Focus on CGT asset disposals

When you dispose of an asset—sell it, lose it, swap it, or end your ownership—it triggers a Capital Gains Tax (CGT) event. This is when a capital gain or loss is crystallised and potentially needs to be reported in your tax return.

What Counts as a CGT Event?

According to the ATO, CGT events arise in a variety of scenarios, such as:

• Selling or transferring an asset (e.g., property, shares)
• Loss, theft, or destruction of an asset
• Granting rights or options (like mining rights, leases, contracts)
• Trust-related transfers, estate dealings, or changes in residency
• Each type of CGT event determines the timing of the event and how gains or losses are calculated.

When does the CGT Event Actually Occur?

• If a sale contract exists (like for property), the event occurs when you enter into the contract—even if settlement happens later
  • Example: You sign a contract to sell land in June 2024 but settle in October. The CGT event—and gain/loss—is recorded for the 2023–24 tax year
• If there’s no contract, the event occurs when you cease ownership—for example, selling shares when they’re traded through your brokerage account
• For loss, theft, destruction, the event is triggered when you first receive compensation—or, if none is received, when the loss is discovered
• For compulsory acquisitions, it’s the earlier of when you receive compensation or when the acquiring entity takes possession

Calculating Capital Gains or Losses

Your capital gain is typically:

• Capital proceeds (what you receive) − Asset’s cost base
• Similarly, a capital loss is:
• Asset’s reduced cost base − Capital proceeds

Calculation nuances include:

• Capital proceeds can include money, property, or market value, depending on the transfer type
• If an asset is gifted or sold below market value to a related party, the market value substitution rule may apply
• Expenses like advertising fees or agent’s commissions typically form part of the cost base
• For depreciating assets, such as business equipment used for private purposes, CGT may include a balancing adjustment, depending on write-down and use proportions

Exemptions & Special Provisions

• Pre-CGT assets (those acquired before 20 September 1985) are generally exempt—unless significantly altered or inherited
• The main residence exemption typically applies to your home, unless parts were used for business or periods when you rented it out
• Personal use assets and collectibles under prescribed value thresholds may be exempt, but losses are quarantined to against similar categories only
• You may be eligible for a 50% discount on capital gains for individual taxpayers if the asset was held over 12 months; super funds get a 33.3% discount

Rolling Over CGT on Involuntary Disposals

If an asset is lost, destroyed, or compulsorily acquired, you may postpone your CGT liability by rolling it over:

• You can defer the CGT if you reinvest in a similar asset for business use, or repair the asset within a specific timeframe (usually up to one year before or after the disposal)
• No formal election is required—your tax return indicates this rollover treatment

Why It Matters

Understanding when CGT events occur—and how to accurately calculate and report them—is crucial for:

• Complying with tax laws
• Timing transactions strategically
• Optimising tax liability through exemptions, discounts, and rollovers

Contact one of our accountants if you require further assistance on asset disposals and capital gains tax.

Source: ato.gov.au