CGT Events in Australia: A Simple Guide to Capital Gains Tax

Reading time: 8 minutes | Topic: Tax & Business Advisory

Selling an investment property? Cashing in shares? Transferring an asset to a trust? Even moving overseas can have Capital Gains Tax (CGT) implications.

CGT can seem complicated because there isn't just one type of CGT event. Australian tax law recognises a range of events that can result in a capital gain or capital loss, depending on what happens to an asset.

The good news is that understanding the basics can make CGT much easier to navigate.

In this guide, we'll explain what a CGT event is, some of the more common events, how capital gains and losses work, and why it's important to consider the tax implications before disposing of an asset.

Important: This article provides general information only and isn't personal tax advice. Your CGT position can depend on your individual circumstances, the type of asset, how it was used, how long you owned it, and the specific CGT event involved.

What Is a CGT Event?

A CGT event is a transaction or circumstance that can result in a capital gain or capital loss.

The Australian tax rules contain a range of CGT events covering different situations. These include disposing of an asset, an asset being lost or destroyed, certain trust transactions, and ceasing Australian tax residency.

Common examples include:

• Selling an investment property

• Selling shares

• Disposing of cryptocurrency

• Giving an asset away

• An asset being lost or destroyed

• Certain transactions involving trusts

• Certain company or share transactions

• Ceasing Australian tax residency

Importantly, CGT isn't a separate tax that sits alongside your income tax. A net capital gain is generally included in your assessable income and taxed at your applicable income tax rate.

CGT Event A1: Selling or Disposing of an Asset

CGT event A1 is one of the most common CGT events.

It generally happens when you dispose of a CGT asset and ownership changes from you to another entity.

This could include:

• Selling shares

• Selling an investment property

• Disposing of cryptocurrency

• Selling business assets

• Giving an asset to someone else

For a contractual disposal, the CGT event generally happens when you enter into the contract, rather than when settlement takes place.

A Simple Example

Imagine you purchased shares for $20,000.

Later, you sell them for $30,000.

Ignoring other costs for simplicity:

$30,000 capital proceeds − $20,000 cost base = $10,000 capital gain

The actual calculation can be more complicated because your cost base may include certain costs associated with acquiring, owning and disposing of the asset.

That's why keeping accurate records is so important.

CGT Event C1: When an Asset Is Lost or Destroyed

Not every CGT event involves selling something.

CGT event C1 can apply when a CGT asset is lost or destroyed. The timing and calculation can depend on circumstances such as whether you receive compensation.

For example, an investment asset could be damaged or destroyed in circumstances where insurance compensation is received.

Special rules and rollover provisions may apply in some situations, particularly where an asset is involuntarily disposed of and replaced.

If you're dealing with a significant loss or insurance payout, it's worth getting advice before deciding what to do next.

CGT Event C2: When Certain Rights or Assets End

CGT event C2 can apply when certain CGT assets come to an end.

Examples can include:

• An option expiring

• A contractual right being cancelled

• A right being surrendered

• Certain intangible assets coming to an end

This is another reminder that CGT isn't limited to selling property or shares.

The specific tax treatment depends on the asset and the circumstances surrounding the event.

CGT Events E1 and E2: Trust Transactions

Trust structures can also create CGT considerations.

CGT event E1 can apply when a trust is created over a CGT asset, while CGT event E2 can apply when a CGT asset is transferred to an existing trust.

This means transferring an asset into a family or discretionary trust isn't necessarily a simple administrative change.

Depending on the circumstances, the transfer can have tax consequences.

If you're considering moving an asset into a trust, get advice before making the transfer, rather than waiting until after the transaction has taken place.

CGT Event I1: When You Leave Australia

Moving overseas can also create CGT considerations.

CGT event I1 can happen when an individual or company stops being an Australian resident. For certain assets that aren't taxable Australian property, the rules can require a capital gain or capital loss to be worked out at the time residency ends.

This can be particularly important if you hold investments such as:

• Shares

• Cryptocurrency

• Managed fund interests

• Other investment assets

The treatment of each asset can be different, particularly where Australian property or other taxable Australian property is involved.

If you're planning to move overseas, it's worth getting tax advice before you leave Australia.

How Do You Calculate a Capital Gain?

A simplified way of thinking about a capital gain is:

Capital proceeds − cost base = capital gain

Your cost base isn't necessarily just the amount you originally paid.

Depending on the circumstances, it may include certain costs associated with acquiring, holding and disposing of the asset.

For example, some expenses connected with purchasing or selling an asset may form part of the cost base.

This is why keeping complete records can make the eventual CGT calculation much easier.

What Happens If You Make a Capital Loss?

Not every CGT event results in a gain.

You may instead make a capital loss.

Capital losses can generally be used to offset capital gains. If your capital losses are greater than your capital gains for the year, the remaining net capital loss can generally be carried forward to offset future capital gains.

However, capital losses generally can't be used to reduce your salary or other ordinary income.

So even if a capital loss doesn't provide an immediate tax benefit, it's still important to keep accurate records.

Can You Get the 50% CGT Discount?

Potentially.

Australian resident individuals and trusts may generally be entitled to a 50% CGT discount on eligible assets that have been held for at least 12 months.

Companies generally aren't entitled to the individual or trust 50% CGT discount.

For example, if an eligible individual makes a $20,000 capital gain and satisfies the relevant requirements, the discount may reduce the capital gain to $10,000 before the remaining tax rules are applied.

However, not every capital gain qualifies for the discount.

There are specific rules and exceptions, so it's important to check your circumstances rather than assuming the discount applies automatically.

Don't Forget Your Records

CGT can become much harder to calculate when important records are missing.

For investments and other assets, consider keeping documents such as:

• Purchase contracts

• Sale contracts

• Settlement statements

• Brokerage statements

• Legal fees

• Stamp duty records

• Improvement and renovation costs

• Relevant valuation reports

• Records showing when you acquired and disposed of the asset

Good records can help your accountant establish the correct cost base and calculate your capital gain or loss accurately.

When Should You Speak to Your Accountant?

Before you sell or transfer the asset.

This is especially important if you're considering:

• Selling an investment property

• Selling a business

• Selling a large share portfolio

• Disposing of cryptocurrency

• Transferring assets to a trust

• Restructuring your business

• Moving overseas

• Transferring assets between entities

The timing and structure of a transaction can affect the tax outcome.

Getting advice before you enter into a transaction gives you more opportunity to understand the consequences and consider whether any planning or concessions may be available.

The Key Takeaway

• A CGT event isn't simply about selling something.

• Different transactions and circumstances can trigger different CGT events, with different rules around timing, calculations, concessions and rollover relief.

• The most important thing is to understand the potential tax consequences before making a major financial decision.

• At Margins Accounting, we believe accounting should be about more than looking backwards at what happened.

• It's about helping you understand your numbers and make better decisions about what's next.

Thinking About Selling or Transferring an Asset?

Don't wait until tax time to find out what the transaction could mean for you.

Talk to your accountant before making the decision.

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This article is intended as general information only and does not constitute tax advice. Tax rules can change, and the application of CGT depends on your individual circumstances. Always consult a registered tax agent or qualified professional for advice specific to your situation.