Capital gains
CGT asset
A CGT asset is any kind of property or a legal or equitable right that is not property, and it is the thing a CGT event can happen to.
For the purposes of capital gains tax, a CGT asset is defined very broadly. It includes any kind of property, and also any legal or equitable right that is not itself property. That means land and buildings, shares, units in a unit trust, business goodwill, a contractual right, foreign currency, cryptocurrency and many other things all fall within the definition.
The broad definition matters because CGT only operates on CGT assets. If something is not a CGT asset, a sale of it does not produce a capital gain or loss. In practice almost everything you own that has value can be a CGT asset, so the more useful question is usually whether a particular asset is exempt or disregarded rather than whether it counts at all.
Some CGT assets are exempt or partially exempt. The family home is generally exempt under the main residence exemption. Assets acquired before the CGT start date in September 1985 are generally treated as pre-CGT and outside the rules. Cars, motorcycles and many personal-use assets are typically exempt, while collectables and personal-use assets with a cost above set thresholds have their own special treatment, with the threshold amounts set by legislation and worth checking with the ATO.
Different types of asset follow different rules for acquisition date, cost base and the application of discounts. A company cannot use the 50% CGT discount, for example, while an individual can. Assets used in a small business may qualify as active assets for the small business concessions. Intangible assets such as goodwill and licences can be CGT assets that are easy to overlook when a business is sold.
CGT asset classification also helps when thinking about the GST treatment of a sale. Selling a CGT asset used in the business may involve GST on a taxable supply, or a GST-free sale of a going concern, depending on the facts. The GST analysis is independent of the CGT analysis, and a sale that has no GST may still produce a capital gain. Each side must be reported correctly.
Treat the register of your CGT assets as part of your record keeping, noting the acquisition date, price and any improvements. This will make working out a gain much simpler later. The above is general information only, so confirm how your assets are treated with the ATO or a registered tax professional.
Worked example
A sole trader owns a workshop building, bought for $450,000, and the goodwill of the business, which has no purchase cost. Both are CGT assets. Her personal car, bought for $30,000, is generally an exempt personal-use asset. If she sells the business for $700,000, the sale price must be allocated across the building and goodwill, and each CGT asset has its own gain or loss worked out separately.
Practical tips
- Keep a simple register of the assets you own, with purchase dates and costs, so a future sale is easy to calculate.
- Do not forget intangible assets like goodwill, because they can carry large gains when a business is sold.
- Check whether an asset is pre-CGT, exempt or an active asset before assuming how it will be taxed.