Capital Gains Events

To determine whether capital gains tax applies in any situation, the CGT rules establish a list of taxable transactions which are called “CGT events”.

A capital gain is in many cases intuitively understood as the gain made from the purchase and sale of an asset, and this is perhaps the most common scenario listed as CGT Event A1.

There are a number of other less obvious events which trigger the capital gains rules, including such “events” as the alteration of legal rights, a change in residency or a change in the way assets are treated.

Thus the process of determining whether there is a CGT tax implication begins by ticking off the CGT Event definitions to see which (if any) could apply.

Capital Gains Events Checklist

A1 Disposal of a CGT asset

B1 Use and enjoyment before title passes

C1 Loss or destruction of a CGT asset

C2 Cancellation, surrender and similar endings

C3 End of option to acquire shares etc.

D1 Creating contractual or other rights

D2 Granting an option

D3 Granting a right to income from mining

D4 Entering into a conservation covenant

E2 Transferring a CGT asset to a trust

E3 Converting a trust to a unit trust

E4 Capital payment for trust interest

E5 Beneficiary becoming entitled to a trust asset

E6 Disposal to beneficiary to end income right

E7 Disposal to beneficiary to end capital interest

E8 Disposal by beneficiary of capital interest

E9 Creating a trust over future property

E10 Annual cost base reduction exceeds cost base of interest in AMIT

F1 Granting a lease

F2 Granting a long term lease

F3 Lessor pays lessee to get lease changed

F4 Lessee receives payment for changing lease

F5 Lessor receives payment for changing lease

G1 Capital payment for shares

G3 Liquidator or administrator declares shares or financial instruments worthless

H1 Forfeiture of a deposit

H2 Receipt for event relating to a CGT asset

I1 Individual or company stops being an Australian resident

I2 Trust stops being a resident trust

J1 Company stops being member of wholly-owned group after roll-over

J2 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E

[J4 Trust fails to cease to exist after a roll-over under Subdivision 124-N

J5 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E

J6 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain

K1 As the result of an incoming international transfer of a Kyoto unit or an Australian carbon credit unit from your foreign account or your nominee’s foreign account, you start to hold the unit as a registered emissions unit

K2 Bankrupt pays amount in relation to debt

K3 Asset passing to tax-advantaged entity

K4 CGT asset starts being trading stock

K5 Special capital loss from collectable that has fallen in market value

K6 Pre-CGT shares or trust interest

K7 Balancing adjustment occurs for a depreciating asset that you used for purposes other than taxable purposes

K8 Direct value shifts affecting your equity or loan interests in a company or trust

K9 Entitlement to receive payment of a carried interest

K10 You make a forex realisation gain covered by item 1 of the table in subsection 775-70(1)

K11 You make a forex realisation loss covered by item 1 of the table in subsection 775-75(1)

K12 Foreign hybrid loss exposure adjustment

L1 Reduction under section 705-57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group or MEC group

L2 Amount remaining after step 3A etc. of joining allocable cost amount is negative

L3 Tax cost setting amounts for retained cost base assets exceed joining allocable cost amount

L4 No reset cost base assets against which to apply excess of net allocable cost amount on joining

L5 Amount remaining after step 4 of leaving allocable cost amount is negative

L6 Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6

L8 Reduction in tax cost setting amount for reset cost base assets on joining cannot be allocated

Further information

Section 104.5 ITAA 1997 (the source of the above checklist) provides a summary of CGT events, the deemed timing, and the capital gain or loss calculation in each case with links to definitions and other relevant sections.

The Tax Office provides a practical calculation guide to the determination of CGT for tax return purposes – see links here: Guide to Capital Gains Tax

The income tax consequences of vesting a trust

The Tax Office has provided the following materials clarifying its position:

Trust splitting

The Tax Office has issued the following guidance:  Draft Taxation Determination TD 2018/D3 Trust splitting arrangements – CGT event E1

CGT Event D1

Does CGT event D1 happen if a taxpayer grants an easement, profit à prendre or licence over an asset?

Answer: Yes.

See Tax Determination TD 2018/15 

 

This page was last modified 2018-11-01