(topics marked * are excerpts from notes produced by the Tax Office)

Subtract the cost base from the capital proceeds.

If the proceeds exceed the cost base, the difference is your capital gain.

If not, work out the reduced cost base for the asset.

If the reduced cost base exceeds the capital proceeds, the difference is your capital loss.

If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss.

The New Business Tax System (Capital Gains Tax) Act 1999 inserted the following measures into the Income Tax Assessment Act 1997 (ITAA 1997):

The Consumer Price Index figures will be held at the amount applying at 30 September 1999

If a CGT asset is acquired at or before the start time and further expenditure is incurred in relation to that asset after that time, indexation of that part of the cost base is not available.

Neither indexation nor the CGT discount is available if the CGT asset was owned for less than 12 months. If the CGT asset is acquired after the start time only the CGT discount is available.

Let's summarize all that

If an individual makes a capital gain from a CGT event happening after the start time to a CGT asset acquired after that time, the individual may be eligible for the CGT discount in Division 115 of ITAA 1997.

For a CGT event happening after the start time to a CGT asset acquired at or before that time and owned for at least 12 months an individual may choose to claim the CGT discount. In working out the net capital gain for the year of income, the capital gain (after applying capital losses) is reduced by 50 per cent. Both current year capital losses and prior year net capital losses must be applied to reduce current year capital gains before applying the CGT discount. Certain CGT events, such as where new assets are created, do not qualify for the CGT discount. These are CGT events D1, D2, D3, E9, F1, F2, F5, H2, J2, J3 and K1. The CGT discount is applied before any of the small business CGT concessions.

A taxpayer makes a capital gain or loss for the income year if a CGT event happens. There is a wide range of CGT events. Most CGT events involve a CGT asset. Some happen often and affect many different taxpayers. For example, CGT event A1 happens when a taxpayer disposes of a CGT asset. Other CGT events are rare and affect only a few taxpayers. Some CGT events are concerned directly with capital receipts and do not involve a CGT asset - for example, when a taxpayer enters into an agreement not to work in a particular industry for a period of time in return for a capital receipt.

An Australian resident makes a capital gain, generally speaking, if a CGT event happens to any of its worldwide CGT assets.

A non-resident taxpayer makes a capital gain or loss only if a CGT event happens to a CGT asset that has the necessary connection with Australia or CGT events D1 or E9 apply - which are respectively, about creating contractual or other rights and creating a trust over future property. A non- resident makes a capital gain or loss from CGT event D1 and E9 only if the requirements of section 136-15 of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied. There are also rules dealing with what happens when a non-resident becomes a resident.

A taxpayer makes a capital gain in relation to a CGT event if the capital proceeds from the CGT event exceed the taxpayer’s cost base (or, for some CGT events, some other amount), for the event. The elements of the cost base are indexed only if the taxpayer has owned the CGT asset for at least 12 months. (There are some exceptions—for example, assets acquired from a deceased estate).

Note: Indexation is not available for CGT assets acquired after the start time or for expenditure in relation to CGT assets after the start time. For CGT events happening after that time to a taxpayer’s assets acquired at or before that time, indexation is frozen as at 30 September 1999. For CGT events happening after the start time an individual taxpayer may be eligible for the CGT discount. See What’s new? on page 10 of these instructions for more information.

An exception (most are in Division 104 of ITAA 1997) or exemption may apply to allow the taxpayer to reduce the capital gain or loss or disregard it.

In general, the taxpayer acquires a CGT asset when the taxpayer becomes its owner. Any capital gain or loss is disregarded if the taxpayer became its owner before 20 September 1985. However, if a capital improvement is made after 19 September 1985 to an asset acquired on or before that date, the improvement may be treated as a separate CGT asset. See Property acquired before 20 September 1985 on page 11 of these instructions.

Note: A capital gain a taxpayer makes from a CGT event is reduced if an amount has already been included in assessable income as a result of the CGT event, under a provision of the income tax legislation other than the capital gains tax provisions.

Any profit from the sale of any property acquired before 20 September 1985 must be included in your assessable income if:

• the profit arose from the carrying on or carrying out of a profit making undertaking or plan; or
• the property was acquired for profit making by sale.

The Business and professional items schedule 2000—tax agents should be completed showing the gross amount received at Other business income and expenses at All other expenses. The net profit or loss should be transferred to item 11—Partnerships and trusts, label C on page 8 in the supplementary section.

The Australian Taxation Office (ATO) has issued a number of Taxation Rulings and Taxation Determinations setting out the views of the ATO on the interpretation and application of the law as it relates to transactions involving property. For example, Taxation Ruling TR 92/3.

Elect the code letter from the list below that best describes the CGT asset involved in the CGT event. Print the code letter in the Type box at the right of label H. If the taxpayer made capital gains in more than one category, print the code letter for the category with the largest amount of capital gain.

Note: Code letter E does not apply for a CGT event in relation to plant that happens after the start time.

A taxpayer’s share of any net capital gain from a trust estate should be included at this label. Do not include this amount as a distribution from the trust at item. There are special rules if the trust’s net capital gain was reduced by the CGT discount and/or has been reduced because of the application of the small business 50 per cent active asset reduction by the trustee. These rules ensure that any capital losses are applied appropriately and the taxpayer claims the CGT discount correctly.

If the taxpayer receives from a trust estate a share of any net capital gain made by the trust estate and the net capital gain has been reduced by 50 per cent under either the CGT discount or the small business 50 per cent active asset reduction but not both, the taxpayer must ‘gross up’ by multiplying their share of the net capital gain amount by 2. If the taxpayer receives from a trust estate a share of any net capital gain made by the trust estate and the net capital gain has been reduced by 50 per cent under both the CGT discount and the small business 50 per cent active asset reduction, the taxpayer is to ‘gross up’ by multiplying their share of the net capital gain amount by 4. Refer to Subdivision 115-C ITAA of 1997.

The taxpayer may also receive payments from the trustee out of the discount amount and/or an active asset reduction amount. These payments are ‘tax-deferred amounts’. If the trust estate is a unit trust or a fixed trust and the tax-deferred amount exceeds the cost base of the units or fixed interests in the trust, the taxpayer makes a capital gain equal to the excess.

Note: The amount at Label H includes any amounts rolled over under the capital gains tax small business roll-over provisions in Division 123 or Subdivision 152-E of ITAA 1997 or which are exempt under the small business retirement exemption provisions in subdivisions 118-F or 152-D of ITAA 1997. It also includes capital gains prior to the application of the CGT discount (Division 115) and the small business 50 per cent active asset reduction.(subdivision 152-B).

Special rules apply to collectables and personal use assets. If the taxpayer makes a capital gain from a collectable, it is disregarded if the collectable was acquired for $500 or less. A capital gain or loss the taxpayer makes from an interest in a collectable is only disregarded if the market value of the asset was $500 or less when the interest was acquired. A capital gain the taxpayer makes from a personal use asset, or part of a personal use asset, is disregarded if the taxpayer acquired it for $10 000 or less.

Show at this label the Current year capital losses applied from of the Capital gains worksheet on page 25. Show at Label G, the sum of E1 and F20. The amount includes capital losses applied in calculating a small business roll-over amount. Only show, at label G, the appropriate amount of capital losses that are applied against the taxpayer’s Total current year capital gains, label H. The amount shown at label G cannot exceed the amount shown at label H. If label H is blank, do not complete label G.

The taxpayer may choose the order in which capital gains are reduced by current year capital losses.

A capital loss is made if a CGT event happens and the taxpayer’s reduced cost base for the CGT event exceeds the capital amounts the taxpayer receives, or is entitled to receive, from the event. The reduced cost base is not indexed for inflation.

A capital loss the taxpayer makes from a collectable is disregarded if it is acquired for $500 or less.

A capital loss made on a collectable in the income year can only be used to reduce capital gains from other collectables—section 108-10 of ITAA 1997. Only include at this label the amount of any current year capital losses from collectables that the taxpayer is using this year to reduce capital gains from collectables.

A capital loss from a personal use asset is disregarded—section 108-20 of ITAA 1997—that is, it is not even used to reduce capital gains from other personal use assets.

Any capital losses not applied can be carried forward to a later income year and applied against capital gains in that year.

Select the code letter from the list below which best describes the CGT asset or assets to which the CGT event happened. Print the code letter in the TYPE box at the right of label G. If the taxpayer made a capital loss from more than one CGT event, print the code letter for the largest amount of capital loss.

Note: Code letter E does not apply for a CGT event in relation to plant that happens after the start time.

The amount includes prior year net capital losses applied in calculating a small business roll-over amount or retirement exemption amount. The amount shown at this label cannot exceed Total current year capital gains, label H minus Total current year capital losses applied, label G. If label H is blank or equals label G, do not complete label X.

Prior year net capital losses are applied in the order in which they were made. Any unused prior year net capital loss made on a collectable can only be applied to reduce capital gains from other collectables. Only include at label X any prior year net capital losses from collectables applied against current year capital gains from collectables.

A capital loss from a personal use asset is disregarded—that is, it is not even used to reduce capital gains from other personal use assets.

Capital losses may be reduced by the commercial debt forgiveness provisions under section 102-30, Item 3 of ITAA 1997 and Schedule 2C of ITAA 1936.

In some circumstances, you will need to include a schedule of additional information in the return.

If, after reading these instructions and making any further enquiries, you are still unsure whether the taxpayer qualifies for the reduction (or the benefit of the reduction through a section 159SA rebate) you may still complete labels V and Z as explained below. The ATO will work out whether or not there will be any benefit. If you need further information, contact the ATO.

For individuals, the 1999-2000 year taxable income must include a net capital gain

If the taxpayer’s taxable income includes an amount rebatable under section 159SA (the rebateable component of certain lump sum and eligible termination payments), and apart from this payment being included, there may have been additional tax from the removal of CGT averaging, you should complete labels V and Z. Even if there is no direct entitlement to the averaging reduction, it may increase the rebate.

If the taxpayer is a trust beneficiary, and their net capital gain is to some extent attributable to the trust's net capital gain, they may need certain information from the trust to complete labels V and Z—see below. For further information refer to the CGT label J and K commentary in the P and T 2000 instructions.

When a trustee is assessed under section 98 of the ITAA 1936, and an amount is shown at item 11 label S in the beneficiary's return (share of credit for tax paid by the trustee), any CGT averaging reduction allowed in the trustee assessment must be taken into account.

If the taxpayer’s taxable income includes a share of the net income of a trust, and that share is to some extent attributable to the net capital gain included in the taxpayer’s taxable income, ignore any capital gain taken to arise under subdivision 115-C of the Income Tax Assessment Act 1997 (ITAA 97) when you work out the taxpayer’s notional net capital gain. Instead, include a proportion of the notional net capital gain of the trust. The proportion you include is the same as the proportion of the trust's net capital gain attributable to the taxpayer’s share of the trust's net income. For example, if this is one half of the trust's net capital gain, include one half of the trust's notional net capital gain in the taxpayer’s notional net capital gain. This assumes that the trust's notional net capital gain is less than its notional net income. Otherwise, a smaller amount would be included.

Finally, the notional net capital gain is also worked out as though the former small business CGT concessions in subdivisions 118-C and 118-F (the goodwill and small business retirement exemptions) and Division 123 (the small business roll-over) applied for the whole year, and the new measures in Division 152 ITAA 97 had not been enacted. The concession notionally applied must be such that it would have been available in the actual circumstances.

Where the taxpayer is a minor (see A1), in working out the modified net capital gain amount you also exclude any part of the notional net capital gain which is eligible assessable income under Division 6AA of Part III of ITAA 1936 (including in respect of any share of the notional net capital gain of a trust). In these situations, you will need to include a schedule of additional information with the return - see below.

The modified net capital gain amount should include the part of any capital gain that has been offset by current and/or prior year capital losses before the application of any actual (or notional) small business CGT concessions, less the current year capital losses applied against them. The prior year net capital losses applied in this way are added back at this step along with any other prior year losses.

If the taxpayer’s notional net capital gain includes some of the notional net capital gain of a trust, and a proportion of it relates to pre-announcement CGT events in that trust, the same proportion is included in the taxpayer’s pre-announcement net capital gain amount. For example, if one third of the taxpayer’s share of the trust's notional net capital gain is attributable to pre-announcement CGT events in the trust, include one third in your taxpayer’s pre-announcement net capital gain amount. However, in the case of minors subject to Div 6AA, this amount should only be included to the extent that it is excepted trust income.

The CGT averaging reduction is worked out by:

For more information refer to Guide to capital gains tax.

If the taxpayer was under 18 at 30 June 2000 and they have made a net capital gain, they will not be entitled to the CGT averaging reduction unless they are an excepted person, or all or part of their net capital gain is excepted income. Refer to question A1 on page x of these instructions.

You must also include the information and follow the procedures required by the instructions for tax return attachments on page [6 in the 1999 instructions] of these instructions.

Show at this label the amount being current year capital losses and/or prior year net capital losses that have not been applied to offset capital gains.

There should not be an amount at label R if there is an amount at label W.

Do not include net capital losses which have been applied in calculating a capital gains tax small business net roll-over amount under former Division 123 of ITAA 1997 or retirement exemption amount under Subdivision 118-F of ITAA 1997.

Capital losses may be reduced by the commercial debt forgiveness provisions under section 102-30 of ITAA 1997 and Schedule 2C of ITAA 1936.

Include at item T both amounts eligible for the retirement exemption under either the former Subdivision 118-F of the ITAA 1997 or subdivision 152-D of the ITAA 1997. This is the sum of C4 and D2.

For further information regarding the small business roll-over or small business retirement exemption refer to the ATO publication, Capital gains tax concessions for small business.

It is important to keep accurate records from the date of acquisition of any CGT asset from which the taxpayer has made or might make a capital gain or loss if a CGT event happens to it-for example, a disposal of the asset.

Failure to keep such records could result in:

The taxpayer must keep records of every act, transaction, event or circumstance that can reasonably be expected to be relevant to working out whether the taxpayer has made a capital gain or capital loss from a CGT event. It does not matter whether the CGT event has happened or may happen in the future.

The taxpayer must keep records in English—or readily convertible to English. The records must show the nature of the act, transaction, event or circumstance and the day when it happened or arose. In the case of an act the records must show who did it and in the case of a transaction who were the parties to it.

The taxpayer must retain the records for 5 years after it becomes certain that no CGT event—or no further CGT event—can happen such that the records could reasonably be expected to be relevant to working out whether the taxpayer has made a capital gain or loss from the event.

Note: The law (section 121-35 of ITAA 1997) now allows taxpayers to either:

For further information regarding asset registers refer to the ATO publication CGT asset register: a new way of keeping records.