Delaying the sale of a CGT asset could be advantageous if you aim to qualify for the CGT discount. CGT assets encompass land, buildings, shares, rights and options, leases, units in a unit trust, goodwill, contractual rights, licences, foreign currency, cryptocurrency, and convertible notes.
Understanding the CGT Discount Rules
According to the discount rules, when you sell or dispose of an asset (for example, giving it away), you can reduce your capital gain by 50% if both of the following conditions are met:
- The asset has been owned for at least 12 months, and
- You are an Australian resident for tax purposes.
Ownership Requirement
For the first condition, you must hold the asset for a minimum of 12 months before the ‘CGT event’ (typically a sale) occurs. The CGT event signifies when you realise a capital gain or loss. When determining ownership duration, you should exclude the day you acquired the asset and the day the CGT event takes place.
When Does a CGT Event Occur?
To clarify:
- If you sell the asset without a sale contract, the CGT event takes place at the time of sale.
- If a contract exists for the sale, the CGT event occurs on the contract date, rather than at settlement. This is standard practice in property sales.
- If the asset is lost or destroyed, the CGT event occurs when:
- You first receive an insurance payment or other compensation.
- No insurance or compensation is available at the time of loss or discovery.
Previous Ownership Consideration
You may include the previous ownership period of an asset towards your 12-month ownership requirement if you obtained it:
- From a deceased estate, where the deceased acquired the asset on or after 20 September 1985.
- Through a relationship breakdown where the total period you and your spouse owned the asset exceeded 12 months.
- As a rollover replacement for an asset that was lost, destroyed, or compulsorily acquired, provided that both the original asset and the replacement asset were held for at least 12 months.
Important Notes for Foreign and Temporary Residents
Since 8 May 2012, the full CGT discount is unavailable for capital gains realised by foreign or temporary residents.
Timing Your Asset Sale
For example, if you held an asset for 11 months and were set to make a capital gain of $30,000 upon sale, by postponing the sale by one month, you could benefit from the 50% discount, reducing the gain to $15,000. Keep in mind that the 50% discount does not apply to companies and non-residents, although SMSFs and trusts are eligible (with the discount being 33% for SMSFs).
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