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Cheatography

Capital Gain Tax Fundamentals

This is a draft cheat sheet. It is a work in progress and is not finished yet.

m3.2 CGT Events (div 104)

Event number
Descri­ption
Timing of event
Example
Capital Gain is
Capital Loss is
Exceptions
CGT Disct
Disposals
A1 (s. 104-10)
Disposal of a CGT asset
Disposal of a CGT asset
Disposal of a CGT asset
capital proceeds from disposal less asset's cost base
asset's reduced cost base less capital proceeds
gain/loss is disreg­arded if asset was acquired before 20/09/85
allowed (50% ind, 33.33% super, NIL companies, NIL for NR after 12/05/­2021, NIL if indexation applied
B1 (s. 104-15)
Use and enjoyment before title passes.
When use of CGT asset passes to another entity.
Hire purchase arrang­ements.
capital proceeds less asset's cost base
asset's reduced cost base less capital proceeds
gain/loss is disreg­arded if asset does not pass at or before the end of the agreement, or where the asset was acquired before 20/09/85
allowed (50% ind, 33.33% super, NIL companies, NIL for NR after 12/05/­2021, NIL if indexation applied
End of a CGT asset (C1–C3)
C1 (s. 104-20)
Loss or destru­ction of a CGT asset
When the taxpayer receives compen­sation or, if none, when loss is discovered or destru­ction occurred.
Factory destroyed by fire.
capital proceeds less asset's cost base
asset's reduced cost base less capital proceeds
C2 (s. 104-25)
Cancel­lation, surrender and similar endings.
When the taxpayer receives compen­sation or, if none, when loss is discovered or destru­ction occurred.
Cancel­lation of legal rights arising from a contract.
capital proceeds from ending less asset's cost base
asset's reduced cost base less capital proceeds
C3 (s. 104-30)
End of option to acquire shares,etc
When option ends.
Gain/loss made by company when option to acquire its shares expires without being exercised.
capital proceeds from granting option less expenditur in granting it
expend­iture in granting option less capital proceeds
Bringing into existence a CGT asset (D1–D4)
D1 (s. 104-35)
Creating contra­ctual or other rights.
When taxpayer enters into contract or right is created.
Non-co­mpete clause in a business sale contract.
capital proceeds from creating right less incidental costs of creating it
incidental costs of creating right less creating right less capital proceeds
D1 does not apply when another CGT event, other than H2, occurs
Not Allowed
D2 (s. 104-40)
Granting an option.
When option is granted.
Option to purchase land within a specified period granted.
capital proceeds from grant less expend­iture to grant it
expend­iture to grant option less capital proceeds
If option is exercised, any gain/loss arising from the grant, renewal or extension is disreg­arded
Not Allowed
D3 (s. 104-45)
Granting a right to income from mining.
When taxpayer enters into contract or right is granted.
Taxpayer holds a mining entitl­ement and grants a right to income from operations permitted under the entitl­ement.
capital proceeds from grant of right less expend­iture to grant it
expend­iture to grant right less capital proceeds
D4 (s. 104-47)
Entering into a conser­vation covenant
When covenant is entered into.
Landowner enters into covenant with government to conserve their property for enviro­nmental purposes
capital proceeds from covenant less cost base apport­ioned to the covenant
reduced cost base apport­ioned to the covenant less capital proceeds from covenant
Trusts (E1–E10)
E1 (s. 104-55)
Creating a trust over a CGT asset.
When trust is created
Assets are transf­erred to a new family trust.
capital proceeds from creating trust less asset's cost base
asset's reduced cost base less capital proceeds
E2 (s. 104-60)
Transf­erring a CGT asset to a trust.
When asset is transf­erred.
Assets are transf­erred to an existing family trust.
capital proceeds from tranfer less asset's cost base
asset's reduced co
E3 (s. 104-65)
Converting a trust to a unit trust.
When trust is converted.
Non-unit trust is converted to a unit trust.
market value of asset at that time less its cost base
asset's reduced cost base less that market value
E4 (s. 104-70)
Capital payment for trust interest.
When trustee makes payment
Amounts distri­buted from a unit trust that are non-as­ses­sable due to the small business 50% conces­sion.
non-as­ses­sable part of the paymetn less cost base of the trust interest
No Capital Loss
E5 (s. 104-75)
Benefi­ciary becoming entitled to a trust asset
When benefi­ciary becomes absolutely entitled.
In specie distri­bution of trust assets to a benefi­ciary.
for trustee- MV of CGT asset at that time less its cost base; for benefi­ciary that MV less cost base of benefi­ciary's capital interest
for truste­e-r­educed cost base of CGT assets at that time less that MV; for benefi­ciary - reduced cost base of benefi­ciary's capital interest less that MV
E6 (s. 104-80)
Disposal to benefi­ciary to end income right.
Time of the disposal
Property transfers on the winding-up of a trust
for trustee- MV of CGT asset at that time less its cost base; for benefi­ciary that MV less cost base of benefi­ciary's right to income
for truste­e-r­educed cost base of CGT asset at that time less that MV; for benefi­cia­ry-­reduced cost base of benefi­ciary's right to income less that MV
E7 (s. 104-85)
Disposal to benefi­ciary to end capital interest.
Time of the disposal.
Property disposals on the winding-up of a trust.
for trustee- MV of CGT asset at that time less its cost base; for benefi­ciary that MV less cost base of benefi­ciary's capital interest
for truste­e-r­educed cost base of CGT asset at that time less that MV; for benefi­cia­ry-­reduced cost base of benefi­ciary's right to income less that MV
E8 (s. 104-90)
Disposal by benefi­ciary of capital interest.
When disposal contract is entered into or, if none, when benefi­ciary ceases to own CGT asset.
Sale of trust interests originally acquired for $nil consid­eration
capital proceeds less approp­riate proportion of the trust's net assets
approp­riate proportion of the trust's net assets less capital proceeds
E9 (s. 104-105)
Creating a trust over future property.
When taxpayer makes agreement.
Assignment of prospe­ctive interest in partne­rship to a discre­tionary trust.
MV of hte property (as if it existed when agreement made) less incidental costs in making agreement
incidental costs in making agreement less MV of the property (as if it existed when agreement made)
E10 (s. 104-107A)
Annual cost base reduction of interest in attrib­ution managed investment trust (AMIT).
When the reduction happens.
The annual reduction in cost base due to tax-de­ferred distri­butions exceeds the cost base of the asset.
excess of cost base reduction over cost base
No Capital Loss
Leases (F1–F5)
F1 (s. 104-110)
Granting, renewing or extending a lease.
When lease agreement is entered into or, if none, at start of lease. For lease renewa­l/e­xte­nsion, at start of renewa­l/e­xte­nsion.
Lessor grants a lease and, if it is a long-term lease, does not choose to apply event F2.
capital proceeds less expend­iture on grant, renewal or extension
expend­iture on grant, renewal or extension less capital proceeds
F2 (s. 104-115)
Granting, renewing or extending a long-term lease.
When lessor grants the lease or at start of renewal or extension.
Lessor grants lease over land and lease is for at least 50 years.
capital proceeds from grant, renewal or extension less cost base of leased property
reduced cost base of leased property less capital proceeds from grant, renewal or extension
F3 (s. 104-120
Lessor pays lessee to get lease changed
When lease term is varied or waived.
Payment made by lessor to shorten duration of lease.
No Capital Gain
amount of expend­iture to get lessee's agreement
F4 (s. 104-125)
Lessee receives payment for changing lease.
When lease term is varied or waived.
Payment received by lessee for agreeing to shorten duration of lease.
capital proceeds less cost base of lease
No Capital Loss
F5 (s. 104-130)
Lessor receives payment for changing lease
When lease term is varied or waived.
Payment received by lessor for agreeing to shorten duration of lease.
capital proceeds less expend­iture in relation to variation or waiver
expend­iture in relation to variation or waiver less capital proceeds
Shares (G1 and G3)
G1 (s. 104-135)
Capital payment for shares.
When company pays nonass­essable amount.
Liquid­ator’s interim distri­bution made more than 18 months before company ceases to exist.
payment less cost base of shares
No Capital Loss
G3 (s. 104-145)
Liquidator or admini­strator declares shares or financial instru­ments worthless.
When declar­ation is made.
Liquidator makes declar­ation before final winding-up of a company where no further shareh­older distri­butions expected.
No capital Gain
share's or financial instru­ments' reduced cost base
Special capital receipts (H1 and H2)
H1 (s. 104-150)
Forfeiture of a deposit.
When deposit is forfeited.
Deposit paid to taxpayer is forfeited when purchaser pulls out of contract for sale of land.
deposit less expend­iture in connection with prospe­ctive sale
expend­iture in connection with prospe­ctive sales less deposit
H2 (s. 104-155)
Receipt for event relating to a CGT asset (residual event — designed to ensure tax is paid where no other CGT event applies).
When act, transa­ction or event occurs.
Payment to the owner of land who plans to build a building on the land as an inducement to commence building early, but with no legal obligation to do so.
capital proceeds less Incidental costs
Incidental costs less capital proceeds
Australian residency ends (I1 and I2)
I1 (s. 104-160)
Individual or company stops being an Australian resident.
When individual or company stops being Australian resident.
Taxpayer owning certain assets leaves Australia to become permanent resident of the UK.
for each CGT asset the person owns, its MV of asset less its cost base
for each CGT asset the person owns, its reduced cost base less its MV
I2 (s. 104-170)
Trust stops being resident trust.
When trust ceases to be resident trust for CGT purposes.
Trustee and central management and control of a trust move overseas.
for each CGT asset the trustee owns, its MV of asset less its cost base
for each CGT asset the trustee owns, its reduced cost base less its MV
CGT events relating to rollovers (J1, J2, J4–J6)
J1 (s. 104-175)
Company stops being member of wholly owned group after rollover. (Note: Since the tax consol­idation regime was introd­uced, this event occurs only rarely.)
When the company is no longer fully owned by the group.
Rollover of Australian asset from a non-re­sident group company to a resident group company, followed by break-up of corporate group.
MV of asset at time of event less its cost base
reduced cost base of asset less MV
J2 (s. 104-185)
Change in relation to replac­ement asset or improved asset after small business rollover.
When the change happens.
Replac­ement asset acquired by taxpayer under small business rollover becomes trading stock.
the amount mentioned in subsection 104-185(5)
No Capital Loss
J4 (s. 104-195)
Trusts fails to cease to exist after its assets are rolled over into a company.
When failure occurs.
Trust continues to exist six months after its assets have been rolled over into a company under Subdiv­ision 124-N.
MV of asset less asset's cost base
reduced cost base of asset less asset's MV
J5 (s. 104-197)
Failure to acquire replac­ement asset or undertake capital expend­iture in respect of existing active asset after small business replac­ement asset rollover
At end of replac­ement asset period (generally two years after the rollover
Taxpayer claims small business rollover relief on disposal of an asset but does not purchase a replac­ement asset within two years after the disposal.
the amt of capital gain that you disreg­arded under subdiv 152-E
No Capital Loss
J6 (s. 104-198)
Cost of replac­ement asset or capital expend­iture in respect of existing active asset not sufficient to cover capital gain disreg­arded under small business rollover.
At end of replac­ement asset period (generally two years after the rollover
Taxpayer claims small business rollover relief on disposal of an asset but purchases a replac­ement asset costing less than the gain that was disreg­arded under the rollover.
the amt mentioned in subsec 104-198(3)
No Capital Loss
Other CGT events (K1–K12)
K1 (s. 104-205)
Intern­ational transfer of emissions unit (CGT implic­ations of carbon pricing).
When the unit starts to be held as a registered emissions unit.
Taxpayer starts to hold an intern­ational emissions unit as a registered emissions unit.
K2 (s. 104-210)
Bankrupt pays amount in relation to debt.
When payment is made.
Bankrupt taxpayer can claim part of pre-ba­nkr­uptcy capital loss if taxpayer repays some of the related debt.
K3 (s. 104-215)
Asset passes to taxadv­antaged entity after death.
When individual dies.
Asset is transf­erred to a foreign resident benefi­ciary on death of taxpayer.
K4 (s. 104-220)
CGT asset becomes trading stock of taxpayer
When asset becomes trading stock.
Land previously held as an investment is subdivided by the taxpayer in prepar­ation for develo­pment and sale and becomes trading stock.
K5 (s. 104-225)
Companies and trusts holding collec­table assets that have fallen in market value.
When CGT events A1, C2 or E8 happen to shares in the company or interests in the trust that owns the collec­table.
Taxpayer sells shares in a company that owns artwork that has decreased in value
K6 (s. 104-230)
Sale of pre-CGT shares or trust interest, where market value of post- CGT assets held by compan­y/trust represents at least 75% of net value of the compan­y/t­rust.
When another CGT event involving the shares or interest occurs.
Taxpayer sells pre-CGT shares in private company. 80% of the value of the company relates to post-CGT assets.
K7 (s. 104-235)
Balancing adjustment event occurs for a deprec­iating asset used wholly or partly for private purposes.
When balancing adjustment event occurs.
Disposal of a truck partly used for private purposes.
K8 (s. 104-250)
Direct value shifts affecting equity or loan interests in a company or trust.
When decrease in value of equity or loan interest occurs
Existing shares in a family business held by a husband and wife are devalued when new shares are issued to the son.
K9 (s. 104-255)
Entitl­ement to receive certain amounts in respect of venture capital invest­ments.
When the entitl­ement arises.
Capital gains on sale of eligible venture capital invest­ments
K10 (s. 104-260)
Foreign exchange gains.
When the foreign currency amount is paid to the taxpayer.
Foreign exchange gain on the sale of a CGT asset for foreign currency consid­era­tion, paid within 12 months of the sale.
K11 (s. 104-265)
Foreign exchange losses
When the foreign currency amount is paid to the taxpayer
Foreign exchange loss on the sale of a CGT asset for foreign currency consid­era­tion, paid within 12 months of the sale.
K12 (s. 104-270)
Foreign hybrid loss exposure adjustment
Just before the end of the tax year.
Capital loss made by partners in foreign hybrids (e.g. UK limited partne­rsh­ips).
Division 104:
A group ► Disposal of CGT assets
B group ► Economic use before ownership
C group ► Ending of CGT assets
D group ► Creation of CGT assets
E group ► Trust
F group ► Leases
G group ► Shares
H group ► Special Capital Receipts
...and so on...

m3.1 6s Step Determ­ining CGT (s.100-15)

Capital Gains
Less: Capital Losses
Less: Carried Forward Net Capital Lossess
Less: CGT Discount
Less: CGT Small Business Concession

Net Capital Gains included in the Assessable Incomer per s.102-5 ITAA97

m3.2 CGT Events - Exam Coverage

m3.3 CGT Asset (s.108-5)

Land and Bldg (related together, or as separate assets
Shares in a company
Leases
Units in a Unit Trust
Goodwill
Rights and Options
Licenses
Conver­tible Notes
Contra­ctual Rights
Interest in Partne­rship or in an asset of a Partne­rship
Foreign Currency (but not AUD cash)
Any major capital improv­ement made to certain land or pre-CGT assets
*Personal use assets
*Colle­ctibles
Know-how (not a CGT asset) ►
Intell­ectual Property > CGT asset
*Special CGT rules applies

Collec­tibles (s.108-10) e.g. artworks, jewelry, antiques, coins, rare books & postage stamps
Personal Use Assets (s.108-20) e.g. non-co­lle­ctible assets, such as boats, caravans & sports equipment

m3.3 CGT Assets - Personal Use (s108-20)

m3.3 CGT Asset - Collec­tables (s108-10)

m3.4 Capital Proceeds

Section 116-20 Capital proceeds include:
- Money received or receivable
- MV of any property received or receivable

Section 103-10 You are deemed to have received the money or property even if:
- Payment is not due until later or
- Payable in instal­lment

** You can have an income tax liability in the event year, even when you have not received the capital proceeds yet.

m3.4 Capital Proceeds - Modifi­cation

m3.4 Five Element of Cost Base

Any expend­iture relating to illegal activi­ties, entert­ain­ment, penalties and bribes to a public official is excluded from the cost base of a CGT asset.

Indexed Cost Base
- Assets acquired at or before 21 September 1999
-NOT subjected to indexation
- Indexation for CPI is not possible
- Held at least 12 months before the CGT event occurred

Reduced Cost Base
- Similar to "Cost Base" excluding the Ownership Costs eg. interest on money borrowed or repairs

m3.4 Cost Base - Detailed Element subdiv 110-A

M3.4 Indexed Cost Base - 21 SEP 1999

CPI INDEXATION FROZEN BY 21 SEP 1999

m3.4 CPI

m3.4 CGT Gain - Exercise

CAPITAL GAIN = CAPITAL PROCEEDS > COST BASE

m3.4 CGT Loss - Exercise

CAPITAL LOSS = REDUCED COST BASE > CAPITAL PROCEEDS

m3.4 CGT Gain/Loss

Given: shares bought 3-yr ago at cost for $30k. Incurred ownership costs of $3k during the last 3 yrs. In the current tax year, James sold the shares for $32,000, triggering CGT Event A1. What is James’ net capital gain or loss?
Ans: However, capital proceeds ($32K) > Reduced Cost Base ($30k) excl $3k ownership costs,3rd element is excluded from the reduced cost base) and so no capital loss arises.

m3.4 Pre CGT Assets - 30 SEP 1985

CGT was introduced on 20 SEP 1985

m3.4 Income Tax Priority

m3.4 CGT Exemptions

m3.4 CGT Exempt­ion­/Ex­cep­tions

m3.4 CGT Rollover Provisions

m3.4 Rollover - Deceased Estate

m3.4 CGT Events - D1 Creati­on/­Start

Given:
Sale of Business = $2mil
Non-co­­mpete clause (3years, 5km radius) - $300k - Restraint of Trade*
Legal fees - $2k

m3.4 CGT Events D2 Granting an Option

m3.4 - CGT Event - A1 Disposal (s104-10)

Reduced Cost Base = ignoring ownership costs

m3.4 F1 Lease

m3.4 CGT Event - C2 Forfei­ture, Cancel, Surrender

m3.4 CGT Event - C1 Loss/D­est­ruction (s.104-20)

m3.4 CGT Event - H1 Forfeiture (s.104­-150)

m3.4 CGT Events for pre-CGT Asset - K6

The company or trust is not disposing of its assets. The taxpayer selling the pre-CGT shares or trust interests is receiving capital proceeds from a CGT event (A1) but because the gain is likely related to post-CGT assets held by the company or trust (where it makes up a high proportion of its net value) then a portion of the unrealised gain in relation to those post-CGT assets is apport­ioned to the taxpayer for CGT purposes.

m3.4 CGT Event - K6 Exercise

Pre-CGT Land = $1 mil [When Sold - CGT Capital Gain is Disreg­arded
Post-CGT Warehouse = $4 mil ► represent 80% ($4/$5) Apport­ionment
Net Assets = $5 mil

* Capital Gain = Capital Proceeds reasonably attrib­utable to unrealised capital gains in the post CGT property
* NO Capital Loss

m3.4 CGT Main Residence Exemption (s.118­-110)

Dwelling (s.118­-115)
Main Residence factos to consider:
- a unit of accomm­odation that: (1) bldg mainly used for reside­ntial accomm­oda­tion, and (2) caravan, houseboat or mobile home
- length of time lived in the dwelling;
- a unit of accomm­odation that:
- intention to occupy the dwelling;
 
- taxpayer’s address for mail
 
- taxpayer’s address on the electoral roll.
Exceptions to the Main Exemptions below:
meaning Capital Gain/Loss still applies
1. if the dwelling was your main residence for only part of the ownership period
2. if the dwelling was used for the purpose of producing assessable income (s. 118-190).
A capital gain or loss from a CGT event happening to an ownership interest in a dwelling can be disreg­arded if:
1. you are an individual
2. the dwelling was your main residence throughout the ownership period
3. you did not inherit the ownership interest (note that separate rules apply to benefi­ciaries of deceased estates).

m3.4 Main Residence Exemptions

Adjacent Land - s.118-120
Absences - s.118-145
The Main Residence Exemption Extends:
Absence period > 6 years (resets when returned and lived in the main residence)
► Private Purpose
Earning Assessable Income? (Indef­inite exemption if not earning, like having it rent-free)
► Max Area: Less than 2 hectares less the area where the main residence is sitting
Can not claim 2 dwellings at the same time.
Key Points
Exemption only applies to INDIVIDUAL TAXPAYERS

m3.4 Main Residence Exemption - Absences

m3.4 Main Residence Exemption - Spouses

Spouses can only have one wholly exempt dwelling at any time.

m3.4 Foreign Resident - Taxable Au Properties

CGT assets that are 'taxable Australian property' are always subject to
CGT - even if the owner is a non-re­sident.

m3.4 Foreign Resident Taxable Au Property

m3.4 Taxable Australian Property Category

s.855-15 ITAA97

m3.4 Foreign Resident - Tax Au Property

1. Taxable Au Real Property - s.855-20
1.1 Real Estate
 
1.2 Mining, quarry, propes­pecting rights where the minerals are located in AU
2. Indirect Au Real Property - s855-25
2.1 Membership Interest (shares or units) in another entity (test entity) where:
 
cond a. the holding is 10% or more of the test entiry
 
cond b. the principal assets, by market value, of the test entity consist predom­inantly of taxable Au real property
3. CGT Assets used in carrying on a business through an Au Permanent Establ­ish­tment
Asset owned by a local branch of a foreign co.
4. Option or Right to Acquire a CGT asset in any of the prior 3 categories
5.** CGT asset elected to be treated by an individual as taxable Au Property under CGT Event I1(s10­4-1­65(3) ITAA97)
5.1 Triggered when an Au Res ceases their Au Residency (exit tax on leaving)
 
5.2 Makes non-ta­xable Au Property subject to CGT at such a time (deemed disposal rule)
 
5.3 Taxpayer may elect to treat non-ta­xable Au Property as taxable Au Property
Treatm­ent­/Op­tions:
1. CGT liability is deferred until a later CGT event happens
2. Subject to higher non-re­sident tax rates in Au
3. Not entitled to the full CGT discount

m3.4 Rollover Provision

m3.4 Rollover Provision - D122 Transfer

m3.4 Rollover Provision - Div 124 Replac­ement

m3.4 Rollover Provision SDiv 328G Restru­cture

m3.4 Rollover Provision - Div 125 Demerger

m3.4 Rollover Provision Div126 Same Asset RO

m3.5 CGT Discount

No CGT discount for Companies, NR on accrued capital gains after 08 May 2012
No CGT disount on GAINS where Indexa­tion** has been applied
No CGT discount for CGT Events -
► D1 D2 D3
► E9
► F1 F2 F5
► H2
► J2 J5 J6
► K10

CGT Discount to apply - Requir­ements
* After 21 September 1999
* No Indexation of the Cost Base
*Owned for at least 12 months

m3.5 CGT Small Business Conces­sions - Basics

MUST be met for all Conces­sions

m3.5 CGT Small Business Conces­sions - 15yr

Takes Priority (in isolation) and cannot be used with any other conces­sion.
However, the remaining conces­sions can be used in combin­ation, subject to meeting all relevant condit­ions.

m3.5 CGT Small Business Concession - 50% Reduct

m3.5 CGT Small Business Concession - Retirement

m3.5 CGT Small Business Concession - Rollover

m3.5 CGT Small Business Concession - 50% Reduct

m3.5 Calcul­ating Net Capital Gain/Loss

m3.5 Calcul­ating - Net Capital Gain/Loss (s.102-5)

m3.4 Net Capital Gain/Loss - Key Points

m3 Timeline