Capital Gains Tax Calculator
2000/01 to 2007/08
Summary of the rules for calculating capital gains
tax
Special
rules: complying superannuation funds
This
calculator is designed for personal investors to calculate CGT payable on the
arm’s length sale or redemption of an asset such as shares, units in a managed
fund or real estate.
The
calculator will:
In
particular, the calculator:
Caution:
The
calculator applies indexation (where applicable) from the date of acquisition
to 30 September 1999 (when indexation was frozen). A lower indexation rate
would apply to any indexable costs which were
incurred subsequent to acquisition, such as enhancements to a building. In such
a case, multiple calculations will be required to index the cost base.
Summary of the rules for calculating
capital gains tax
A
typical tax handbook would devote 100 pages or more to CGT, as there are many
detailed CGT rules dealing with special situations. This summary is a very
general description of how CGT is calculated for arm’s length purchases and
subsequent sales or redemptions of common personal investments such as shares,
units in a managed fund, debt securities or investment real estate.
A
taxpayer can only make a capital gain or a capital loss if a CGT event happens.
CGT Event A1 (the disposal of a CGT asset) covers a change of ownership (eg by sale or giving away) of assets such as shares, units
in a unit trust, debt securities, land and buildings, works of art etc.
CGT
Event C2 (cancellation, surrender or similar endings) would cover the
redemption of units in a unit trust (where the units are extinguished), the
expiry of an unexercised option, or the redemption and cancellation of a
debenture.
Time of CGT event
Care
must be taken to use the correct time of a CGT event, as it can influence the
amount or timing of the tax liability. CGT event A1 (Disposal of a CGT asset)
is taken to occur when the disposal contract is entered into (rather than the
settlement date). If there is no contract the event is taken to occur when the
taxpayer ceases to own the asset. CGT event C2 occurs when the contract ending
the asset is entered into (or when the asset ends if there is not contract).
There
are approximately 50 different CGT events. Most individuals will never
experience many of these events. For example, many CGT events apply
specifically to trusts and one involves an individual or company ceasing to be
a resident of
Exceptions, exemptions and roll-overs
As a
matter of policy and fairness, there are a range of transactions that do not
attract CGT, that are treated concessionally or on
which CGT can be deferred through a "roll-over" mechanism. Be sure to
consult your tax adviser on any unusual transactions.
The
main assets which will usually escape CGT include:
Some
situations which may permit deferral of tax include:
Calculating a capital gain for a CGT event
The
basic steps to calculating the amount of a capital gain or capital loss are:
If the cost base exceeds the capital proceeds, go on
to (4) below:
If a
CGT event occurs after 11.45am EST 21 September 1999, and the asset has been
held for at least 12 months, the taxpayer has a further choice in calculating a
capital gain:
Capital
losses are applied against capital gains before the discount is applied, ie if an individual has a capital loss of $60,000 to offset
against a (pre-discount) capital gain of $100,000, the post-discount net
capital gain will be $20,000, ie (($100,000 -
$60,000) x 0.5).
Where
you simply buy and sell an asset (eg shares or real
estate) at arm’s length, the capital proceeds associated with the CGT event
(disposal, eg sale) will be the selling price.
(Brokerage or agency commissions etc are included in the cost base rather than
excluded from the capital proceeds.)
Special
rules generally apply to many situations such as non-arm’s length sale, gift,
inheritance, creation of an asset, and many of the specific CGT events. You
should seek more information from your tax adviser for any transaction or
change of ownership which is not a straightforward arm’s length purchase and
sale.
Where
you simply buy and sell an asset (eg shares or real
estate) at arm’s length, the CGT cost of an asset will generally be what you
paid to acquire and sell it. This includes what you paid to the seller plus any
incidental costs related to the purchase or sale of the asset, such as
professional fees, stamp duty and costs of advertising to find a buyer.
There
are up to five elements to the cost base:
Tax
deductible amounts are excluded to prevent double dipping.
Special
rules generally apply to situations such as non-arm’s length purchase, gift,
inheritance, creation of an asset, and many of the specific CGT events. You
should seek more information from your tax adviser for anything which is not a
straightforward arm’s length purchase and sale.
When
calculating the CGT cost base of an asset acquired before 11.45am EST 21
September 1999, you can index the costs for inflation if you owned the asset
for at least one year. However, you can only index for inflation that took
place up to 30 September 1999. Any inflation after that date is ignored. The
calculator does the indexation calculation for you when you enter the time of
acquisition and the time of the CGT event. The non-capital costs of ownership
cannot be indexed.
If an indexable asset is disposed of after the above time by an individual,
complying superannuation fund or trust you have a choice of:
Improvements
to real estate
Indexation
is calculated from the time the cost is incurred until the CGT event (eg sale) takes place. In the case of real estate,
enhancement costs or title costs which occurred over the period of ownership
will need to be indexed from when the costs were incurred, not from when the
real estate was first acquired.
Separate
CGT assets
In
some cases, a sale of real estate, shares etc will represent the sale of
separate CGT assets which were acquired at different times. The capital gain
will need to be calculated separately for each CGT asset, except where a parcel of identical assets such as shares were purchased
at one time.
Dividend reinvestment schemes
Shares
purchased under a dividend reinvestment scheme are separate purchases from the
original shares. The dividend must be treated as income, and the purchase is
treated like any other purchase.
Savings
plans
Where
an investor acquires units in a managed fund by investing a regular amount, eg $200 a month, each acquisition is a separate purchase
with its own acquisition date.
Major
capital improvements
A
major capital improvement to a pre-CGT asset is treated as a separate CGT
asset. This will be the case if, at the time of sale, the cost base of the
improvement is more than the improvement threshold ($112,512 for 2006/07;
$109,447 for 2005/06) and more than 5% of the proceeds from the sale of the
combined asset are attributable to the improvement. In such case, CGT will need
to be calculated for the improvement even where the primary asset is a pre-CGT
(exempt) asset.
In
some cases a building or structure on post-CGT land will also be treated as a
separate CGT asset.
Where
the cost base exceeds the capital proceeds, there is no capital gain. In that
event, if the reduced cost base also exceeds the capital proceeds, the
difference is a capital loss.
If the
capital proceeds is less than the cost base and greater than the reduced cost
base, there is no capital gain or capital loss.
The
reduced cost base consists of five elements. Four of these are the same as
elements 1,2,4 and 5 of the cost
base (except that indexing never applies to the reduced cost base).
The
third element (instead of non-capital holding costs) is the amount of any
assessable balancing adjustment, such as the balancing adjustment required when
a taxpayer disposes of depreciable plant.
Special rules: complying
superannuation funds
Special rules applicable to
superannuation funds must be observed when entering information for assets
owned at 30 June 1988 by complying superannuation funds. As a general guide,
follow the directions below.
Assets
owned at 30 June 1988
All
assets owned by a complying superannuation fund at 30 June 1988 are subject to
CGT (even if acquired before 20 September 1985). For any such assets you must enter
the "time of purchase" as June 1988, as these assets are treated
as if they were acquired on 30 June 1988. This means that even pre-20 September
1985 assets of complying superannuation funds are not CGT-exempt.
The
first element of the cost base is the greater of market value at
30 June 1988 or the cost base at 30 June 1988 (ie if
the market value on that day was below cost, the cost would be used). To this
must be added costs incurred after 30 June 1988 that form part of the cost base
(eg selling costs).
Other
comments
The
following additional comments are offered by way of clarification:
This
glossary describes the general meaning of an expression, not its precise legal
meaning.
Capital proceeds
Generally
speaking, this is the amount you receive or are entitled to receive for the
sale of the asset (or other CGT event). However, there are many special rules
for non-arm’s length situations (market value is generally applied) or where
the CGT event is not a straightforward arm’s length sale.
CGT event
Any one of approximately 50 specific events which can occur in relation
to a CGT asset, thereby triggering a capital gain or capital loss. The simplest
of these is event A1 – disposal (eg by sale or gift).
Cost base
The
amount that is deducted from the capital proceeds to arrive at the amount of a
capital gain. Most of the elements of the cost base can be indexed for
inflation (up to 30 September 1999) if the asset was acquired (or deemed to
have been acquired) before 11.45am EST 21 September 1999 and has been held for
at least 12 months. (See discussion of cost base above.) In calculating the
amount of a capital loss, the reduced cost base is used instead
of the cost base.
The
cost base may be modified to take account of market value or because of the
specific rules pertaining to a specific CGT event.
Discount capital gains
Capital
gains which are eligible for the CGT discount (50% for individuals and trusts,
one third for superannuation entities). To be eligible, the GST event must take
place after 11.45am on 21 September 1999, the taxpayer must be an individual, a
trustee or a superannuation entity, and the asset must be held for at least one
year. The discount is not available where the taxpayer elects to use the
indexation method (available where the asset was purchased before 11.45 on 21
September 1999 and held for at least one year).
Indexation
Adjustment
of elements of the cost base for movement in the Consumer Price Index (CPI)
from when the asset was acquired until the time of the relevant CGT event, eg sale of the asset. CPI movement after 30 September 1999
is ignored.
Proceeds
See capital proceeds
Where
the reduced cost base is greater than the capital proceeds associated with a
CGT event, the difference is a capital loss. In arriving at the reduced cost
base, there is no indexation for inflation. (See reduced cost base above.)
The
reduced cost base may be modified to take account of market value, roll-over
rules or the rules pertaining to a specific CGT event.
This
calculator and accompanying information are for general guidance only and may
not apply to all situations. For more information, contact your tax adviser.
Tax
professionals may wish to refer to the following CCH publications for further
details:
CCH
electronic products
CCH
Electronic Tax Library
CCH
Accountant’s Tax and Business Series
CCH
print products
Australian
Master Tax Guide (book: revised twice yearly)
CCH
Australian Federal Tax Reporter (looseleaf
subscription)
CCH
Australian Income Tax Guide (looseleaf subscription)
CCH
Capital Gains Tax Planner (looseleaf subscription)
This
calculator is made available by CCH for use subject to the following:
• the calculator (including its help file) provides general
information without taking account of the particular circumstances of any
individual;
• it is not, and should not be relied on as, a substitute for
appropriate professional advice;
• CCH
gives no assurance that the calculator is free of errors or suitable for any
user’s intended purposes;
• to the extent permitted by law, CCH will not be liable for
any damages or loss suffered by the user or anyone else from use of the
calculator.
© 2007 CCH Australia Limited ABN 95 096 903 365