Rollover provisions apply to some disposals, one of the most significant of which are transfers to beneficiaries on death, so that the CGT is not a quasi estate tax.
CGT operates by treating net capital gains as taxable income in the tax year in which an asset is sold or otherwise disposed of.
Net capital losses in a tax year cannot be offset against normal income, but may be carried forward indefinitely.
From 20 September 1999, the Howard government discontinued indexation of the cost base and (subject to a transitional arrangement) introduced a 50% discount on the capital gain for individual taxpayers.
Current exemptions, in approximate order of significance are: Trading stock is not regarded as an asset and instead comes under ordinary income tax.
Items of plant being depreciated are subject to CGT, but only in the unusual case that they are sold for more than original cost (see Depreciating assets below) The capital gains tax law is expressed in terms of a set of 52 CGT events (see ITAA 1997 section 104-5), each of which specifies results such as gain, loss, or what cost base adjustment are to be made, and how to determine the date to use for the transaction.
However, there are three forms, from lowest to highest amount: On disposal then: Capital gains and losses in a given tax year are totalled, but in three separate categories according to the class of the asset: The existence of separate categories for collectibles and personal items works to prevent losses from them being offset against other gains such as from investments.
The choice is essentially between reducing the capital gain by the CPI rise of the cost base, or halving it outright.
Fully paid units with no amount to include in one's accessible income (as advised by the trust), merely change the number of shares in one's holding, otherwise a set of rules apply.
But when shares are held aggregated in bank account style such as in the CHESS system used by the Australian Securities Exchange, then the taxpayer can nominate which of the original purchases it is that are sold.
The Westfield Group for example recommends on their securities using the ratios of the net tangible asset backing (NTA) of each part.
But unlike the way depreciation has a final balancing adjustment against income, the building allowance instead gets that as capital gain (or loss) through it lowering the cost base.
Tax deferred amounts generally arise from building allowances, the same as for direct property ownership (see above).
If tax deferred amounts have reduced it to zero, then any excess must be declared as a capital gain in the year received.
The ATO publishes cost bases for significant recent demutualisations, such as AMP Limited and Insurance Australia Group.
Of course a shareholder may always sell apparently worthless shares to a third party for a nominal sum to realise a loss.
When deductions are claimed for depreciation of an asset, and it is later sold, there a balancing adjustment to be made for the proceeds versus the written-down value.
There's no specific law on share traders, but the ATO publishes a fact sheet with guidelines based on court rulings [1].
Factors include whether the intention is to profit, the repetition and regularity of the activity, and whether organised in a businesslike manner.
Prior to the introduction of capital gains tax in 1985, section 52 of the ITAA 1936 required taxpayers to declare (on their next return) assets they had acquired for trading.
In such cases the deceased is taken to have sold to the beneficiary at market value at the date of death, and the usual capital gains tax applies.
Churches and charities are regarded as tax-advantaged too, but bequests to registered "Deductible Gift Recipients" are not taxed.
Notice that for both pre and post CGT assets there are no tax liabilities to the deceased's estate for the usual case of transferring to an individual Australian beneficiary.
Unused net capital losses carried forward by the deceased from past tax years are lost with their death.
When assets are transferred between spouses under a court-approved settlement following marriage breakdown, certain rollover provisions automatically apply.
Essentially the spouse receiving the asset keeps the original cost base and acquisition date.
Transfers not made under court approval are not subject to rollover, the normal CGT rules apply to any disposals.
Under Australian companies' law, if a bidder gains 90% acceptance it may force remaining shareholders to take the bid.
Usually rollover relief (when available) is an advantage, it preserves pre-CGT status and helps an individual meet the 1 year time period for the 50% discount on gains.
The key elements of a small business are: The exemption for gains paid into a superannuation fund is similar to what employees may do with an eligible termination payment (accumulated unused long service leave, etc.)