation of financial arrangements (TOFA) rules.