Guide to capital gains tax 2009

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Part B - Completing the capital gains section of your tax return

• item 18 of the Tax return for individuals (supplementary section) 2009

Read this first

Are you an individual?

If you are completing a tax return on behalf of an individual (rather than an entity), read this part of the guide.

If you need help completing the:

• Capital gain or capital loss worksheet (PDF, 96KB) - go to step   1 of part   C (ignore the word 'entity')
• CGT summary worksheet for 2009 tax returns (PDF, 210KB) - go to steps   2 and 3 of part   C .

Is your entity a company, trust or fund?

If the tax return is for a company, trust or fund, go to part   C of this guide.

Introduction

Read part B if you are an individual and a CGT event happened in 2008-09 or you received a distribution from a trust (including a managed fund) that included a net capital gain.

If you have sold only a few shares or units, or have a managed fund distribution, you may find it easier to use the Personal investors guide to capital gains tax 2009 .

The steps that follow explain how to calculate your net capital gain or net capital loss for 2008-09 and complete item 18   Capital gains on your Tax return for individuals (supplementary section) 2009 .

Individuals, including individual partners in a partnership, who lodge using a paper tax return, are not required to complete a CGT schedule.

Chapter 2 in part A explains how to calculate a capital gain or capital loss for each CGT event or asset using the Capital gain or capital loss worksheet (PDF, 96KB). For most individuals, this worksheet is all you will need to work out what needs to be included at item   18 on your tax return (supplementary section). Make copies of the worksheet if you need more than one. If you need help completing the Capital gain or capital loss worksheet, read step   1 in part   C (ignore the word 'entity').

If you have a number of the Capital gain or capital loss worksheets because several CGT events happened, you may wish to use the CGT summary worksheet (PDF, 210KB) to help you calculate your net capital gain or net capital loss. Read steps   2 and 3 in part   C of this guide (ignoring the word 'entity') to find out how to complete the summary worksheet. Then complete item   18 on your tax return (supplementary section).

New terms We may use some terms that are new to you. These words are explained in Definitions . Generally, they are also explained in detail in the section where they first appear.

Step 1 Types of CGT assets and CGT events

Certain capital gains and capital losses (that is, those from collectables and personal use assets) are treated differently when calculating your net capital gain or net capital loss. See chapter   1 in part A for explanations of these assets. In particular, you should note that you disregard capital losses from personal use assets and do not take them into account when working out your net capital gain. You can only use capital losses from collectables to reduce capital gains from collectables.

You need to separate the records of your CGT events into the following three categories:

• those relating to collectables (for example, jewellery)
• those relating to personal use assets (for example, a boat you use for recreation)
• other CGT assets or CGT events, including distributions of capital gains from managed funds.

Step 2 Calculating your current year capital gain or capital loss for each CGT asset or CGT event

Calculate whether you have made a capital gain or capital loss for each CGT event that has happened during the income year. The Capital gain or capital loss worksheet (PDF, 96KB) can help you work this out. Do not include capital gains that are disregarded, deferred or reduced, or capital losses that are disregarded - see Exemptions and rollovers . If you are a small business owner and qualify for one or more of the following small business CGT concessions - the 50% active asset reduction, small business rollover relief or the small business retirement exemption - you include the relevant capital gains at this step. You apply the concessions to the amount of any relevant capital gains remaining after step   7.

In calculating your capital gain, you will use one of the following three methods for each asset:

• indexation method
• discount method
• 'other' method.

See chapter 2 in part A for a full explanation of these methods and how to use them to calculate your capital gain or capital loss for each CGT event.

For a CGT event that happens after 11.45am (by legal time in the ACT) on 21   September 1999 to a CGT asset that you acquired at or before that time, you can choose to use either the indexation or the discount method to calculate your capital gain if you have owned the asset for at least 12   months. If you bought and sold your asset within 12   months, you must use the 'other' method to calculate your capital gain.

If you use the discount method, do not apply the discount percentage until you have applied current year capital losses and unapplied net capital losses from earlier years.

You also need to work out the amount of any capital gains that you are taken to have made as part of a distribution from a trust. You must use the same method the trustee used in calculating the amount of the capital gain. For more information, see chapter   4 in part   A.

Concessions that may apply There are special rules if a trust's net capital gain was reduced by the CGT discount or by applying the small business 50% active asset reduction, or both. The trust should advise you if it has claimed either (or both) of these concessions as you will need to adjust the amount of the net capital gain to be included in your total capital gains (see Trust distributions for more information).

Step 3 Total current year capital gains

If you do not have any capital gains from collectables, add up all your capital gains from step   2 and write this amount at H   Total current year capital gains item   18 on your tax return (supplementary section).

If you have a capital gain from collectables, deduct any capital losses from collectables (including unapplied net capital losses from earlier years from collectables). Do not deduct capital losses from other capital gains at this stage.

Any capital gain remaining is added to all your other capital gains from step   2. Write the total amount at H item   18 on your tax return (supplementary section).

If you received (or are entitled to receive) a distribution from a trust that includes a net capital gain, you also need to include this amount here in your total capital gains. Do not include this amount as a distribution from the trust at item 13   Partnerships and trusts on your tax return (supplementary section).

If your capital gains from collectables were reduced to zero when you applied your losses from collectables - and you still have capital losses from collectables remaining - make a note of this amount.

This capital loss can be carried forward to future years (see step   9 ) and will be recorded at V Net capital losses carried forward to later income years item   18 on your tax return (supplementary section).

Step 4 Capital losses

If you have no current year capital losses or unapplied net capital losses from earlier years, go to step   7 . Otherwise, read on.

From your Capital gain or capital loss worksheet, add up all your capital losses for 2008-09 and make a note of this amount. Remember that you do not include capital losses:

• from personal use assets
• from collectables
• that are disregarded (for example, those from assets acquired before 20   September 1985) - see Exemptions .

If you have a current year capital loss, go to step 5.

If you have only unapplied net capital losses from earlier years and no current year capital gains, go to step   6 .

Step 5 Applying current year capital losses

You must apply your current year capital losses from step 4 against (that is, deducted from) any capital gains you made during the year to determine your net capital gain or net capital loss.

Example 104: Sale of shares and collectables

Kathleen sold some assets during the year and has the following capital gains and capital losses for 2008-09:

Capital gain on the sale of 1,000 shares for $6 each on 17   December 2008

Kathleen bought these shares on 17   November 1998 and each has a cost base of $3 (including incidental costs of acquisition and disposal).

Capital gain = $6,000 - $3,000 = $3,000

Kathleen chooses to calculate her capital gain using the discount method.

Capital gain on the sale of 130 shares for $8   each on 27   February 2009

Kathleen bought these shares on 10 October 2008 and each has a cost base of $4 (including incidental costs of acquisition and disposal). As the asset was bought and sold within 12   months, Kathleen must use the 'other' method to calculate her capital gain from these shares:

130 x $8 = $1,040 - (130 x $4) = $520

Capital loss on the sale of jewellery for $1,000 on 1 April 2009

Kathleen bought this jewellery for $1,500 and sold it six months later for $1,000.

She calculates her capital loss as follows:

$1,000 - $1,500 = $500 capital loss

Kathleen takes the following steps to complete item 18 on her tax return (supplementary section).

Firstly, Kathleen writes her total current year capital gains of $3,520 ($3,000   +   $520) from her shares at H Total current year capital gains . This is the amount before deducting any capital losses or applying the CGT discount. If Kathleen had made a net capital gain on her collectables (her jewellery), she would also have included it here.

Next, Kathleen notes her capital loss from collectables on her Capital gain or capital loss worksheet (PDF, 96KB) or on a separate piece of paper. Although she made a capital loss from collectables, she cannot reduce her other capital gains by this amount. However, she can carry this amount over so that if she makes a capital gain from collectables in the future, she can deduct this capital loss from her capital gain on a later tax return. If Kathleen has no other capital losses from the current year or earlier income years, she will now write the amount of $500 at V Net capital losses carried forward to later income years item   18 on her tax return (supplementary section).

Kathleen still has to complete A Net capital gain .

Example 105: Capital loss on the sale of shares

Using the facts from example 104 , we will also assume that Kathleen has the following to consider:

Capital loss on the sale of 600 shares for $3 each on 25   June 2009

Kathleen had bought these shares on 10   October 2008 and each has a reduced cost base of $4 (including incidental costs of acquisition and disposal).

Reduced cost base	600 x $4 =	$2,400
Capital proceeds	600 x $3 =	$1,800
Capital loss		$600

Kathleen now has a $600 loss she can use to deduct from her capital gains. From the earlier example, we know Kathleen has a $3,000 capital gain calculated using the discount method.

She has another capital gain of $520 that she calculated using the 'other' method. Kathleen chooses to deduct the first $520 of her capital loss from the capital gain calculated using the 'other' method and to deduct the remaining $80 from the capital gain calculated using the discount method. Working this way gives her the best result:

'other' method capital gain	$520
less capital loss of	$520
	$0
discount method capital gain	$3,000
less capital loss of ($600 - $520)	$80
	$2,920

Kathleen makes a note that she has capital gains of $2,920 calculated using the discount method.

When applying your current year capital losses, you can choose the method that gives you the best result to reduce your current year capital gains. While you will need to consider your own situation, for most people the order that usually gives the greatest benefit and the smallest net capital gain is to apply the capital losses against capital gains calculated using the:

1. 'other' method
2. indexation method
3. discount method.

Apply your current year capital losses against your current year capital gains and make a note of any capital gains remaining. If you have current year capital losses that can be applied this income year they must be applied here. You cannot choose to defer to a later year any amount that can be applied this year.

If your total capital losses for the year are more than your total capital gains, you will need to keep a record of the difference. This amount - your net capital loss - is carried over and used to reduce your future capital gains. There is no time limit on how long you can carry forward your net capital loss. If you have reduced your capital gains to zero, do not put anything at A   Net capital gain .

S tep 6 Applying net capital losses from earlier years

If you do not have any unapplied net capital losses from earlier years, go to step   7 . Otherwise, read on.

You can further reduce your current year capital gains by your unapplied net capital losses from earlier years.

You must apply unapplied net capital losses from earlier years against capital gains in the order you made them (for example, use net capital losses from 1998-99 before you use any net capital losses from 1999-2000). You can then apply these capital losses against your capital gains in the manner that gives you the best result. Again, for most people the order that usually gives the greatest benefit and the smallest net capital gain is to apply the capital losses against capital gains calculated using the:

1. 'other' method
2. indexation method
3. discount method.

Reduce your remaining current year capital gains by any unapplied net capital losses from earlier years and make a note of any capital gains remaining. If you have unapplied net capital losses from earlier years that can be applied this income year, they must be applied here. You cannot choose to defer to a later income year any amount that can be applied this income year.

You will need to keep a record of any unapplied net capital losses from earlier years. You can continue to carry over these amounts and use them to reduce your future capital gains. There is no time limit on how long you can carry over your net capital losses. You record these at V Net capital losses carried forward to later income years (see step   9 ). If you have reduced your capital gains to zero, do not put anything at A Net capital gain .

Example 106: Unapplied net capital losses from earlier years

Let us also now assume that Kathleen has the following to consider:

Kathleen has unapplied net capital losses from earlier years of $400 that are not from collectables or personal use assets.

In our example so far, Kathleen applied her current year capital loss and had $2,920 of capital gains calculated using the discount method remaining.

Taking this example further, Kathleen would now also deduct the unapplied net capital losses of $400 from earlier income years from her capital gain of $2,920 calculated using the discount method:

$2,920 - $400 = $2,520

This leaves $2,520 of capital gains calculated using the discount method.

Kathleen must use all current year capital losses and all the unapplied net capital losses from earlier years before applying the CGT discount of 50%. In this example, the amount at V is still $500 because this is what she will carry forward as losses from collectables to future income years.

S tep 7 Applying the CGT discount

You can now reduce any remaining current year capital gains calculated using the discount method by the discount percentage (50% for individuals).

You cannot apply the discount to capital gains calculated using the indexation method or the 'other' method.

Example 107: Total capital gains calculated using the discount method

From our earlier information, we know Kathleen had capital gains of $2,520 calculated using the discount method after applying relevant capital losses. She works out her total capital gains by multiplying her capital gain by the CGT discount of 50%:

$2,520 x 50% = $1,260

Step 8 Applying the small business CGT concessions

If you are a small business owner, you may qualify for one or more of the following small business CGT concessions: the 50% active asset reduction, small business rollover relief or the small business retirement exemption. You can apply these concessions now to the amount of any relevant capital gains remaining after step   7. You may apply the concessions to capital gains calculated using any of the three methods.

Note: The Government announced in the 2008-09 Budget that it will increase access to the small business CGT concessions for businesses with turnover less than $2 million via the small business entity test concession. This will apply to:

• taxpayers that do not carry on a business but own a CGT asset used in a business by a related entity
• an individual partner who owns a CGT asset (not an interest in an asset of the partnership) used in the partnership business.

At the time of publishing these instructions this change had not become law.

For more information, see the publication Capital gains tax (CGT) concessions for small business - overview .

S tep 9 Working out your net capital gain

The amount of your remaining capital gains becomes your net capital gain, which you write at A Net capital gain item   18 on your tax return (supplementary section).

It represents the amount you have written at H Total current year capital gains reduced in accordance with:

• Step 5 Applying current year capital losses
• Step 6 Applying net capital losses from earlier years
• Step 7 Applying the CGT discount, and/or
• Step 8 Applying the small business CGT concessions.

If you have capital losses that have reduced your capital gains to zero, do not put anything at A Net capital gain. If you have any capital losses remaining after reducing your capital gains, you can carry these forward to future income years (see step   10 ). Again do not include losses from:

• assets you acquired before 20   September 1985
• personal use assets
• other losses that are disregarded.

Example 108: Net capital gain - A

Because no other CGT concessions apply to Kathleen she writes $1,260 at A Net capital gain item   18 on her tax return (supplementary section).

S tep 10 Capital losses carried forward to later income years

Your net capital losses amount to be carried forward is the total of any:

• unapplied current year net capital loss from step   5
• unapplied net capital losses from earlier years from step   6
• capital losses from collectables to be applied in future income years from step   3. You will need to keep a separate record of unapplied net capital losses from collectables because you can only use these to reduce capital gains from collectables in later income years. There is no time limit on how long you can carry over the net capital losses.

Write this amount (if any) at V item 18 on your tax return (supplementary section). Remember to deduct these losses from any capital gains in future income years.

Example 109: Net capital losses to be carried forward - V

Kathleen has deducted all her current year capital losses (except those from collectables) and her net capital losses from earlier years from her capital gains in the order that gave her the best result. This means she will only have capital losses from collectables to carry forward to a later income year. Kathleen writes $500 at V item   18 on her tax return (supplementary section).

Kathleen must make a note of this capital loss for next year, as she did with the unapplied net capital losses from earlier years that she used this year. She must also note that her capital losses this year are capital losses from collectables, as she will only be able to deduct them against capital gains from collectables in a future year.

ATO references:
NO NAT 4151