Australian residents can make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world.
How to meet your CGT obligation
To meet your CGT obligations, you need to follow these three main steps:
Step 1 Decide whether a CGT event has happened.
Step 2 Work out the time of the CGT event.
Step 3 Calculate your capital gain or capital loss.
Step 1 Decide whether a CGT event has happened
CGT events are the different types of transactions or events which attract CGT. A CGT event has happened if you have sold (or otherwise disposed of) your shares or units or other assets during 2002-03. Certain assets, such as a motor vehicle and assets acquired before 20 September 1985, are disregarded.
Examples of other CGT events that can happen to shares or units include:
- when a company makes a payment other than a dividend to you as a shareholder, or when a trust or fund makes a non-assessable payment to you as a unit holder
- when a liquidator declares that shares in a company are worthless, see appendix 1 for examples, and
- when shares in a company are cancelled because the company is wound up.
For information about other CGT events, please refer to the Guide to capital gains tax.
If a managed fund makes a capital gain and distributes part of that gain to you, you are treated as if you made a capital gain from a CGT event.
If a CGT event did not happen to any of your assets during 2002-03, print X in the NO box at G item 17 on your tax return, or at G item 9 if you use the tax return for retirees. (Note: You cannot use the 2003 tax return for retirees if you had a distribution from a managed fund during the year.)
If a CGT event happened, print X in the YES box. If the CGT event happened to your shares or units and the event is covered in this guide (see What this guide is designed to do), read on. Otherwise, refer to the Guide to capital gains tax.
Step 2 Work out the time of the CGT event
The timing of a CGT event is important because it tells you which income year is affected by your capital gain or capital loss. If you sell an asset to someone else, the CGT event happens when you enter into the contract of sale. If there is no contract, the CGT event happens when you stop being the asset's owner.
If you received a distribution of a capital gain from a managed fund, you are taken to have made the capital gain in the income year shown on your statement from the managed fund.
Step 3 Calculate your capital gain or capital loss
There are three ways of calculating your capital gain from the sale of your shares or units: the indexation method, the discount method and the 'other' method.
The indexation method allows you to increase the amount that your asset has cost (the cost base) by applying an indexation factor that is based on increases in the Consumer Price Index (CPI) up to September 1999.
The indexation method can only apply to assets that you acquired before 11:45am (by legal time in the ACT) on 21 September 1999.
If you use the discount method, you do not apply the indexation factor to the cost base but you can reduce your capital gain by the CGT discount of 50% provided you have owned the shares for at least 12 months.
For assets that qualify for both the indexation and discount methods, you can choose the method that gives you the better result. You do not have to choose the same method for all your shares or units even if they are in the same company or fund.
You must use the 'other' 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). To calculate your capital gain using the 'other' method, you simply subtract your cost base from what you have received-your capital proceeds.
You make a capital loss from the sale of your shares or units if their reduced cost base is greater than your capital proceeds. You cannot index amounts included in your reduced cost base.
If you received a distribution of a capital gain from a managed fund, part C of this guide explains how you calculate the amount of that capital gain. You must use the same method as that chosen by the fund.
The following table explains and compares the three methods of calculating your capital gain.
|
Indexation method |
Discount method |
'Other' method |
|---|---|---|---|
Description of method |
Allows you to increase the cost base by applying an indexation factor based on CPI. |
Allows you to halve your capital gain |
Basic method of subtracting the cost base from the capital proceeds |
When to use the method |
Use for shares or units held for 12 months or more, if this method produces a better result than the discount method. Use only with assets acquired before 11.45am (by legal time in the ACT) on 21 September 1999. |
Use for shares or units held for 12 months or more, if this method produces a better result than the indexation method |
Use for shares or units if you have bought and sold them within 12 months (that is, when the indexation and discount methods do not apply). |
How to calculate your capital gain using the method |
Apply the relevant indexation factor (see CPI table in appendix 2), then subtract the indexed cost base from the capital proceeds (see worked examples in chapter B2). |
Subtract the cost base from the capital proceeds, deduct any capital losses, then divide by two (see worked examples in chapter B2). |
Subtract the cost base from the capital proceeds (see chapter B1). |