Capital Gains Tax (CGT) – The Timing of CGT Events
As the EOFY is fast approaching, it is important to understand when a CGT event has occurred to determine which income year you must report your capital gain or loss.
As CGT forms part of your assessable income, you will need to report all gains or losses (CGT events) that occurred from the disposal of an asset during that financial year when lodging your tax return.
CGT timing is also an important consideration in family law property settlement, but first we explain how disposal of assets are reported.
What is Asset Disposal?
Asset disposal occurs when you are no longer the owner of an asset. The most common form of asset disposal is selling an investment.
However, disposal can also occur if an asset is transferred (or swapped for a different CGT asset), lost, stolen or destroyed.
Depending on how the asset was disposed of, will impact the timing of the CGT event, and therefore, what financial year you must report it.
For assets that are:
• Sold with a contract for sale – CGT event occurs the year the contract was entered into.
• Sold with no contract for sale – CGT event usually occurs when you stop being the asset’s owner.
• Lost – CGT event occurs when the loss was discovered or when you received compensation for the loss.
• Stolen – CGT event occurs when the theft was discovered or when you received compensation for the theft.
• Destroyed – CGT event occurs when the destruction occurred or when you received compensation for the destruction.
A CGT and Timing Example
Let’s consider an example of selling an investment property.
Barry wants to sell an investment property a year after his family property settlement.
Barry owns this property outright and title was not transferred upon settlement.
If Barry entered a contract to sell his investment property in June 2021, and the contract was settled in October 2021, any capital gain or loss Barry incurred would have occurred in the 2020-2021 financial year (the year he entered the contract, not the year the settlement took place).
For more information:
If you are planning or going through a property settlement following separation or divorce, contact one our family lawyers today on 02 8999 1800 or email team@cominoslawyers.com.au
Disclaimer:
The above information is not legal advice. It is essential for all parties to receive legal, financial and tax advice before finalising any property settlement.