Guide to capital gains tax 2002
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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 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 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 | reduced 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 in relation to variation or waiver | expenditure in relation to 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 |
G2 | Shifts in share values | when the shift happens | the decrease in the shares' market value (so far as it has shifted into certain other shares) less the corresponding proportion of the shares' cost base | no capital loss |
G3 | Liquidator declares shares worthless | when the liquidator makes the declaration | no capital gain | shares' 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 roll-over
CGT event | Time of event | Capital gain | Capital loss | |
J1 | Company stops being a member of a wholly owned group after a roll-over | when the company stops being a member of a wholly owned group after a roll-over | 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 in status of a CGT asset that was a replacement asset in a roll-over under Subdivision 152-E | when the change in status happens | the amount of the capital gain that you disregarded under Subdivision 152-E | no capital loss |
J3 | A change happens in circumstances where a share in a company or an interest in a trust was a replacement asset in a roll-over under Subdivision 152-E | when the change in circumstances happens | the amount of the capital gain that you disregarded under Subdivision 152-E | no capital loss |
Other CGT events
CGT event | Time of event | Capital gain | Capital loss | |
K1 | Partial realisation of an intellectual property right | when a contract is entered into or, if none, when partial realisation happens | capital proceeds from partial realisation less the cost base of the item of intellectual property | no capital loss |
CGT event K1 does not apply to partial realisations on or after 1 July 2001. | ||||
K2 | Bankrupt pays an amount in relation to 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 a post-CGT asset 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 |
Appendix 2 - Consumer Price Index (CPI)
All groups - weighted average of eight capital cities | ||||
Quarter ending | ||||
Year | 31 March | 30 June | 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 how it applies, see chapter 2 - 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
This appendix contains four flowcharts.
Flowchart 1: Treatment of bonus shares issued on or after 20 September 1985
Flowchart 2: Treatment of bonus units issued on or after 20 September 1985
Flowchart 3: Treatment of rights or options to acquire shares or units issued directly to you from a company or trust for no payment
Flowchart 4: Treatment of rights or options to acquire shares or units issued that you paid to acquire from a company or trust or from another person.
Download Appendix 3 here.
Appendix 4 - Recent share transactions
Company | Details of transaction |
Advance Property Fund | Takeover Advance unitholders are taken to have disposed of their units on the date they accepted the Stockland offer (in the period 13 September 2000 to 16 October 2000). For every 2.8 Advance units unitholders received one Stockland stapled security (comprising a unit in Stockland Trust and a share in Stockland Corporation Ltd), $1.10 cash and 0.25 Stockland option to acquire a Stockland stapled security. Scrip-for-scrip roll-over is available to the extent that Advance Property Fund units were exchanged for Stockland Trust units. In working out the value of the ineligible proceeds received by an Advance unitholder, a Stockland share is taken to represent 17 per cent of the market value of a Stockland stapled security. |
Amcor Ltd | Non-assessable payment On 14 April 2000 Amcor shareholders received a return of capital of $1.22 for each Amcor share they held. It was applied to acquire PaperlinX shares. The return of capital is a non-assessable payment, so shareholders who received PaperlinX shares should have reduced the cost base and reduced cost base of their Amcor shares by $1.22 per share. |
AMP Ltd | Demutualisation Acquisition cost for AMP Ltd shares was $10.43 per share and acquisition date was 20 November 1997. |
BHP Ltd | Non-assessable payment On 31 October 2000 BHP shareholders received a return of capital of 66 cents for each BHP share held. It was applied to acquire OneSteel shares. The return of capital is a non-assessable payment, so shareholders who received OneSteel shares should have reduced the cost base and reduced cost base of their BHP shares by 66 cents per share. |
Boral Ltd | Demerger Origin Energy Ltd (formerly called Boral Ltd) shareholders received one new Boral Ltd share for every 2 old Boral Ltd shares held. Acquisition cost of the new Boral Ltd shares was $3.16 per share and the acquisition date was 1 March 2000. |
Coca-Cola Amatil Ltd | Non-assessable payment On 23 June 1998 Coca-Cola Amatil shareholders received a return of capital of $3.86 for each Coca-Cola Amatil share they held. It was applied to acquire Coca-Cola Beverages shares. The return of capital is a non-assessable payment, so shareholders who received Coca-Cola Beverages shares should have reduced the cost base and reduced cost base of their Coca-Cola Amatil shares by $3.86 per share. |
Coca-Cola Beverages Ltd | Demerger Coca-Cola Amatil Ltd shareholders were entitled to one Coca-Cola Beverages share for each Coca-Cola Amatil share held. Acquisition cost of Coca-Cola Beverages shares was $3.86 per share and the acquisition date was 23 June 1998. |
Coca-Cola Amatil Ltd | Non-assessable payment On 10 August 2001 Coca-Cola Amatil Ltd made a return of capital of 40 cents per share. The return of capital is a non-assessable payment, so shareholders in Coca-Cola Amatil Ltd should reduce their cost base and reduced cost base by 40 cents, the amount of the return of capital. |
Commonwealth Bank of Australia Ltd | Public share offer For the first instalment: Acquisition date and indexation available from 13 July 1996. For the final instalment: Indexation applied from the date of receipt by the trust of the payment due on 14 November 1997 or of the discounted sum paid earlier. |
FH Faulding & Co Ltd | Takeover Mayne offered FHF shareholders 3 alternative forms of capital proceeds for each FHF share: shares in Mayne; cash and shares in Mayne; or cash and an unsecured note. Full scrip-for-scrip roll-over was available for those who chose the first option and partial roll-over was available for those who chose the 2nd option. There was no roll-over for those who chose the 3rd option. See Class Ruling CR 2001/ 39 - Income tax: capital gains: scrip-for-scrip roll-over: proposed takeover of FH Faulding & Co Limited by the Mayne Nickless Limited Group for further information. |
Howard Smith Ltd | Takeover Wesfarmers Retail Pty Ltd offered Howard Smith Ltd shareholders $13.25 cash and 2 Wesfarmers Ltd shares for every 5 Howard Smith Ltd shares owned. Partial scrip-for-scrip roll-over was available for shareholders who chose that option. No roll-over was available to the extent that cash was received. See Class Ruling CR 2001/ 51 - Income tax: capital gains: scrip-for-scrip roll-over: acquisition of Howard Smith Limited by Wesfarmers Retail Pty Ltd, a 100% owned subsidiary of Wesfarmers Limited for further information. |
HIH Insurance Ltd | Declaration shares worthless Liquidators' written declaration made on 10 October 2001 enabled shareholders of HIH Insurance Limited to choose to make a capital loss equal to the reduced cost base of the share under CGT event G3. |
Just Jeans Group Limited | Share buy-back The buy-back price of $1.35 includes 88 cents per share return of capital and 47 cents per share as a fully franked dividend. See Class Ruling CR 2001/ 48 - Income tax: share buy-back: Just Jeans Group Limited for more information. |
Normandy Mining Ltd | Takeover With regards to the availability of scrip-for-scrip roll-over, Newmont has announced that at the time the bid closed it had acquired 96 per cent of Normandy's outstanding shares and would move to compulsorily acquire the balance. Accordingly, a partial scrip-for-scrip roll-over should be available. Roll-over will not be available to the extent that the Normandy shareholders received cash for their shares. |
NRMA Insurance Group Ltd (NIGL) | Demutualisation Acquisition cost of NIGL shares allocated to shareholders was $1.78 per share. Acquisition date was 19 June 2000. For additional shares purchased through the facility, acquisition cost was $2.75 and acquisition date was 6 August 2000. |
OneSteel Ltd | Demerger BHP shareholders received one OneSteel Ltd share for every 4 BHP shares held. Acquisition cost of OneSteel shares received through the demerger was $2.64 per share and acquisition date was 31 October 2000. |
Origin Energy Ltd | Non-assessable payment On 1 March 2000 shareholders in Origin Energy Ltd (formerly called Boral Ltd) received a return of capital of $3.16 for each Origin Energy share (or $1.58 for each old Boral Ltd share) held. It was applied to acquire the new Boral Ltd shares. The return of capital is a non-assessable payment, so shareholders who received new Boral Ltd shares should have reduced the cost base and reduced cost base of their Origin Energy shares by $3.16 per share. |
PaperlinX Ltd | Demerger Amcor shareholders were entitled to one PaperlinX share for every 3 Amcor shares they held. For each Amcor share they held, they received a return of capital of $1.22 which was applied to acquire PaperlinX shares. Acquisition cost of PaperlinX shares received during the demerger was $3.66 per share and acquisition date was 14 April 2000. |
Ranger Minerals Ltd | Non-assessable amount On 14 February 2002 all registered ordinary shareholders at the 'record date' received a 79 cents per share return of capital in addition to a fully franked dividend of 11 cents per share. If the return of capital does not give rise to a capital gain, it will at least reduce the cost base of a share. See Class Ruling CR 2002/ 6 - Income tax: return of capital by Ranger Minerals Ltd for more information. |
Santos Ltd | Share buy-back Shareholders are taken to have been paid a dividend of the difference between the buy-back price received and $2.63. Shareholders received $2.63 as consideration for the disposal of a share as well as a $3.64 fully franked dividend. The disposal date was 4 December 2001. See Class Ruling CR 2001/ 69 - Income tax: off-market share buy-back by Santos Ltd and Class Ruling CR 2001/ 70 - Income tax: preference share issue (Santos Ltd reset, convertible preference shares) for more information. |
St George Bank Ltd | Sell-back rights On 19 February 2001 St George Bank Limited (SGL) granted to a trustee one right for every 20 shares held by shareholders at 23 January 2001. The rights were issued at no cost to shareholders. Each right conferred on the holder a put option to require SGL to purchase from the holder of the right one SGL share at $16.50. The market value on 19 February 2001 of each right ($ 1.89) formed part of the ordinary income of the shareholders. The income was derived on 19 February 2001. Shareholders who did not apply to take up the right received an amount of $2.12 for each right granted. In addition to the ordinary income, they also made a capital gain of 23 cents per right ($ 2.12 - $1.89). Shareholders who had rights transferred to them but failed to exercise them received an amount of $3.12 for each right. In addition to the ordinary income, they also made a capital gain of $1.23 per right ($ 3.12 - $1.89). Shareholders who sold the rights on the Australian Stock Exchange made a capital gain = proceeds -($ 1.89 + incidental disposal costs) on the disposal of the rights, in addition to the ordinary income (of $1.89). Shareholders who exercised the right to sell the shares back to SGL can include the $1.89 in the cost base of their shares. The capital proceeds for each share was $16.50. See Class Ruling CR 2001/ 75 - Income tax: capital gains: St George Bank Limited share buy-back and issue of sell-back rights for more information. |
Suncorp-Metway Ltd | Exchange of Series 1 Exchanging Instalment Notes (EINs) Suncorp-Metway Ltd shares received in exchange for Series 1 EINs were acquired on 1 November 1999. Their acquisition cost was $8.20 per share. |
Suncorp-Metway Ltd | Exchange of Series 2 Exchanging Instalment Notes (EINs) Suncorp-Metway Ltd shares received in exchange for Series 2 EINs were acquired on 31 October 2001. Their acquisition cost was $13.34 per share. |
TAB Limited | Share buy-back On 21 March 2002 TAB Limited announced a share buy-back. The capital proceeds received were $2.35. The amount by which the capital proceeds of $2.35 exceeds the cost base of each share will be a capital gain to the shareholder. If the share's reduced cost base exceeds $2.35, the difference will be a capital loss. The announcement date was 21 March 2002. See Class Ruling CR 2002/ 16 - Income tax: share buy-back: TAB Limited for more information. |
Telstra | Public share offer 1 For the first instalment: Acquisition of shares was on (and indexation available from) 15 November 1997. For the final instalment: Indexation applied from the date of receipt by the trust of the payment due on 17 November 1998. Public share offer 2 For the first instalment: Date of acquisition was 22 October 1999 if the instalment receipts were purchased through the offer. No indexation applied because acquisition was after 21 September 1999. For the final instalment: No indexation applied as above. |
Appendix 5 - example of a rental property
Example
Sale of a rental property
In his own right, Brett purchased a run down rental property on 1 July 1997. The price he paid was $150 000 plus $20 000 in total for stamp duty and solicitors fees.
He rented out the property after spending $2 500 on initial repairs.
In the next few years, Brett incurred the following expenses on the property:
Interest on money borrowed | $10 000 |
Rates and land tax | $8 000 |
Repairs | $15 000 |
$33 000 | |
As it was an old property, there was no special building write-off Brett could claim.
When Brett decided to sell the property, a real estate agent advised him that if he spent around $30 000 on major structural repairs, the property would be valued at around $500 000. He had the repairs done and put the property on the market. on 1 April 2001, he sold the property for $500 000.
Brett's real estate agents fees and solicitors fees for the sale of the property totalled $12 500.
This is Brett's only capital gain for this year - and he has no capital losses to offset from this year or previous years. Brett works out his cost base as follows:
Purchase price of property | $150 000 |
Stamp duty and solicitors fees on purchase of the property | $20 000 |
Capital expenditure (initial repairs) | $2 500 |
Capital expenditure (major structural repairs) | $30 000 |
Real estate agents fees and solicitors fees on sale of the property | $12 500 |
Cost base unindexed | $215 000 |
Brett deducts his cost base from his capital proceeds (sale price).
Proceeds from selling the house | $500 000 |
Cost base unindexed | $215 000 |
$285 000 |
Brett shows $285 000 at H Total current year capital gains at item 17 on his tax return.
He decides the discount method will give him the best result, so he uses this method to calculate his capital gain:
$285 000 x 50% = $142 500
Brett shows $142 500 at A item 17 on his tax return.
Explanation of terms
Assessable income
This is all the income you have received that should be included on your income tax return. Generally, assessable income does not include non-assessable payments from a unit trust, including a managed fund.
Bonus shares
Bonus shares are additional shares a shareholder receives as a dividend in whole or in part. You may also pay an amount to obtain them.
Bonus units
Bonus units are additional units a unit holder receives from the trust. The unit holder may also be required to pay an amount to obtain them.
Calls on shares
A company may sometimes issue a share at less than its par or face value and then make calls to pay up part or all of the remaining outstanding balance.
Capital gain
You may make a capital gain (or profit) as a result of a CGT event - for example, when you sell an asset for more than you paid for it. You can also make a capital gain if a managed fund or other unit trust distributes a capital gain to you.
Capital gains tax
Capital gains tax (CGT) is the tax you pay on any capital gain you make and include on your annual income tax return. For example, when you buy (or otherwise acquire) or sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to CGT.
Capital improvements
You make a capital improvement to an asset when you incur expenditure to improve it that is then reflected in its value and does not include a repair that is otherwise deductible for income tax purposes.
Capital loss
Generally, you may make a capital loss as a result of a CGT event if you sold an asset for less than you paid for it. Your capital loss is the difference between your reduced cost base and your capital proceeds.
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 amount you receive from a liquidator
- the amount you receive on a merger/ takeover or
- the 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 Discount method).
CGT event
A CGT event happens when a transaction takes place such as the sale or purchase of a CGT asset. The result is usually a capital gain or capital loss.
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 5 elements:
- money you paid for the asset
- incidental costs of acquiring or selling it (for example, brokers fees and stamp duty)
- non-capital costs associated with owning it (generally this will not apply to shares or units because you will usually have claimed these costs as tax deductions)
- costs associated with increasing its value (for example, if you paid a call on shares)
- what it has cost you to preserve or defend your title or rights to it.
The cost base for a share or unit may need to be reduced by the amount of any non-assessable payment you receive from the company or fund. Generally, interest you have paid on money borrowed to buy shares or units will not form part of your cost base.
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.
Demutualisation
A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an insurance company (for example, the NRMA), you may be subject to capital gains tax when you sell the shares.
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.
Discount method
The discount method is one of the ways to calculate your capital gain if:
- the CGT event happened after 11.45 am 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 all your available capital losses (both current year and prior years) before you discount any remaining capital gain.
If you acquired the asset before 11.45 a. m. 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 the discounted capital gain has been received from a managed fund, the amount will need to be grossed up on your income tax return before you apply any capital losses and then the CGT discount.
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 capital gains tax 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 can be any building or part of a building suitable for residential accommodation. Examples include a home, an apartment, a strata title unit or a unit in a retirement village.
Employee share schemes
If you acquired shares at a discount under an employee share scheme, you would have included the amount of the discount in your assessable income on your tax return.
For capital gains tax purposes, the cost base of the shares is the amount paid to the company when you acquired them, plus the amount of the discount included in your assessable income under the ordinary tax provisions.
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 2 your share of any discounted capital gain you have received from the fund.
Income year
The income year is the financial year relating to your current income tax return.
Indexation factor
The factor is worked out based on the Consumer Price Index (CPI) at appendix 2.
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 rounded to 3 decimal places. The indexation of the cost base of an asset is frozen as at 30 September 1999.
Indexation method
The indexation method is one of the ways to calculate your capital gain if you bought a CGT asset before 11.45 a. m. 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 bought after 11.45 am on 21 September 1999 or
- expenditure relating to a CGT asset acquired after that date.
You may prefer to use the discount method for CGT events after 21 September 1999 if that method gives you the better result.
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.
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').
Managed fund
A managed fund is a type of unit trust. Managed funds include property trusts, share trusts, equity trusts, growth trusts, imputation trusts and balanced funds.
Net capital gain
The net capital gain is the difference between your total capital gains for the year and your total capital losses (including capital losses from prior years), less any CGT discount to which you are entitled.
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 income tax return. This includes some distributions from unit trusts and managed funds and, less commonly, from 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).
Ownership interest
You have an ownership interest if you own a dwelling or land and/ or meet the conditions outlined in chapter 6.
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 interest on monies borrowed.
Roll-over
Roll-over allows a capital gain to be deferred or disregarded until a later CGT event happens.
Scrip-for-scrip roll-over
This generally applies to CGT events that happen 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 roll-over conditions have been satisfied. This roll-over allows you to defer your capital gains tax obligation until a later CGT event happens to your shares or units.
You may only be eligible for partial roll-over 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 the ATO.
Share buy-backs
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.
Takeovers and mergers
If a company in which you held shares was taken over and you received new shares in the takeover company, you may be entitled to scrip-for-scrip roll-over.
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 or
- 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 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 allow the trust to pay greater distributions to its beneficiaries. This is due to certain tax concessions trusts can receive.
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.
ATO references:
NO NAT 4151
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