• Karina Dorogi

Technical Update: Capital Gains Tax



Acquiring assets and keeping records


When you acquire a capital gains tax (CGT) asset, you need to:

  • Establish your acquisition date – usually, this is when you become the owner of the asset (the contract date), but not always

  • Start keeping records of every transaction, event or circumstance that may be relevant to working out whether you've made a capital gain or loss.

If you jointly own the asset with others, you need to understand each owner’s share or interest in it.


These things will help you work out your capital gain or loss correctly and ensure you don’t pay more CGT than necessary.

Timing of acquisition


You need to establish exactly when you acquired your CGT asset because:

  • CGT doesn't apply if you owned it before CGT started on 20 September 1985 (though major improvements to a property since may be subject to CGT)

  • The rules about how you work out your capital gain or loss have changed over time

  • How long you have had it may affect how you work out your capital gain

Generally, the time you acquire a CGT asset (your acquisition date) is when you become its owner, most commonly because you've bought it or received it as a gift.


However, there are two common situations where your acquisition date is likely to be different from the date you become the owner:

  • When you buy an asset under contract and don’t take immediate possession, such as with real estate – in this case, your acquisition date is the time you enter into the contract (normally the date on the contract) and not the date of settlement (except for certain transfers to trusts)

  • When you inherit a CGT asset – in this case, the acquisition date is the date of death of the person who bequeathed it to you

Record keeping for CGT


You must keep records of every transaction, event or circumstance that may be relevant to working out whether you've made a capital gain or loss from a capital gains tax (CGT) event. Generally, you need to keep your records for at least five years after the year when the CGT event happened.


Keeping adequate records will help you work out your capital gain or loss correctly when a CGT event happens.


Good records can also help your beneficiaries deal with the impact of CGT. If you leave an asset to another person, it may be subject to CGT if they dispose of it in the future. For example, if your daughter sells shares you've left her in your will, she will need your records to work out her cost base for the shares and how much CGT she has to pay.


You should also keep records for a net capital loss in a year, which you may be able to offset against a capital gain in a later year.

(There's no time limit on how long you can carry forward a net capital loss.)


Once you've offset the loss against a capital gain, you should generally keep your records of the CGT event that resulted in the loss for a further two years (for individuals and small businesses; four years for other taxpayers).


Joint ownership


When you share the ownership of a CGT asset with others, you need to establish each owner’s share or interest in it.


Tenants in common


Individuals who own an asset as tenants in common may hold unequal interests in it. Each owner makes a capital gain or loss from a CGT event in line with their interest.


For example, a couple could own a rental property as tenants in common with one having a 20% interest and the other having an 80% interest. When they sell the rental property (or any other CGT event happens), they split the capital gain or loss between them according to their legal interest.


Joint tenants


For CGT purposes, joint tenants are treated as tenants in common having equal shares in the asset. Each party, therefore, has an equal share of any capital gain or loss from a CGT event. For example, a couple that owns a rental property as joint tenants splits the capital gain or loss equally when they sell the property.


When one joint tenant dies, their interest in the asset is taken to have been acquired in equal shares by the surviving joint tenants on the date of death.


Partnerships


For CGT purposes, a partnership does not itself own assets. Instead, each partner owns a proportion of each CGT asset. The partners use their proportion to work out their capital gain or loss from a CGT event affecting any asset.

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