There is a three step process to determine whether a taxpayer is affected by the CGT provisions. It is necessary to follow this process and within each of these three steps we ask a series of questions to ultimately determine the affect of the CGT provisions on a taxpayer's liability to pay income tax.

Step 1 Have you made a capital gain loss?
-Has a CGT event happened to the taxpayer? Division 104 triggered application of capital gain provision. Can make capital gain/loss only if CGT happens. s104-5 has summary of events. Division provides event time and how to work out capital gain/loss and any exception. Events include and will be listed further down in notes
-Is the asset a CGT asset? (s108-5 law tries to cover everything. Law defines CGT asset as any kind of property or a legal or equitable right that is not property so anything that gives you an ownership right e.g. transfer, sell, dispose but when when it's not transferrable its regarded as CGT asset e.g. right under contract). Part of or interest in a CGT asset is also a CGT asset. Interest in an asset of partnership or interest in partnership or goodwill are CGT assets. CGT arises in land, building and share sales) Be aware of Separate CGT Assets whether law trie to treat some easiest as separate assets e.g. when accessory is attached to principle asset accessory becomes part of asset e.g. building on a land. This is so people pay more tax. If you have an improvement to pre-CGT asset beyond 'improvement threshold table" & 5% of capital proceeds then also not separate asset.
-Does an exception or exemption apply?
-Can there be a roll over?

Step 2: Work out the amount of capital gain or loss
-Work out your capital proceeds from the CGT event The cap proceeds are the total of the money and the market value of any other property you have received or are entitled to. There are 6 modifications to this rule. Market value substitution rule: WHere cap proceeds can't be value or taxpayer did not deal at arm's length with another entity in connection with the event. Apportionment rule which is relevant if payment received in connection with transaction relates in part only to CGT event. Cap proceeds are so much of payment as is reasonably attributable to that event. Non-receipt rule relevant if taxpayer does not receive or isn't likely to receive some or all of the capital proceeds from a CGT event and capital proceeds are reduced by amount not received. Repaid Rule. Assumption of Liability Rule. Misappropriation rule pg 335
-Work out the cost base for the CGT asset The cost base of the asset consists of 5 elements
1. the money you paid and MV of other property you gave to acquire asset, incidental costs incurred (minor costs related to acquisition of asset and CGT event), costs of owning the asset you incurred (but only if you acquired the asset after 20/8/1991), capital expenditure you incurred to increase or preserve the asset's value, or to install or move it and capital expenditure you incurred to establish, preserve or defend you title to the asset
-Subtract the cost base from the capital proceeds
-If proceeds>cost base the difference if 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

Step 3: Work out the net capital gain or loss for the income year
-reduce the capital gains for the income year in the order you choose, by your capital losses for the income year from your assessable income
-reduce any remaining capital gains by any unapplied net capital losses for previous income years
-reduce any remaining discount capital gains by the discount percentage
-if you carry on a small business apply small business concessions
add up any remaining cap gains that are not discount cap gains and any remaining discount cap gains

	Created by Nafisa Zahra over 12 years ago

Capital Gains Tax

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