Capital Gains Tax Events
Capital Gains Tax EVENTS - what are they?
Event A1 : Disposal of an asset
Event B1: Hire purchase and similar agreements
Events C: Loss or destruction of assets related events
Events D: Creation of an asset related events
Events E: Trust related events
Events F : Lease related events
Events G: Shares in a company related events
Events H: Windfall gain related events
Events I: Change of Australian residence related events
Event J: Company stops being member of wholly owned group related event
Events K: Other events
When does a capital gain arise?
When the capital gains provisions were first introduced, they were worded in such a way as to include in assessable income, any gain that could arise on the disposal of an asset, with certain specified exceptions.. The exact nature of these gains was generally unspecified. There were some weird and wonderful specified situations in which gains were deemed to have arisen by the law, but generally it was a case of, 'if the Commissioner says it is a gain, then he will include it in your assessable income'.
There was a dramatic change in this situation with the rewritten capital gains provisions in the Tax Law Improvement Act.
The gains, which could be included, were now specified as arising only when certain events happen. These events are defined in Division
104 .
When a capital gain event happens!
(No capital gain event - No capital gain.)
So what are these capital gain events?
Division
104 explains the events, which give rise to capital gains. They are given identifying numbers such as A1, B1, C1, etc and you will notice that these identifiers are used throughout the capital gains chapters.
You will notice that the events have 4 main characteristics:
Description of event
Description of calculation of gain or loss
Description of timing of gain or loss
Exceptions and special rules which apply
Event A1 - Disposal of a Capital Gains Tax asset
The
events listed in Division 104 will be examined in this topic, and we will look at the most common of these events first, and in greater details than the others.
Disposal of a Capital Gains Tax asset
.
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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A1 Disposal of a CGT asset
[See section 104-10] |
When disposal contract is entered into or, if none, when entity stops being asset’s owner |
capital proceeds from disposal less asset’s cost base |
asset’s reduced cost base less capital proceeds |
If you look at Division 104 now, (and it would be well worth your while) you will notice that for every category of event described, there are four main characteristics which are described in detail. We will go through them for event A1, as shown above, but remember you will find these four characteristics for every event. They are
Description of event -
section 104-10 (1&2)
104-10 Disposal of a CGT asset: CGT event A1
(1) CGT event A1 happens if you *dispose of a *CGT asset.
(2) You dispose of a *CGT asset if a change of ownership occurs, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being its legal owner but continue to be its beneficial owner.
Description of calculation of gain or loss -
section 104-10(4)
(4) You make a capital gain if the
*capital proceeds from the disposal are more than the asset’s *cost base. You make a capital loss if those *capital proceeds are less than the asset’s *reduced cost base.
Description of timing of gain or loss -
section 104-10(3)
(3) The time of the event is:
(a) when you enter into the contract for the
*disposal; or
(b) if there is no contract—when you stop owning the asset.
Exceptions and special rules which apply -
section 104-10(5)
Exceptions
(5) A *capital gain or *capital loss you make is disregarded if:
(a) you acquired the asset before 20 September 1985; or
(b) for a lease:
(i) it was granted before that day; or
(ii) if it has been renewed or extended—the start of the last renewal or extension occurred before that day; or
(c) the *disposal of the asset was done to provide or redeem a security.
Note: You can make a gain if you dispose of shares in a company, or an interest in a trust, that you acquired before that day: see CGT event K6.
Compulsory acquisition
(6) If the asset was *acquired from you by an entity under a power of compulsory acquisition conferred by an *Australian law or a *foreign law, the time of the event is the earliest of:
(a) when you received compensation from the entity; or
(b) when the entity became the asset’s owner; or
(c) when the entity entered it under that power; or
(d) when the entity took possession under that power.
Event A1 takes place when a Capital Gains Tax ASSET is disposed of!
Event B1: Hire purchase and similar agreements
A hire purchase agreement gives a right to a person who is leasing property on hire to purchase that property. That right can be either absolute or subject to conditions.
Event B1 is triggered when the person (or entity) selling the property taken to have made a capital gain when the use of the asset passes to the hirer
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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B1 Hire purchase and similar agreements
[See section 104-15] |
when use of CGT asset passes |
capital proceeds from agreement less asset’s cost base |
asset’s reduced cost base less capital proceeds |
Description of event
you enter into an agreement with another entity under which the right to the use and enjoyment of a *CGT asset you own passes to the other entity; and
at the end of the agreement, title in the asset will or may pass to the other entity.
Example 1: You enter into a hire purchase agreement for an asset that you own.
Example 2: You enter into a contract for the sale of land under which you give possession of the land to the purchaser before settlement.
Description of calculation of gain or loss
gain = capital proceeds
less asset’s cost base
loss = asset’s reduced cost base less capital proceeds
Description of timing of gain or loss
When
the other entity first obtains the use and enjoyment of the asset.
Exceptions and special rules which apply
A capital gain or capital loss you make is
disregarded if:
(a)
title in the asset does not pass to the other entity when the agreement ends; or
(b)
disregarded if acquired the asset before 20 September 1985.
Events C: Loss or Destruction of Asset related events
C1 Loss or destruction of a CGT asset
C2 Cancellation, surrender and similar endings
C3 End of option to acquire shares etc.
C1 Loss or destruction of a CGT asset
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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C1 Loss or destruction of a CGT asset
[See section 104-20] |
when compensation is first received or, if none, when loss discovered or destruction occurred |
capital proceeds less asset’s cost base |
asset’s reduced cost base less capital proceeds |
Description of event
asset
you own is lost or destroyed
Description of calculation of gain or loss
gain = capital proceeds
less asset’s cost base
loss = asset’s reduced cost base less capital proceeds
Description of timing of gain or loss
(a) when you
first receive compensation for the loss or destruction; or
(b) if you receive
no compensation—when the loss is discovered or the destruction occurred.
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985.
C2 Cancellation, surrender and similar endings
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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C2 Cancellation, surrender and similar endings
[See section 104-25] |
when contract ending asset is entered into or, if none, when asset ends |
capital proceeds from ending less asset’s cost base |
asset’s reduced cost base less capital proceeds |
Description of event
asset
you own ends by:
(a) being
redeemed or cancelled; or
(b) being
released, discharged or satisfied; or
(c)
expiring; or
(d) being
abandoned, surrendered or forfeited.
Description of calculation of gain or loss
gain = capital proceeds
less asset’s cost base
loss = asset’s reduced cost base less capital proceeds
Description of timing of gain or loss
(a)
when you enter into the contract that results in the asset ending; or
(b) if there is
no contract—when the asset ends.
Exceptions and special rules which apply
disregarded if:
(a) acquired the asset before 20 September 1985; or
(b) for a lease:
(i) it was granted before that day, 20 September 1985 that day; or
(ii) if it has been renewed or extended—the start of the last renewal or extension occurred before 20 September 1985.
your lease expires and you did not use it mainly to produce assessable income: see section 118-40; or
you exercise rights to acquire shares or units: see section 130-40; or
you acquire shares or units by converting a convertible note: see section 130-60; or
you exercise an option: see section 134-1.
A company can agree to forgo any capital loss it makes as a result of forgiving a commercial debt owed to it by another company where the companies are under common ownership: see section 245-90 of Schedule 2C to the Income Tax Assessment Act 1936.
C3 End of option to acquire shares etc.
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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C3 End of option to acquire shares etc.
[See section 104-30] |
when option ends |
capital proceeds from granting option less expenditure in granting it |
expenditure in granting option less capital proceeds |
Description of event
An
option a company or a trustee of a unit trust granted to an entity to acquire a CGT asset that is:
shares in the company or units in the unit trust; or
debentures of the company or unit trust;
ends
in one of these ways:
(c) it is
not exercised by the latest time for its exercise;
(d) it is
cancelled;
(e) the
entity releases or abandons it.
Description of calculation of gain or loss
gain = capital proceeds
less expenditure in granting option
loss = expenditure in granting option less capital proceeds
Description of timing of gain or loss
When the option ends
Exceptions and special rules which apply
you granted the option before 20 September 1985.
Events D: Creation of Asset related events
D1 Creating contractual or other rights
D2 Granting an option
D3 Granting a right to income from mining
D1 Creating contractual or other rights
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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D1 Creating contractual or other rights
[See section 104-35] |
when contract is entered into or right is created |
capital proceeds from creating right less incidental costs of creating it |
incidental costs of creating right less capital proceeds |
Description of event
You create a contractual right or other legal or equitable right in another entity.
For example:
You enter into a contract with the purchaser of your business not to operate a similar business in the same town. The contract states that $20,000 was paid for this.
You have created a contractual right in favour of the purchaser. If you breach the contract, the purchaser can enforce that right.
Description of calculation of gain or loss
gain = capital proceeds from creating the right less incidental costs you incurred
If you paid your lawyer $1,500 to draw up the contract, you make a capital gain of $20,000 - $1,500 = $18,500
Costs can include giving property: see section
103-5 but do not include an amount you have received as recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it.
loss = incidental costs incurred less capital proceeds
Description of timing of gain or loss
When you enter into the contract or create the other right.
Exceptions and special rules which apply
- you
created the right by borrowing money or obtaining credit from another entity; or
- the
right requires you to do something that is another CGT event.
For example, you agree to sell land.
You have created a contractual right in the buyer to enforce completion of the transaction.
The sale results in you disposing of the land, an example of CGT event A1. This means that a gain or loss from CGT event D1 is disregarded.
D2 Granting an option
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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D2 Granting an option
[See section 104-40] |
when option is granted |
capital proceeds from grant less expenditure to grant it |
expenditure to grant option less capital proceeds |
Description of event
You
grant an option to an entity, or renew or extend an option you had granted.
Description of calculation of gain or loss
gain = capital proceeds
less expenditure incurred in granting option
loss = expenditure incurred in graning option less capital proceeds
Description of timing of gain or loss
when you grant the option
Exceptions and special rules which apply
A capital gain or capital loss you make from the grant of the option is disregarded if the other entity exercises the option. (Section 134-1 sets out the consequences of an option being exercised.)
option granted by a company or the trustee of a unit trust to acquire a CGT asset that is:
- shares
in the company or units in the unit trust; or
- debentures
of the company or unit trust.
(Section 104-30 deals with this situation.)
option relating to a personal use asset or a collectable.
D3 Granting a right to income from mining
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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D3 Granting a right to income from mining
[See section 104-45] |
when contract is entered into or, if none, when right is granted |
capital proceeds from grant of right less expenditure to grant it |
expenditure to grant right less capital proceeds |
Description of event
You own a
prospecting entitlement or
mining entitlement, or
an interest in one,
and you grant another entity a right to receive ordinary income or statutory income from operations permitted to be carried on by the entitlement.
Note: If this event applies, there is no disposal of the entitlement.
Description of calculation of gain or loss
gain = capital proceeds from grant of right
less expenditure incurred in granting right
loss = expenditure incurred in granting right less capital proceeds of granting right
Description of timing of gain or loss
When you enter into the contract
with the other entity; or if there is no contract—when you grant the right to receive ordinary income.
Exceptions and special rules which apply
none mentioned
Events E: Trust related events
E1 Creating a trust over a CGT asset
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
E1 Creating a trust over a CGT asset
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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E1 Creating a trust over a CGT asset
[See section 104-55] |
when trust is created |
capital proceeds from creating trust less asset’s cost base |
asset’s reduced cost base less capital proceeds |
Description of event
you
create a trust over a CGT asset by declaration or settlement.
Description of calculation of gain or loss
gain = proceeds from creation of trust
less asset’s cost base (If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset’s cost base and reduced cost base in your hands is its market value when the trust is created.
loss = asset’s reduced cost base less proceeds from creation of trust
Description of timing of gain or loss
When the trust over the asset is created
Exceptions and special rules which apply
A capital gain or capital loss you make is disregarded if:
(a)
you are the sole beneficiary of the trust and:
(i) you are
absolutely entitled to the asset as against the trustee (disregarding any legal disability); and
(ii) the trust is
not a unit trust; or
- the
trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same; or
(c)
acquired the asset before 20 September 1985.
Event E2: Transferring a CGT asset to a trust
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CGT events
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Event number and description
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Time of event is:
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Capital gain is:
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Capital loss is:
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E2 Transferring a CGT asset to a trust
[See section 104-60]
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when asset transferred
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capital proceeds from transfer less asset’s cost base
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asset’s reduced cost base less capital proceeds
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Description of event
you
transfer a CGT asset to an existing trust.
Description of calculation of gain or loss
gain = proceeds from transfer
less asset’s cost base (If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset’s cost base and reduced cost base in your hands is its market value when the trust is created.
loss = asset’s reduced cost base less proceeds from transfer of asset
Description of timing of gain or loss
When the asset is transferred.
Exceptions and special rules which apply
A capital gain or capital loss you make is disregarded if:
(a)
you are the sole beneficiary of the trust and:
(i) you are
absolutely entitled to the asset as against the trustee (disregarding any legal disability); and
(ii) the trust is
not a unit trust; or
the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same; or
(c)
disregarded if acquired the asset before 20 September 1985.
Event E3: Converting a trust to a unit trust
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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E3 Converting a trust to a unit trust
[See section 104-65] |
when trust is converted |
market value of asset at that time less its cost base |
asset’s reduced cost base less that market value |
Description of event
(a) a
trust (that is not a unit trust) over a CGT asset is converted to a unit trust; and
(b)
just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under).
Description of calculation of gain or loss
gain = market value of asset
less asset’s cost base
loss = asset’s reduced cost base less market value of asset
Description of timing of gain or loss
When the trust is converted
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985.
Event E4: Capital payment for trust interest
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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E4 Capital payment for trust interest
[See section 104-70] |
when trustee makes payment |
non-assessable part of the payment less cost base of the trust interest |
no capital loss |
Description of event
(a) the
trustee of a trust makes a payment to you in respect of a unit or an interest in the trust (except for *CGT event A1, C2, E1, E2, E6 or E7 happening in relation to it); and
(b)
some or all of the payment (the non-assessable part) is not included in your assessable income.
In other words, you sell off part of your interest in the trust to the trustee for a capital sum which is not included in your assessable income (such a practice has often been adopted by trust strippers for tax avoidance purposes)
The payment can include giving property: see section
103-5.
The non-assessable part of your income does not include any part of the payment that comes within the definitions in section
36-20 of
excluded exempt income or
exempt income subject to withholding tax.
Description of calculation of gain or loss
gain = sum of all non-assessable parts
( which does not include
(a) deductions under Division 43 (about capital works); or
(b) an amount that is not included in the assessable income of an entity because of:
(i) section 124ZM or 124ZN (which exempt income arising from
*shares in a *PDF) of the Income Tax Assessment Act 1936; or
(ii) section 159GZZZZE (which exempts certain payments related to infrastructure borrowings) of that Act; or
(c) proceeds from a
*CGT event that happens in relation to *shares in a company that was a *PDF when that event happened.
)
paid by the trustee in the year of income
less cost base of interest or unit
If you make a capital gain, the cost base and
*reduced cost base of the unit or interest are reduced to nil.
However, if that sum of amounts paid by the trustee to you is not more than the cost base:
(a) the cost base is reduced by that sum; and
(b) the
*reduced cost base is reduced by that sum (without the subsection (7) adjustment).
You can not make a loss
Description of timing of gain or loss
(a)
just before the end of the income year in which the trustee makes the payment; or
(b)
if another CGT event happens in relation to the unit or interest or part of it after the trustee makes the payment but before the end of that income year—just before the time of that CGT event.
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985.
Event E5: Beneficiary becoming entitled to a trust asset
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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E5 Beneficiary becoming entitled to a trust asset
[See section 104-75] |
when beneficiary becomes absolutely entitled |
for trustee—market value of CGT asset at that time less its cost base;
for beneficiary—that market value less cost base of beneficiary’s capital interest |
for trustee—reduced cost base of CGT asset at that time less that market value;
for beneficiary—reduced cost base of beneficiary’s capital interest less that market value |
Description of event
A
beneficiary becomes absolutely entitled to a *CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee (disregarding any legal disability the beneficiary is under).
Note: Division 128 deals with the effect of death.
Description of calculation of gain or loss
gain = market value of asset
less asset’s cost base
loss = asset’s reduced cost base less market value of asset
Description of timing of gain or loss
when the beneficiary becomes absolutely entitled to the asset.
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985.
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Events E6: Disposal to beneficiary to end income right
CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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E6 Disposal to beneficiary to end income right
[See section 104-80] |
the time of the disposal |
for trustee—market value of CGT asset at that time less its cost base;
for beneficiary—that market value less cost base of beneficiary’s right to income |
for trustee—reduced cost base of CGT asset at that time less that market value;
for beneficiary—reduced cost base of beneficiary’s right to income less that market value |
Description of event
The
trustee of a trust (except
a unit trust or
a trust to which Division 128, which deals with the effect of death, applies
disposes of a CGT asset
of the trust to a beneficiary
in satisfaction of the beneficiary’s right to receive ordinary income, or part of it, from the trust
.
Description of calculation of
trustee's
beneficiary's
gain or loss
gain = market value of asset disposed of
less asset’s cost base
loss = asset’s reduced cost base less market value of asset disposed of
Note: If the beneficiary did not pay anything for the right, the market value substitution rule does not apply: see section
112-20.
Description of timing of gain or loss
When the disposal occurs
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985.
Event E7: Disposal to beneficiary to end capital interest
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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E7 Disposal to beneficiary to end capital interest
[See section 104-85] |
the time of the disposal |
for trustee—market value of CGT asset at that time less its cost base;
for beneficiary—that market value less cost base of beneficiary’s capital interest |
for trustee—reduced cost base of CGT asset at that time less that market value;
for beneficiary—reduced cost base of beneficiary’s capital interest less that market value |
Description of event
The
trustee of a trust (except
a unit trust or
a trust to which Division 128, which deals with the effect of death, applies
disposes of a CGT asset
of the trust to a beneficiary
in satisfaction of the beneficiary’s
interest, or part of it, in the trust capital..
Description of calculation of
trustee's
beneficiary's
gain or loss
gain = market value of asset disposed of
less asset’s cost base
loss = asset’s reduced cost base less market value of asset disposed of
Note: If the beneficiary did not pay anything for the right, the market value substitution rule does not apply: see section
112-20.
Description of timing of gain or loss
When the disposal occurs
Exceptions and special rules which apply
trustee
disregarded if acquired the asset before 20 September 1985.
beneficiary
(a)
acquired the CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or
(b) acquired it
before 20 September 1985.
Expenditure can include giving property: see section
103-5.
Events E8: Disposal by beneficiary of capital interest
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CGT events |
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Event number and description |
Time of event is:
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Capital gain is:
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Capital loss is:
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E8 Disposal by beneficiary of capital interest
[See section 104-90] |
when disposal contract entered into or, if none, when beneficiary ceases to own CGT asset |
capital proceeds less appropriate proportion of the trust’s net assets |
appropriate proportion of the trust’s net assets less capital proceeds |
Description of event
- you are the beneficiary
under a trust (except a
unit trust or
a trust to which Division 128, which deals with the effect of death, applies); and
(b) you did not give any money or property to acquire the CGT asset that is your interest in the trust capital, or you acquired it by assignment; and
(c) you dispose of the interest, or part of it (but not to the trustee).
Description of calculation of gain or loss
See section
104-95 (2) - tells you how to work out the capital gain. To keep things simple we will take the example of the single beneficiary of a trust disposing of his entire interest in the trust, but bear in mind..
It all depends on whether there is
One beneficiary,
More than one beneficiary,
Whether you sold your entire interest of just part,
And on the NET ASSET AMOUNT
What is the net asset amount?
Once you have come to terms with the calculation, refer to section
104-95 (3), (4) and (5) for the calculation required where there is more than one beneficiary, or only a partial disposal. Here is a simplified version…
total of the cost bases of the CGT assets
acquired on or after 20 September 1985
+ market values of the CGT assets
acquired before 20 September 1985
+ amount of money that formed part of the trust capital
at the time of the disposal.
Now that you know the net asset amount, you can work of the capital gain!
Deduct the
net asset amount from the capital proceeds
The capital gain is the excess of the capital proceeds over the net asset amount
Example:
You dispose of your interest in the trust capital for
$10,000 (the capital proceeds).
$6,000 = total of the cost bases of the CGT assets
acquired on or after 20 September 1985
$2,500 = market values of the CGT assets
acquired before 20 September 1985
$1,000 = amount of money that formed part of the trust capital
$ 500 = liabilities of the trust
at the time of the disposal.
The net asset amount is:
$6,000 + $2,500 + $1,000 - $ 500 = $9,000
You make a capital gain of:
$10,000 - $9,000 = $1,000
Description of timing of gain or loss
when you enter into the contract
for the disposal; or
if there is no contract—when you stop owning the interest
or part.
Exceptions and special rules which apply
Section
104-95 (6) tells you to disregard the capital gain if
(a) you
if acquired the asset before 20 September 1985.
; or
(b) you d
id not give any money or property to acquire your interest, or you acquired it by assignment.
Note: You can make a gain if you dispose of an interest in a trust that you acquired before that day: see CGT event K6.
Events E9: Creating a trust over future property
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CGT events |
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Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
E9 Creating a trust over future property
[See section 104-105] |
When entity makes agreement |
market value of the property (as if it existed when agreement made) less incidental costs in making agreement |
incidental costs in making agreement less market value of the property (as if it existed when agreement made) |
Description of event
(a)
you agree for consideration that when property comes into existence you will hold it on trust; and
(b) at the time of the agreement,
no potential beneficiary under the trust has a beneficial interest in the rights created by the agreement.
Description of calculation of gain or loss
gain = market value the property would have had if it had existed when you made the agreement less incidental costs incurred by (you relating to the event)
loss = incidental costs less market value the property would have had if it had existed when you made the agreement
Description of timing of gain or loss
When you made the agreement
Exceptions and special rules which apply
none mentionede
Event F - Lease related events
If you get some reward (money or property) for entering into, or changing a lease agreement, you have made a capital gain. There are 5 different categories, which can give rise to a capital gain (or loss). For all but F2, it is not the property that is being disposed of. It is merely the terms or conditions of the lease that are being changed (for which consideration is given)
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
Granting a lease
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
F1 Granting a lease
[See section 104-110] |
for grant of lease—when entity enters into lease contract or, if none, at start of lease;
for lease renewal or extension—at start of renewal or extension |
capital proceeds less expenditure on grant, renewal or extension |
expenditure on grant, renewal or extension less capital proceeds |
Description of event
Lessor grants, renews or extends a lease.
This event will come about, not because property is disposed of, but because the owner of the property receives some premium or other reward for granting the lease. So it is not the property which is being disposed of but the owner's ability to deal with that property which gives rise to the capital gain.
Description of calculation of gain or loss
gain = capital proceeds from the grant, renewal or extension less expenditure incurred on the grant, renewal or extension.
loss = expenditure incurred on the grant, renewal or extension less capital proceeds from the grant, renewal or extension.
Description of timing of gain or loss
for the grant of a lease:
when the contract
for the lease is entered into; or
if there is no contract—at the start of the lease
; or
for a renewal or extension
at the
start of the renewal or extension
Exceptions and special rules which apply
The expenditure on the grant, renewal or extension can include the market value of property given as part of transaction: see section
103-5.
However, it does not include an amount you have received as recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it.
Exception
The lessor can choose to apply section
104-115 to certain long term leases. If it does so, this section does not apply.
Granting a long term lease
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
F2 Granting a long term lease
[See section 104-115] |
for grant of lease—when lessor grants lease;
for lease renewal or extension—at start of renewal or extension |
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 |
Description of event
This lease event will come about because
property, which is land, is effectively disposed of.
A lessor grants a lease over land or renews or extends a lease over land; and
for at least 50 years and:
reasonable to expect that it would continue for at least 50 years
terms of the lease to lessee are substantially the same as those under which the lessor owned the land
Description of calculation of gain or loss
gain = capital proceeds
less cost base of lessor's interest in the land
loss = asset’s reduced cost base less capital proceeds
Description of timing of gain or loss
When the lessor grants the lease, or at the start of the renewal or extension, as appropriate.
Exceptions and special rules which apply
Gain / loss disregarded if
property acquired
lease to the lessor has been renewed or extended and the last renewal or extension started
before 20 September 1985
F3 Lessor pays lessee to get lease changed
Granting a lease
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CGT events |
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Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
F3 Lessor pays lessee to get lease changed
[See section 104-120] |
when lease term is varied or waived |
no capital gain |
amount of expenditure to get lessee’s agreement |
Description of event
Lessor
(the owner of the property) incurs expenditure in getting the lessee’s (the person renting the property) agreement to vary or waive a term of the lease.
Description of calculation of loss (A gain can not be made for this event)
loss = amount of expenditure incurred
. (The expenditure can include giving property: see section 103-5.)
Description of timing of gain or loss
When the term is varied or waived
Exceptions and special rules which apply
Does
not apply to expenditure for a lease to which the lessor has chosen to apply section 104-115 (long term lease over land)
F4 Lessee receives payment for changing lease
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
F4 Lessee receives payment for changing lease
[See section 104-125] |
when lease term is varied or waived |
capital proceeds less cost base of lease |
no capital loss |
Description of event
Lessee
(the person renting the property) receives a payment from the lessor (the owner) for agreeing to vary or waive a term of the lease. The payment can include giving property: see section 103-5.
Description of calculation of loss
gain = capital proceeds
less lease’s cost base (at the time of the event)
If the lessee makes a capital gain, the lease’s cost base is also reduced to nil.
If those
*capital proceeds are less than the cost base, the lease’s *cost base is reduced by that amount at the time of the event.
The lessee cannot make a capital loss.
Example:
On 1 January 1999 a lessee enters a lease.
On 1 May 1999 the lessee agrees to waive a term.
The lessor pays the lessee $1,000 for this.
If the lease’s cost base at the time of the waiver is $2,500, it is reduced from $2,500 to $1,500.
On 1 September 1999 the lessee agrees to waive another term. The lessor pays the lessee $2,000 for this.
If the lease’s cost base at the time of the waiver is $1,500, the lessee makes a capital gain of $500, and the cost base is reduced to nil
Description of timing of gain or loss
When the term is varied or waived
Exceptions and special rules which apply
Disregarded if lease
granted
renewed or extended and the last renewal or extension started
before 20 September 1985
F5 Lessor receives payment for changing lease
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
F5 Lessor receives payment for changing lease
[See section 104-130] |
when lease term is varied or waived
|
capital proceeds less expenditure in relation to variation or waiver |
expenditure in relation to variation or waiver less capital proceeds |
Description of event
Lessor
(the owner) receives a payment from the lessee (the renter) for agreeing to vary or waive a term of the lease. The payment can include giving property: see section 103-5.
Description of calculation of loss
gain = capital proceeds
less expenditure incurred in relation to the variation or waver
loss = expenditure incurred in relation to the variation or waver less capital proceeds
Example:
You own a shopping centre.
The lessee of a shop in the centre pays you $10,000 for agreeing to change the terms of its lease.
You incur expenses of $1,000 for a solicitor and $500 for a valuer.
You make a capital gain of $8,500.
Description of timing of gain or loss
When the term is varied or waived
Exceptions and special rules which apply
Disregarded if lease
granted
renewed or extended and the last renewal or extension started
before 20 September 1985
Events G: Shares in a company related events
G1 Capital payment for shares
G2 Shifts in share values
G3 Liquidator declares shares worthless
Event G1: Capital payment for shares
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
G1 Capital payment for shares
[See section 104-135] |
when company pays non-assessable amount |
payment less cost base of shares |
no capital loss |
Description of event
(a)
a company makes a payment to you for a share you own in the company (except for *CGT event A1 or C2 happening in relation to the share); and
(b)
the payment is not a dividend, or an amount that is taken to be a dividend under section 47 of the Income Tax Assessment Act 1936.
The payment can include giving property: see section
103-5.
Description of calculation of gain or loss
gain = capital proceeds
less share’s cost base
If you make a capital gain, the share’s cost base and reduced cost base are reduced to nil.
You cannot make a capital loss.
However, if the amount of the payment is not more than the share’s cost base, that cost base and its reduced cost base are reduced by the amount of the payment.
Description of timing of gain or loss
When the company makes the payment
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985.
Event G2: Shifts in share values
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
G2 Shifts in share values
[See section 104-140 and Division 140] |
when the shift happens |
the decrease in the shares’ market value (so far as it has shifted into certain other shares) less the corresponding proportion of the shares’ cost base |
no capital loss |
Description of event
Description of calculation of gain or loss
gain = capital proceeds
less asset’s cost base
loss = asset’s reduced cost base less capital proceeds
Description of timing of gain or loss
Exceptions and special rules which apply
disregarded if
shares acquired the asset before 20 September 1985.
a payment by a liquidator for the purposes of this section if the company is dissolved within 18 months of the payment. The payment will be part of your capital proceeds for CGT event C2 happening when the share ends.
Event G3: Liquidator declares shares worthless
|
CGT events |
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Event number and description |
Time of event is:
|
Capital gain is:
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Capital loss is:
|
|
G3 Liquidator declares shares worthless
[See section 104-145] |
when liquidator makes declaration |
no capital gain |
shares’ reduced cost base |
Description of event
You own a share in a company and its
liquidator declares in writing that he or she has reasonable grounds to believe (as at the time of the declaration) there is no likelihood that the shareholders in the company, or shareholders of the relevant class of shares, will receive any further distribution in the course of winding up the company.
Description of calculation of gain or loss
no gain can be made from this event
loss = reduced cost base of shares
The cost base and reduced cost base of the share are reduced to nil just after the liquidator makes the declaration. This is for the purpose of working out if you make a capital gain or loss from any later CGT event in relation to the share.
Description of timing of gain or loss
When the liquidator makes the declaration
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985.
Event H: Windfall gain related events
H1 Forfeiture of a deposit
H2 Receipt for event relating to a CGT asset
Event H1: Forfeiture of a deposit
|
CGT events |
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Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
H1 Forfeiture of a deposit
[See section 104-150] |
when deposit is forfeited |
deposit less expenditure in connection with prospective sale |
expenditure in connection with prospective sale less deposit |
Description of event
A
deposit paid to you is forfeited because a prospective sale or other transaction does not proceed.
The payment can include giving property: see section
103-5.
Example:
You decide to sell land.
Before entering into a contract of sale, the prospective purchaser pays you a 2 month holding deposit of $1,000.
The negotiations fail and the deposit is forfeited.
Description of calculation of gain or loss
gain = deposit
less expenditure you incur in connection with the prospective sale or other transaction
loss = expenditure you incur in connection with the prospective sale or other transaction less deposit
Description of timing of gain or loss
When the deposit is forfeited.
Exceptions and special rules which apply
none mentioned
.
Event H2: Receipt for event relating to a CGT asset
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
H2 Receipt for event relating to a CGT asset
[See section 104-155] |
when act, transaction or event occurred |
capital proceeds less incidental costs |
incidental costs less capital proceeds |
Description of event
(a) an
act, transaction or event occurs in relation to a CGT asset that you own; and
(b) the act, transaction or event
does not result in an adjustment being made to the asset’s cost base or reduced cost base.
Example:
You own land on which you intend to construct a manufacturing facility.
A business promotion organisation pays you $50,000 as an inducement to start construction early.
No contractual rights or obligations are created by the arrangement.
The payment is made because of an event (the inducement to start construction early) in relation to your land.
Note: This event does not apply if any other CGT event applies: see section 102-25.
(2) The time of the event is when the act, transaction or event occurs.
[
Description of calculation of gain or loss
gain = capital proceeds
less incidental costs that relate to the event
loss = incidental costs that relate to the event less capital proceeds
Description of timing of gain or loss
When the act, transaction or event occurs.
Exceptions and special rules which apply
disregarded if:
(a) the act, transaction or
event is the borrowing of money or the obtaining of credit from another entity; or
(b) the act, transaction or
event requires you to do something that is another CGT event.
Events I: Change of Australian residence related events
Event I1: Individual or company stops being a resident
Event I2: Trust stops being a resident trust
Event I1: Individual or company stops being a resident
|
CGT events |
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Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
I1 Individual or company stops being a resident
[See section 104-160] |
when individual or company stops being Australian resident |
for each CGT asset the person owns, its market value less its cost base |
for each CGT asset the person owns, its reduced cost base less its market value |
Description of event
you stop being an Australian resident.
You need to work out if you have made a capital gain or a capital loss for each CGT asset that you owned just before the time of the event, except one having the necessary connection with Australia.
Description of calculation of gain or loss
gain = market value of each asset less asset’s cost base
loss = asset’s reduced cost base less market value
Description of timing of gain or loss
when you stop being an Australian resident.
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985
.
An
individual may be able disregard the gain or loss if
he or she was a short term resident
until another CGT event happens in relation to the asset or
he or she becomes a resident again
: see section 104-165.
Event I2: Trust stops being a resident trust
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
I2 Trust stops being a resident trust
[See section 104-170] |
when trust ceases to be resident trust for CGT purposes |
for each CGT asset the trustee owns, its market value of asset less its cost base |
for each CGT asset the trustee owns, its reduced cost base less its market value |
Description of event
A
trust stops being a resident trust for CGT purposes.
The trustee needs to work out if it has made a capital gain or a capital loss for each
*CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event (except one having the *necessary connection with Australia).
Description of calculation of gain or loss
gain = market value of each asset less asset’s cost base
loss = asset’s reduced cost base less market value
Description of timing of gain or loss
when trust stops being a resident trust
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985
.
Event J1: Company ceases to be a member of a wholly owned group event
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
J1 Company stops being member of wholly-owned group after roll-over
[See section 104-175] |
when the company stops |
market value of asset at time of event less its cost base |
reduced cost base of asset less that market value |
Description of event
Section
104-175 says there must be a roll-over event of a kind described in Subdivision 126-B before this section can apply. You can read about these in the topic on roll-overs
This event has taken place if
the roll-over asset involves 2 companies that are members of the same wholly-owned group; and
the recipient company that was a 100% subsidiary that owns the roll-over asset just after the roll-over stops being a 100% subsidiary when it still owns that asset
Description of calculation of gain or loss
gain = market value
less asset’s cost base
loss = asset’s reduced cost base less market value
Description of timing of gain or loss
time of break-up of company group
The recipient company is taken to have acquired the roll-over asset at the break-up time and the cost base and reduced cost base of the roll-over asset (just after the break-up time) is its market value (at the break-up time).
Exceptions and special rules which apply
The rules for sub groups of companies are set out in section
104-180
disregarded if acquired the asset before 20 September 1985
.
Events K: Other events
Event K1: Partial realisation of intellectual property right
Event K2: Bankrupt pays amount in relation to debt
Event K3: Asset passing to tax-advantaged entity
Event K4: CGT asset starts being trading stock
Event K5: Special capital loss from collectable that has fallen in market value
Event K6: Pre-CGT shares or trust interest
Event K1: Partial realisation of intellectual property right
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
K1 Partial realisation of intellectual property right
[See section 104-205] |
when contract is entered into or, if none, when partial realisation happens |
capital proceeds from partial realisation less cost base of the item of intellectual property |
no capital loss |
Description of event
Intellectual property is the rights held by an owner or licensee of a
patent,
copyright or
registered design
To overcome any argument that a partial realisation is not a disposal, a separate event has been provided for situations in which you
Dispose of a part interest in the item
Grant by licence an interest in the patent, copyright or registered design
Receive an amount for the exploitation of the patent by the Commonwealth, or a State or an authorised entity
Receive an amount for the infringement of the patent, copyright or registered design
Description of calculation of gain or loss
gain = capital proceeds
less asset’s cost base
If you make a capital gain, the item’s cost base and reduced cost base are also reduced to nil.
On the other hand, if the capital proceeds from the realisation are less than the item’s cost base, the item’s cost base is reduced by that amount at the time of the realisation.
Example:
On 1 January 1999 you buy a patent for an invention for $100,000.
On 1 March 1999 you grant a 5 year licence to exploit the patent in South Australia for $60,000 (a partial realisation).
Suppose the patent’s cost base just before the grant is $100,000. The capital proceeds ($60,000) are less than the patent’s cost base, which is reduced to $40,000.
On 1 September 1999 you receive damages of $70,000 for infringement of the patent (another partial realisation).
Suppose the patent’s cost base just before the other realisation is $40,000. The capital proceeds ($70,000) exceed the patent’s cost base. You make a capital gain of $30,000 and the patent’s cost base is reduced to nil.
You can not make a capital loss
Description of timing of gain or loss
when you enter into the contract for the realisation; or
if there is no contract—when the realisation occurred.
Exceptions and special rules which apply
An extension of the term of a licence relating to a patent, design or copyright were the grant of a new licence (and so a partial realisation).
disregarded if acquired the asset before 20 September 1985
Event K2: Bankrupt pays amount in relation to debt
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
K2 Bankrupt pays amount in relation to debt
[See section 104-210] |
when payment is made |
no capital gain |
so much of payment as relates to denied part of a net capital loss |
Description of event
If during an income year in which you made a net capital loss
you became bankrupt; or
you were released from debts under a law relating to bankruptcy;
Subsection 102-5(2) denies you that loss.
Let's say things get better and you make a payment in respect of a debt that was taken into account in working out the amount of that net capital loss. If the denied part of the loss would have been applied in working out whether you had made a net capital gain for the payment year, you have an event K2.
The payment can include giving property: see section 103-5.
Description of calculation of gain or loss
you can not make a gain
loss = the smallest of:
the amount you paid; or
that part of it that was taken into account in working out the denied part; or
the denied part less the sum of capital losses you made as a result of previous payments you made in respect of the debt that was taken into account in working out the denied part.
Description of timing of gain or loss
when you make the payment.
Exceptions and special rules which apply
disregarded if any amount received as recoupment of the payment and is not included in your assessable income.
Event K3: Asset passing to tax-advantaged entity
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
K3 Asset passing to tax-advantaged entity
[See section 104-215] |
when individual dies |
market value of asset at death less its cost base |
reduced cost base of asset less that market value |
Description of event
Just before you die and a CGT asset you owned passes to a resident beneficiary in your estate who
(when the asset passes):
is an exempt entity; or
is the trustee of a complying superannuation fund; or
is the trustee of a complying approved deposit fund; or
is the trustee of a pooled superannuation trust; or
is not an Australian resident.
If the beneficiary was NOT resident K3 happens only if:
you were an Australian resident just before dying; and
the asset (in the hands of the beneficiary) does not have the necessary connection with Australia.
Description of calculation of gain or loss
gain = market value of asset on day you died
less asset’s cost base
loss = asset’s reduced cost base less market value on day you died
Description of timing of gain or loss
just before you die.
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985
Note: There is also an exception if the CGT asset is property under the Cultural Bequests Program: see section
118-5.
Event K4: CGT asset starts being trading stock
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
K4 CGT asset starts being trading stock
[See section 104-220] |
When asset starts being trading stock |
market value of asset less its cost base |
reduced cost base of asset less its market value |
Description of event
If you run a business and hold trading stock you are allowed a deduction for purchases of stock under section
8-1.
However if you take an asset you already own and make it part of your trading stock, section
70-30 treats you as if you had sold the item to someone else (at arm’s length) for
its cost or
its market value just before it became trading stock;
and then had immediately bought it back for the same amount.
If you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its market value, then you trigger event K4.
There is an exemption if you elect its cost: see section 118-25.
Description of calculation of gain or loss
gain = market value
less asset’s cost base
loss = asset’s reduced cost base less market value
Description of timing of gain or loss
when you start
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985
Event K5: Special capital loss from collectable that has fallen in market value
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
K5 Special capital loss from collectable that has fallen in market value
[See section 104-225] |
when CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable |
no capital gain |
market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8 |
Description of event
You own 50% of the shares in a company.
You bought them in 1999 for $60,000.
The company owns a painting worth $100,000 and another asset worth $20,000.
The painting falls in value to $50,000.
In 1999 you sell your shares for $35,000 (the actual capital proceeds).
If not for section
104-225 and event K5, you would have made a capital loss of $25,000.
Capital Proceeds = $60,000
Reduced Cost Base = $35,000
LOSS = $25,000
However, the actual capital proceeds are replaced with $60,000 (the market value of the shares if the painting had not fallen in value). You do not make a capital loss from selling the shares.
You do make a collectable loss equal to:
Note: You can subtract capital losses from collectables only from your capital gains from collectables: see section
108-10.
The
capital proceeds from that event are replaced with the market value of the shares or the interest in the trust as if the fall in the market value of collectables and personal use assets had not occurred: see section 116-80.
Description of calculation of gain or loss
loss from collectible = market value of shares or interest in trust if the collectible had NOT fallen in value less capital proceeds
Description of timing of gain or loss
the time of the capital gains tax event
Exceptions and special rules which apply
disregarded if acquired the asset before 20 September 1985
Event K6: Pre-CGT shares or trust interest
|
CGT events |
|
Event number and description |
Time of event is:
|
Capital gain is:
|
Capital loss is:
|
|
K6 Pre-CGT shares or trust interest
[See section 104-230] |
when another CGT event involving the shares or interest happens |
capital proceeds from the shares or trust interest (so far as attributable to post-CGT assets owned by the company or trust) less the assets’ cost bases |
no capital loss |
Description of event
You own shares in a company or an interest in a trust you acquired before 20 September 1985; and
CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and
there is no roll-over for the other CGT event; and
the applicable requirements in subsections (2), (3) and (4) are satisfied.
Just before the other event happened:
the market value of property of the company or trust (that is not its trading stock) that was acquired on or after 20 September 1985; or
the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was *acquired on or after 20 September 1985;
must be at least 75% of the net value of the company or trust
.
For a company referred to in subsection (2), it must be the case that none of its shares were listed for quotation in the official list of a stock exchange in Australia or a foreign country at some time in the period of 5 years before the other event happened.
For a trust referred to in subsection (2) that is a unit trust, it must be the case that its units were not so listed, and were not ordinarily available to the public for subscription or purchase, at some time in that period.
Description of calculation of gain or loss
gain = capital proceeds from the shares or interest that is reasonably attributable to the market value of property referred to
less asset’s cost base
you can not make a loss
Description of timing of gain or loss
when the other event happens
Exceptions and special rules which apply
This section applies to property that a company that is not an Australian resident acquired after 15 August 1989 from another company as if it were acquired before 20 September 1985 if:
the other company acquired it before 20 September 1985; and
the companies are members of the same wholly-owned group; and
the property does not have the necessary connection with Australia.
In working out the net value of a company or trust, disregard:
the discharge or release of any liabilities; or
the market value of any *CGT assets acquired;
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