To meet your CGT obligations, 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.
Keep your records
You need to keep good records of any assets you have bought or sold so you can correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. You must keep these records for five years after the CGT event has happened.
You should also keep records relevant to a net capital loss that you carry forward as part of unapplied net capital losses. You may be able to apply this net capital loss against a capital gain in a later year.
Step 1 Decide whether a CGT event has happened
CGT events are the different types of transactions or events that may result in a capital gain or capital loss. A CGT event has happened if you have sold (or otherwise disposed of) your shares or units or other assets during 2015–16.
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
- where you have an annual cost base reduction that exceeds the cost base of your interest in an attribution managed investment trust (AMIT)
- when a liquidator or administrator declares that shares or financial instruments relating to a company are worthless
- when shares in a company are cancelled because the company is wound up.
In some cases, although CGT events may have happened to certain assets, any capital gains or capital losses from them are generally disregarded (for example, assets acquired before 20 September 1985).
For more information about CGT events, see the Guide to capital gains tax 2016.
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 you did not make a capital gain or capital loss from a CGT event during 2015–16, print N in the box at G item 18 on your tax return (supplementary section).
If you did make a capital gain or capital loss from a CGT event during 2015–16, print Y in the box. If the CGT event happened to your shares or units and the event is covered in this guide (see About this guide), read on. Otherwise, see the Guide to capital gains tax 2016.
Step 2 Work out the time of the CGT event
The timing of a CGT event is important because it determines which income year you show your capital gain or capital loss in. If you sell or otherwise dispose of 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 or capital loss from the sale of your shares or units:
- the indexation method
- the discount method
- the ‘other’ method.
The indexation method allows you to increase the amount that your asset 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 be applied 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% (after deducting any capital losses for the year and any unapplied net capital losses from earlier years) provided you have owned the shares or units 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. Because you must offset capital losses against capital gains before you apply the CGT discount, your choice may also depend on the amount of capital losses that you have available, see example 18.
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.
Table 1 explains and compares the three methods of calculating your capital gain.
Table 1: Capital gain calculation methods
|
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 for you 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 for you 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 factors (see CPI table), then subtract the indexed cost base from the capital proceeds (see the worked examples in chapter B2). |
Subtract the cost base from the capital proceeds, deduct any capital losses, then divide by two (see the worked examples in chapter B2). |
Subtract the cost base from the capital proceeds (see the worked examples in chapter B2). |