Guide to capital gains tax 2010

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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 the 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 the 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

C reating 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

reduce 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

G3

Liquidator or administrator declares shares or financial instruments worthless

when declaration is made

no capital gain

shares' or financial instruments' 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 rollover

CGT event

Time of event

Capital gain

Capital loss

J1

Company stops being a member of a wholly owned group after a rollover

when the company stops being a member of a wholly owned group after a rollover

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 relation to replacement asset or improved asset after a rollover under Subdivision 152-E

when the change happens

the amount mentioned in subsection 104-185(5)

no capital loss

J4

Trust failing to cease to exist after rollover under Subdivision 124-N

when the failure to cease to exist happens

for the company - market value of the asset at the time the company acquired it less its cost base at that time

for a shareholder - market value of the share at the time the shareholder acquired it less its cost base at that time

for the company - reduced cost base of the asset at the time the company acquired it less its market value at that time

for a shareholder - reduced cost base of the share at the time the shareholder acquired it less its market value at that time

J5

Failure to acquire replacement asset and to incur fourth element expenditure after a rollover under Subdivision 152-E

at the end of the replacement asset period

the amount of the capital gain that you disregarded under Subdivision 152-E

no capital loss

J6

Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain

at the end of the replacement asset period

the amount mentioned in subsection 104-198(3)

no capital loss

Other CGT events

CGT event

Time of event

Capital gain

Capital loss

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 post-CGT assets owned by the company or trust, less the assets' cost bases

no capital loss

K7

B alancing 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

K8

Direct value shifts affecting your equity or loan interests in a company or trust

the decrease time for the interests

the capital gain worked out under section 725-365

no capital loss

K9

Entitlement to receive payment of a carried interest

when you become entitled to receive the payment

capital proceeds from the entitlement

no capital loss

K10

You make a forex realisation gain as a result of forex realisation event   2 and item   1 of the table in subsection 775-70(1) applies

when the forex realisation event happens

equal to the forex realisation gain

no capital loss

K11

You make a forex realisation loss as a result of forex realisation event   2 and item   1 of the table in subsection 775-75(1) applies

when the forex realisation event happens

no capital gain

equal to the forex realisation loss

K12

Foreign hybrid loss exposure adjustment

just before the end of the income year

no capital gain

the amount stated in subsection 104-270(3)

Consolidations

CGT event

Time of event

Capital gain

Capital loss

L1

Reduction under section 705-57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group or MEC group

just after entity becomes subsidiary member

no capital gain

amount of reduction

L2

Amount remaining after step   3A etc of 'joining allocable cost amount is negative'

just after entity becomes subsidiary member

amount remaining

no capital loss

L3

Tax cost setting amounts for retained cost base assets exceed joining allocable cost amount

just after entity becomes subsidiary member

amount of excess

no capital loss

L4

No reset cost base assets against which to apply excess of net allocable cost amount on joining

just after entity becomes subsidiary member

no capital gain

amount of excess

L5

Amount remaining after step   4 of 'leaving allocable cost amount is negative'

when entity ceases to be subsidiary member

amount remaining

no capital loss

L6

Error in calculation of tax cost setting amount for joining entity's assets

start of the income year when the Commissioner becomes aware of the errors

the net overstated amount resulting from the errors, or a portion of that amount

the net understated amount resulting from the errors, or a portion of that amount

L7

Discharged amount of liability differs from amount for allocable cost amount purposes

start of the income year in which the liability is realised

your allocable cost amount less what it would have been had you used the correct amount for liability

what your allocable cost amount would have been had you used the correct amount for the liability less your allocable cost amount

L8

Reduction in tax cost - setting amount for reset cost base assets on joining cannot be allocated

just after entity becomes subsidiary member

no capital gain

amount of reduction that cannot be allocated

Appendix 2 Consumer price index (CPI)

All groups - weighted average of eight capital cities

Year

Quarter ending

 

31 Mar

30 Jun

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 indexation and how it applies, see 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

Flowchart 3.1

Treatment of bonus shares issued on or after 20   September 1985

Flowchart 3.2

Treatment of bonus units issued on or after 20   September 1985

Flowchart 3.3

Treatment of rights or options:

  • to acquire shares where the rights or options were issued directly to you by the company (but not under an employee share scheme) for no payment because you were a shareholder, or

     
  • to acquire units where the rights or options were issued directly to you after 28   January 1988 by the trust for no payment because you were a unit holder.

Flowchart 3.4

Treatment of rights or options:

  • to acquire shares where the rights or options were acquired by you from an individual or entity that acquired them as a shareholder in the company, or

     
  • to acquire units where the rights or options were issued after 28   January 1988 and were acquired by you from an individual or entity that acquired them as a unit holder in the trust.

Flowchart 3.5

Treatment of rights or options to acquire shares or units:

  • you paid for and which were issued directly to you from the company (but not under an employee share scheme) or trust, or

     
  • you acquired from an individual or entity that was not a shareholder or unit holder.

Flowchart 3.6

The capital gains tax (CGT) main residence exemption rules when you sell a dwelling you inherited.

Real estate and main residence needs to be read with this flowchart.

Flowchart 3.1

Treatment of bonus shares issued on or after 20   September 1985

  1. Did you acquire the original shares on or after 20   September 1985?

Yes

Read on from question 2

No

Read on from question 4

  1. Is any part of the bonus shares a dividend or treated as a dividend?

Yes

Read on from question 3

No

Read answer 1

  1. Were the bonus shares issued before 1   July 1987?

Yes

Read answer 1

No

Read answer 3

  1. Is any part of the bonus shares a dividend or treated as a dividend?

Yes

Read on from question 5

No

Read on from question 6

  1. Were the bonus shares issued before 1   July 1987?

Yes

Read on from question 6

No

Read answer 3

  1. Are the bonus shares partly paid?

Yes

Read on from question 7

No

Read answer 4

  1. Were the bonus shares issued before 10 December 1986?

Yes

Read answer 4

No

Read on from question 8

  1. Before sale of the bonus shares, were any further call payments made to the company?

Yes

Read answer 5

No

Read answer 4

Answer 1:

  1. The bonus shares are subject to capital gains tax.
  2. The bonus shares are acquired when the original shares were acquired.
  3. The cost base of each original and bonus share is equal to
    • the cost base of the original shares divided by the total number of original and bonus shares, plus
    • any calls on partly paid bonus shares.

Answer 2

  1. The bonus shares are subject to capital gains tax if issued on or after 20   September 1985.
  2. The acquisition date of the bonus shares is their date of issue.
  3. The cost base is the amount of the dividend plus any calls on partly paid bonus shares.

Answer 3

  1. The bonus shares are subject to capital gains tax.
  2. The acquisition date of the bonus shares is their date of issue.
  3. The cost base is the amount of the dividend, plus any calls on partly paid bonus shares.

Answer 4

  • You are taken to have acquired the bonus shares before 20   September 1985 and they are not subject to capital gains tax.

Answer 5

  1. The bonus shares are subject to capital gains tax.
  2. The acquisition date of the bonus shares is the date when the liability to pay the first call arises.
  3. The cost base is the market value of the bonus shares just before the liability to pay the first call arises, plus the amount of call payments made.

Flowchart 3.2

Treatment of bonus units issued on or after 20   September 1985

  1. Did you acquire the original units on or after 20 September 1985?

Yes

Read on from question 2

No

Read on from question 3

  1. Is any part of the bonus units included in your assessable income?

Yes

Read answer 1

No

Read answer 2

  1. Is any part of the bonus units included in your assessable income?

Yes

Read on from question 4

No

Read on from question 5

  1. Were the bonus units issued on or after 20 September 1985?

Yes

Read answer 1

No

Read answer 4

  1. Are the bonus units partly paid?

Yes

Read on from question 6

No

Read answer 4

  1. Were the bonus units issued before 10 December 1986?

Yes

Read answer 4

No

Read on from question 7

  1. Before the sale of the bonus units were any further call payments made to the trust?

Yes

Read answer 3

No

Read answer 4

Answer 1

  1. The bonus units are subject to capital gains tax.
  2. The acquisition date of the bonus units is their date of issue.
  3. The cost base is the amount included in assessable income, plus any calls on partly paid bonus units.

Answer 2

  1. The bonus units are subject to capital gains tax.
  2. The bonus units are acquired when the original units were acquired.
  3. The cost base of each original and bonus unit is equal to
    • the cost of the original units divided by the total number of original and bonus units, plus
    • any calls on partly paid bonus units.

Answer 3

  1. The bonus units are subject to capital gains tax.
  2. The acquisition date of the bonus units is the date when the liability to pay the first call arises.
  3. The cost base is the market value of the bonus units just before the liability to pay the first call arises, plus the amount of call payments made.

Answer 4

  • You are taken to have acquired the bonus units before 20   September 1985 and they are not subject to capital gains tax.

Flowchart 3.3

Treatment of rights or options:

  • to acquire shares where the rights or options were issued directly to you by the company (but not under an employee share scheme) for no payment because you were a shareholder, or

     
  • to acquire units where the rights or options were issued directly to you after 28   January 1988 by the trust for no payment because you were a unit holder.
  1. Did you acquire the original shares or units before 20   September 1985?

Yes

Read question 2

No

The acquisition date of the rights or options is the date of acquisition of the original shares or units.

Read question 3

  1. Did you exercise the rights or options on or after 20   September 1985?

Yes

Read answer 1

No

Read answer 2

  1. Did you exercise the rights or options?

Yes

Read answer 3

No

Read answer 4

Answer 1

  1. The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
  2. The acquisition date of the shares or units is the date of exercise of the rights or options to acquire the shares or units.
  3. The first element of the cost base and the reduced cost base of the shares or units is:
    • the market value of the rights or options at the time you exercise them, plus
    • the amount you pay for the shares or units on exercising the rights or options, plus
    • if the rights or options were exercised on or after 1   July 2001 and, as a result, an amount is included in your assessable income - that amount.
  • Note:
  • Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.

Answer 2

  1. If you did not exercise the rights or options, you disregard any capital gain or capital loss on the sale or expiry of the rights or options.
  2. If you exercised the rights or options before that date, you disregard any capital gain or capital loss you make when you dispose of the shares or units that you acquired.

Answer 3

  1. The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
  2. The acquisition date of the shares or units is the date of the exercise.
  3. The first element of the cost base and the reduced cost base of the shares or units is
    • the cost base of the rights or options at the time of exercise, plus
    • the amount you pay for the shares or units on exercising the rights or options, plus
    • if the rights or options were exercised on or after 1   July 2001 and, as a result, an amount is included in your assessable income - that amount.
Note:
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.

Answer 4

  • If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain.
  • If the capital proceeds are less than their reduced cost base, you make a capital loss.

Flowchart 3.4

Treatment of rights or options:

  • to acquire shares where the rights or options were acquired by you from an individual or entity that acquired them as a shareholder in the company, or
  • to acquire units where the rights or options were issued after 28   January 1988 and were acquired by you from an individual or entity that acquired them as a unit holder in the trust.
  1. Did you acquire the rights or options before 20   September 1985?

Yes

Read question 3

No

The acquisition date of the rights or options was the date of the contract to acquire the rights or options or, if there was no contract, the date the other individual or entity stopped being the owner of the rights or options.

Read question 2

  1. Did you exercise the rights or options?

Yes

Read answer 4

No

Read answer 1

  1. Did you exercise the rights or options on or after 20   September 1985?

Yes

Read answer 3

No

Read answer 2

Answer 1

  • If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain.
  • If the capital proceeds are less than their reduced cost base, you make a capital loss.

Answer 2

  1. If you did not exercise the rights or options, you disregard any capital gain or capital loss on the sale or expiry of the rights or options.
  2. If you exercised the rights or options before that date, you disregard any capital gain or capital loss when you dispose of the shares or units that you acquired.

Answer 3

  1. The shares acquired on exercise of the rights or options are subject to capital gains tax.
  2. The acquisition date of the shares is the date of exercise of the rights or options to acquire the shares or units.
  3. The first element of the cost base and the reduced cost base of the shares is:
    • the market value of the rights or options at the time you exercise them, plus
    • the amount you pay for the shares on exercising the rights or options, plus
    • if the rights or options were exercised on or after 1   July 2001 (and as a result, an amount is included in your assessable income) that amount.
Note:
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.

Answer 4

  1. The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
  2. The acquisition date of the shares or units is the date of exercise of the rights or options.
  3. The first element of the cost base and the reduced cost base of the shares or units is:
    • the cost base of the rights or options at the time of exercise, plus
    • the amount you paid for the shares or units on exercising the rights or options, plus
    • if the rights or options were exercised on or after 1   July 2001 and, as a result, an amount is included in your assessable income - that amount.
Note:
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.

Flowchart 3.5

Treatment of rights or options to acquire shares or units:

  • you paid for and which were issued directly to you from the company (but not under an employee share scheme) or trust, or
  • you acquired from an individual or entity that was not a shareholder or unit holder.

Note:

This flowchart does not apply to rights or options for the issue of units by the grantor of the rights or options if they were exercised before 27   May 2005.

  1. Did you acquire the rights or options before 20 September 1985?

Yes

Read question 2

No

Read question 4

  1. Did you exercise the rights or options?

Yes

Read question 3

No

Read answer 1

  1. Did you exercise the rights or options on or after 20 September 1985?

Yes

Read question 5

No

Read answer 4

  1. Did you exercise the rights or options?

Yes

Read answer 3

No

Read answer 2

  1. Were the rights or options ones which were renewed or extended after 20   September 1985?

Yes

Read question 6

No

Read answer 5

  1. Were they exercised before 27   May 2005?

Yes

Read answer 5

No

Read answer 3

Answer 1

  • You disregard any capital gain or capital loss you make on the sale or expiry of the rights or options.

Answer 2

  • If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain. If the capital proceeds are less than their reduced cost base, you make a capital loss.

Answer 3

  1. The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
  2. The acquisition date of the shares or units is the date of exercise of the rights or options.
  3. The first element of the cost base and the reduced cost base of the shares or units is:
    • the amount you paid for the rights or options, plus
    • the amount you paid for the shares or units on exercising the rights or options.
Note :
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.

Answer 4

  • You disregard any capital gain or capital loss on the shares or units acquired from the exercise of the rights or options because the shares or units were acquired before 20   September 1985.

Answer 5

  1. The shares or units acquired on exercise of the rights or options are subject to capital gains tax.
  2. The acquisition date of the shares or units is the date of exercise of the rights or options.
  3. The first element of the cost base and the reduced cost base of the shares or units is:
    • the market value of the rights or options at the time you exercised them, plus
    • the amount you paid for the shares on exercising the rights or options.
Note :
Although the shares or units are subject to capital gains tax, any capital gain or capital loss you make from exercising the rights or options to acquire those shares or units is disregarded.

Flowchart 3.6

The capital gains tax (CGT) main residence exemption rules when you sell a dwelling you inherited.

Real estate and main residence needs to be read with this flowchart.

  1. Did the deceased person acquire the dwelling before 20   September 1985?

Yes

Read question 2

No

Read question 3

  1. Did settlement of your contract to sell the dwelling happen within two years of the person dying?

Yes

Read answer 1

No

Read question 5

  1. Was the dwelling the deceased person's main residence just before they died?

Yes

Read question 4

No

Read answer 2

  1. Just before they died, was the dwelling being used to produce income

Yes

Read answer 2

No

Read question 2

  1. From the deceased person's death until settlement of your contract to sell the inherited dwelling, was it your main residence (or the main residence of an individual who had a right to occupy it under the will or the spouse of the deceased person)?

Yes

Read question 6

No

Read answer 2

  1. From the deceased person's death until settlement of your contract to sell the inherited dwelling, was any part of the dwelling used to produce income?

Yes

Read answer 2

No

Read answer 1

Answer 1

Dwelling is fully exempt

Answer 2

Dwelling is not fully exempt

(but you may qualify for a part exemption)

  • Dwellings that passed to you before 21   August 1996
  • This flowchart does not apply to a dwelling that passed to you before 21   August 1996. Real estate and main residence sets out the rules that apply in that situation.
  • Where the deceased person died before 20   September 1985
  • If the deceased person died before 20   September 1985, the dwelling is fully exempt when you sell it. However, if you made a major capital improvement to the dwelling on or after 20   September 1985 and have used it to produce assessable income it may be subject to CGT (see Real estate and main residence ).

Appendix 4 Definitions

Assessable income

Assessable income is all the income you have received that should be included on your 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 wholly or partly as a dividend. You may also be required to pay an amount to get them.

Bonus units

Bonus units are additional units a unit holder receives from the trust. You may also be required to pay an amount to get them.

Call on shares

A company may sometimes issue a partly paid share and then make a call to pay up part or all   of the remaining outstanding balance.

Capital gain

You may make a capital gain from a CGT event such as the sale of an asset. Generally, your capital gain is the difference between your asset's cost base (what you paid for it) and your capital proceeds (what you received 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) refers to the income tax you pay on any net capital gain you make and include on your annual income tax return. For example, when you sell (or otherwise dispose of) an asset as part of a CGT event, you are subject to CGT.

Capital improvement

A capital improvement does not include a repair that is deductible for income tax purposes.

Capital loss

Generally, you may make a capital loss as a result of a CGT event if you received less capital proceeds for an asset than its reduced cost base (what you paid for it).

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 value of shares (or units) you receive on a demerger
  • the value of shares (or units) and the amount of cash you receive on a merger/takeover, or
  • their 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 The discount method ).

CGT event

A CGT event happens when a transaction takes place such as the sale of a CGT asset. The result is usually a capital gain or capital loss.

Consolidation rules

Effective from 1   July 2002. Consolidation refers to taxing wholly owned groups as single entities, and enables assets to be transferred between members of a group without triggering capital gains or requiring cost base adjustments for membership interests. Subsidiary members are treated as part of the head company. Intra-group transactions are disregarded for income tax purposes.

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 five elements:

  • money you paid or property you gave for the asset
  • incidental costs of acquiring or selling it (for example, brokerage and stamp duty)
  • costs of owning it (generally this will not apply to shares or units because you will usually have claimed or be entitled to claim these costs as tax deductions)
  • costs associated with increasing or preserving its value or installing or moving it, and
  • what it has cost you to preserve or defend your title or rights to it - for example, if you paid a call on shares.

You may need to reduce the cost base for a share or unit by the amount of any non-assessable payment you receive from the company or fund.

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.

Demerger

A demerger involves the restructuring of a corporate or trust group by splitting its operations into two or more entities or groups. Under a demerger, the owners of the head entity of the group acquire a direct interest in an entity (demerged entity) that was formerly part of the group.

Demerger rollover

This may apply to CGT events that happened on or after 1   July 2002 to interests that you own in the head entity of a demerger group where a company or trust is demerged from the group. Generally, the head entity undertaking the demerger will advise owners whether demerger rollover is available but you should seek our advice if you are in any doubt. We may have provided advice in the form of a class ruling on a specific demerger, confirming that the rollover is available.

This rollover allows you to defer your CGT obligation until a later CGT event happens to your original or your new shares or units.

Demutualisation

A company demutualises when it changes its membership interests to shares. If you received shares as part of a demutualisation of an Australian insurance company (for example, AMP, IOOF or NRMA), you are not subject to CGT until you sell the shares or another CGT event happens.

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.

Depreciating assets

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include items such as computers, tools, furniture and motor vehicles.

Land and items of trading stock are specifically excluded from the definition of depreciating asset, as are most intangible assets such as options, rights and goodwill.

Discount method

The discount method is one of the ways to calculate your capital gain if:

  • the CGT event happened after 11.45am (by legal time in the ACT) 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 any capital losses made in the year and any unapplied net capital losses from earlier years. You discount any remaining capital gain.

If you acquired the asset before 11.45am (by legal time in the ACT) 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 you received the discounted capital gain from a managed fund you will need to gross up the amount 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 CGT 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 is anything that is used wholly or mainly for residential accommodation. Examples of a dwelling are a home, an apartment, a strata title unit or a unit in a retirement village.

Employee share schemes (ESS)

If you acquired shares or rights at a discount under an ESS and the scheme complies with the income tax rules for certain ESSs, you may reduce the amount of the discount that you include in your assessable income by up to $1,000 when certain conditions are met. There are special CGT rules relating to the calculation of the cost base of these shares or rights and, in some circumstances, you disregard the capital gain or capital loss that you make.

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 two your share of any discounted capital gain you have received from the fund. You may also have to gross up a capital gain that was reduced by the small business 50% active asset reduction.

Income year

A financial year in Australia is a period of 12   months beginning on 1   July and ending on the next 30   June. An income year is the period covered by your tax return, generally 1   July to the next 30   June. However, in particular circumstances, the Commissioner may allow a company or other entity to adopt another 12-month period for their income year.

Indexation factor

The indexation factor is worked out based on the consumer price index (CPI) at appendix   2.

The indexation of the cost base of an asset is frozen as at 30   September 1999. For CGT events after that time, 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 taken to three decimal places rounding up if the fourth decimal place is five or more.

Indexation method

The indexation method is one of the ways to calculate your capital gain if you acquired a CGT asset before 11.45am (by legal time in the ACT) 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 acquired after 11.45am (by legal time in the ACT) on 21   September 1999
  • expenditure relating to a CGT asset acquired after that date.

For CGT events after 11.45am (by legal time in the ACT) on 21   September 1999 the discount method may give you the better result.

Legal personal representative

A legal personal representative can be either:

  • the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will)
  • an administrator appointed to wind up the estate if the person does not leave a will.

LIC capital gain amount

This is an amount notionally included in a dividend from a listed investment company (LIC) which represents a capital gain made by that company. The amount is not included as a capital gain at item   18 on the tax return (supplementary section). See example   46 and the instructions for dividend income for question   12 in TaxPack 2010 .

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. See Is the dwelling your main residence? for more information.

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'). You may make a capital gain or capital loss if you have used your home to produce income, if it was not your home for the full period you owned it or if the land around your home is more than two   hectares.

Managed fund

A managed fund is a unit trust. The types of managed funds available include cash management trusts, fixed interest trusts, mortgage trusts, property trusts, equity trusts, international trusts and diversified trusts.

M arket value substitution rule for capital proceeds

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.

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 at not only the relationship between the parties but also the quality of the bargaining between them.

Market value substitution rule for cost base and reduced cost base

In some cases, the general rules for calculating the cost base and reduced cost base have to be modified. For example, the market value may be substituted for the first element of the cost base and reduced cost base if:

  • you did not incur expenditure to acquire the asset
  • some or all of the expenditure you incurred cannot be valued, or
  • you did not deal at arm's length with the previous owner in acquiring the asset.

Net capital gain

A net capital gain is the difference between your total capital gains for the year and the total of your capital losses for the year and unapplied net capital losses from earlier years, less any CGT discount and small business CGT concessions to which you are entitled.

Net capital loss

If your total capital losses for the year are more than your total capital gains, the difference is your net capital loss for the year. This loss can be carried forward and deducted from capital gains you make in later years. There is no time limit on how long you can carry forward a net capital loss.

Capital losses from collectables can only be used to reduce capital gains from collectables. If your total capital losses from collectables for the year are more than your total capital gains from collectables, you have a net capital loss from collectables for the year. This loss is carried forward and deducted from capital gains from collectables in later years. There is no time limit on how long you can carry forward a net capital loss from a collectable.

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 tax return.

This includes some distributions from unit trusts, managed funds and 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. For other circumstances where you may have an ownership interest, see What is an ownership interest?

Pre-CGT

Acquired before 20   September 1985. Assets acquired before this date are generally exempt from CGT. An exception is if CGT event K6 applies.

Prior year net capital losses

See Unapplied net capital losses from earlier years .

Post-CGT

Acquired on or after 20   September 1985.

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 costs of owning the asset such as interest on monies borrowed to buy it.

Rollover

A rollover allows a capital gain to be deferred or disregarded until a later CGT event happens.

Scrip-for-scrip rollover

A scrip-for-scrip rollover can apply to CGT events that happened 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 rollover conditions have been satisfied.

This rollover allows you to defer your CGT obligation until a later CGT event happens to your shares or units.

You may only be eligible for partial rollover 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 us.

Share buy-back

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.

Small business CGT concessions

There are four small business CGT concessions available if certain conditions are satisfied. They are, the:

  • small business 15-year exemption
  • small business 50% active asset reduction
  • small business retirement exemption
  • small business rollover.

These concessions apply to CGT events that happened after 11.45am (by legal time in the ACT) on 21   September 1999. For information on these concessions, see the publication Capital gains tax (CGT) concessions for small business - overview .

Spouse

Your 'spouse' includes another person (whether of the same sex or opposite sex) who:

  • you were in a relationship with that was registered under a prescribed state or territory law
  • although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

Takeovers and mergers

If a company in which you held shares was taken over or merged and you received new shares in the takeover or merged company, you may be entitled to a scrip-for-scrip rollover.

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
  • 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 and non-assessable non-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 arise where certain tax concessions allowed to the trust enable it to pay greater distributions to its beneficiaries.

U napplied net capital losses from earlier years

This is the amount of net capital losses from earlier years remaining after you have deducted any capital gains made between the years when the losses were made and the current year.

You use unapplied net capital losses from earlier years to reduce capital gains in the current year (after those capital gains have been reduced by any capital losses in the current year).

You can only use unapplied net capital losses from collectables from earlier years to reduce capital gains from   collectables in the current and future years.

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.

Appendix 5 Abbreviations

ACT

Australian Capital Territory

CGT

capital gains tax

CPI

consumer price index

CYCG

current year capital gains

CYCL

current year capital losses

ESS

employee share scheme

FMIS

forestry managed investment scheme

GST

goods and services tax

GVSR

general value shifting regime

LIC

licensed investment company

MDO

medical defence organisation

PYNCL

prior year net capital losses

SBAAR

small business 50% active asset reduction

SBRE

small business retirement exemption

SBRO

small business rollover

SIC

shortfall interest charge

TFN

tax file number

TOFA

UNCL

taxation of financial arrangements

unapplied net capital losses

UCA

uniform capital allowance

ATO references:
NO NAT 4151

Guide to capital gains tax 2010
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