Delaying the sale of a CGT asset may be beneficial to qualify for the CGT discount. CGT assets encompass various items such as land, buildings, shares, rights and options, leases, units in a unit trust, goodwill, contractual rights, licences, foreign currency, cryptocurrency, and convertible notes.
Understanding CGT Discount Eligibility
According to the discount rules, when you sell or dispose of an asset (for example, gifting the asset), you can reduce your capital gain by 50% if both of the following conditions are met:
- You have owned the asset for a minimum of 12 months.
- You are an Australian resident for tax purposes.
Ownership Duration
To satisfy the first condition, the asset must be in your possession for a minimum of 12 months before the ‘CGT event’—typically the sale. The CGT event is when you incur a capital gain or loss. When determining if you owned the CGT asset for at least 12 months prior to the CGT event, you do not count the day of acquisition or the day of the CGT event.
Clarifying CGT Event Timing
- If you sell the asset without a formal contract of sale, the CGT event takes place at the time of sale.
- If there is a contract for the sale, the CGT event occurs on the contract date, rather than at settlement. This is standard practice for property sales.
- If the asset is lost or destroyed, the CGT event occurs when:
- You first receive an insurance payment or other compensation.
- If there is no insurance or compensation at the time of loss or discovery.
Considering Previous Ownership
It is possible to include the previous ownership period of an asset towards your 12-month ownership requirement if you acquired it:
- Through a deceased estate, provided the deceased acquired the asset on or after 20 September 1985.
- If you and your spouse collectively owned the asset for over 12 months due to a relationship breakdown.
- As a rollover replacement for an asset that was lost, destroyed, or compulsorily acquired, provided both the original and replacement asset were owned for at least 12 months.
Important Considerations
As of 8 May 2012, the full CGT discount is not accessible for capital gains realised by foreign or temporary residents.
For example, if you held an asset for 11 months and were poised to make a capital gain of $30,000 upon sale, by postponing the sale by one month, you could reduce that gain to $15,000 by utilising the 50% discount. Please note that this discount is unavailable to companies and non-residents, while SMSFs and trusts can benefit (though SMSFs qualify for a 33% discount).
For further information on tax implications, visit our Tax Services FAQ.