What is CGT?

To work out whether you have to pay capital gains tax, you need to know:

• whether a CGT event has happened
• the time of the CGT event
• how to calculate the capital gain or capital loss
• whether there is any CGT exemption or rollover that allows you to reduce or disregard the capital gain or capital loss
• how to apply any capital losses
• whether the CGT discount applies, and
• whether you are entitled to any of the CGT concessions for small business.

The most common CGT event happens when you dispose of an asset to someone else – for example, if you sell or give it away, including to a relative.

A CGT event also happens when:

• an asset you own is lost or destroyed (the destruction may be voluntary or involuntary)
• shares you own are cancelled, surrendered or redeemed
• you enter into an agreement not to work in a particular industry for a set period of time
• a trustee makes a non-assessable payment to you from a managed fund or other unit trust
• a company makes a payment (not a dividend) to you as a shareholder
• a liquidator or administrator declares that shares or financial instruments you own are worthless
• you receive an amount from a local council for disruption to your business assets by roadworks
• you stop being an Australian resident
• you enter into a conservation covenant, or
• you dispose of a depreciating asset that you used for private purposes.

As an individual investor, you may be eligible for the 50% Capital Gains tax discount on certain captial gains where you have held the asset for more than one year.

Australian residents make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world.

Foreign residents make a capital gain or capital loss only if a CGT event happens to a CGT asset that is ‘taxable Australian property’.

Capital gains/losses

For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset.  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.  Capital losses can be carried forward to later income years to be deducted from future capital gains. You cannot deduct a net capital loss from your income.

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