If you have disposed of any assets (which can include the loss, destruction or sale of an asset) which are subject to capital gains tax, you need to let us know as soon as possible. These are known as capital gains events, which can affect the way in which a capital gain or loss is calculated, and when it is included in a net capital gain or loss.
The type of CGT event that applies to your situation may affect the time of the CGT event’s occurrence, and exactly how to calculate your capital gain or loss. As mentioned earlier, a CGT event can involve the loss of an asset, the destruction of an asset or the sale of an asset.
The Sale Of An Asset
If there is a contract of sale, the CGT event happens when you enter into the contract.
A common CGT asset involved with contracts of sale that is often sold is the house. The CGT event, in that case, happens on the date of the contract, not on the date of settlement.
If there is no contract of sale, the CGT event is usually when you stop being the asset’s owner.
Your capital gain or loss for the assets is usually the selling price, less the original cost and certain other costs associated with acquiring, holding and disposing of the asset.
Loss Or Destruction Of An Asset
If a CGT asset that you own is lost, stolen or destroyed, then the CGT event happens when you first receive compensation for the loss, theft or destruction. In this way, the capital gain for such an asset is the amount of compensation less the asset’s original cost.
If you do not receive compensation for the asset, the CGT event happens when the loss is discovered or the destruction occurred. Replacing the asset may result in being able to defer (or “roll over”) the capital gain until another CGT event occurs (e.g. selling the replacement asset).
The best way to ensure that you are doing the right thing when it comes to CGT tax is to keep your records up to date. This will assist us in ensuring that you are remaining compliant Any CGT events that have occurred need to be recorded (including asset disposals for at least five years after the event occurred. The best way to ensure this is to keep track of:
- receipts of purchase, transfer or sale
- if money was borrowed and details of interest
- receipts for insurance, rates and land taxes
- receipts for the cost of maintenance, repairs and modifications
- any market valuations
- brokerage on shares and cryptocurrency
- digital wallet records and keys.
Keeping accurate and well-maintained records for CGT events is of utmost importance, as it allows us to ensure that you are accurately reporting your transactions and lodging your return correctly. If they incur any net capital losses, this needs to be reflected in the return as they may be able to offset these against capital gains in a later year. Once a loss has been offset against a capital gain, you need to keep the records about that CGT event for two years (for individuals and small businesses) or four years (for other taxpayers).
If you are in the process of disposing of a capital gains asset, you will want to be certain that you are doing the right thing. Capital gains tax can be a tricky issue, with plenty of rigamarole.
We’re ready to help. Please contact your Accounting Services Director or Manager advisor on +61 3 9820 6400 to ensure that your returns are lodged with the most accurate and correct information needed for submission.