Capital gains tax (CGT) generally applies to CGT events that happen to CGT assets acquired after 19 September 1985. CGT is not a separate
tax, it forms part of income tax.
CGT events
The most common CGT event is the disposal of an asset by selling it or giving it away. A full list of CGT events is available here.
CGT assets
A CGT asset is any kind of property, or a legal or equitable right that is not property. CGT assets include:
Where a taxpayer owns an interest in a CGT asset and then acquires a further interest, the interests remain separate CGT assets. Buildings,
structures and other capital improvements to land may be treated as separate CGT assets to the land. A car is a CGT asset, but any capital
gain made from it is exempt from CGT (the gain may be taxable under other provisions).
Special rules apply to some kinds of CGT assets, including collectables, personal use assets, certain investments, leases and options.
Working out a capital gain or loss
For most CGT events, a capital gain arises if the capital
proceeds from
the CGT event exceed the cost
base of
the CGT asset. Conversely, a capital loss arises if the reduced
cost base of
the CGT asset exceeds the capital proceeds from the CGT event.
The amount of a capital gain is reduced by the CGT discount if the taxpayer is an individual, trust or complying superannuation entity, and
the taxpayer acquired the CGT asset at least 12 months before the CGT event. The discount percentage is as follows:
Taxpayers can choose the indexation
method,
rather than the CGT discount, if that results in a lower capital gain. Companies are generally not eligible for the CGT discount, but can
use the indexation method. Discount capital gains made by trusts can generally be passed through to presently entitled beneficiaries, who
can claim the discount percentage as above. Where the trustee is taxed on a capital gain, the availability of the discount depends on the
particular circumstances of the trust.
Capital losses can only be offset against capital gains, they cannot be offset against other income. Care should be taken when applying
capital losses to ensure the optimum reduction of capital gains for the CGT discount and small business CGT concessions. A net capital loss
in an income year is carried forward to be offset against capital gains in later income years.
Exemptions, rollovers and concessions
A wide range of exemptions and rollovers apply.
In addition to the generally available exemptions and rollovers, small business entities are eligible for the small
business CGT concessions.
International issues
On or after 12 December 2006, a foreign resident makes capital gains only on the disposal of taxable
Australian property.
Temporary residents are subject to the same CGT rules as foreign residents, however some specific
rules apply.
Special rules apply on becoming
a resident or ceasing
to be an Australian resident.
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