CGT Calculator Test Examples

Test Scenarios

Capital gains and losses (CGT)

Current as at 8 April 2003

Developers wishing to list products against the various CGT tax categories should test against the relevant example.

Contents

Qualification......

The eight examples......

Testing......

Example 1: Shares......

Example 2: Non-assessable share receipts......

Example 3: Takeover with shares plus cash......

Example 4: Rental property......

Example 5: Holiday house......

Example 6: Personal use asset > $10,000......

Example 7: Unit trust......

Example 8: CGT event K7......

Qualification

The 8 examples test the more common situations encountered by individual taxpayers.
The tests do not consider if the taxpayer is able to disregard their capital gain or capital loss.
The tests do not check all the relevant dates that may need to be taken into account in determining if indexation may apply or if the asset is subject to CGT or the 12 month rule.
In respect of shares and trust units, each share or unit is an asset. However, most taxpayers deal with shares and trust units as a parcel. the examples use the parcel approach. There will be occassions where the parcel approach will not be appropriate, eg. where capital losses can be applied against capital gains and there is choice between using indexation and discount, or where there are bonus issues.

The eight examples

Example 1 considers a straightforward purchase and sale of shares which allows choice between the indexation and discount methods.

Example 2 considers a straightforward purchase and sale of shares which included repayments of capital while the shares were held. Several large companies have recently made capital repayments, and some have resulted in capital gains arising.

Example 3 considers a straightforward takeover of a company involving shares plus cash.

Example 4 considers a rental property and its expenses. There are additional rules to consider if the property attracts capital write-off. This example does not consider those rules.

Example 5 considers the holiday house that some Australians have.

Example 6 considers a personal use asset which attracts the CGT provisions. To attract CGT a persoanl use asset must have cost more than $10,000.

Example 7 considers a straightforward purchase and sale of units in a unit trust.

Example 8 considers a depreciating asset that has had both taxable and non-taxable use. The asset attracts both indexation and discount gains.

Testing

These examples can be used for the current year by substituting the current year for 20xx.

Example 1: Shares

Alan acquired shares in Alpha Ltd on 12 September 1996 for $15,237. Alan paid stamp duty of $123.58 on 14 September 1996. Alan sold the shares on 13 May 20xx for $18,701 and incurred brokerage fees of $75.

Reduced cost base

/ 15,435.58
Date of CGT event: / 13/5/xx / CPI for quarter: / 123.4 / Capital proceeds: / 18,701
Indexed gain / Discount gain / Other gain
Capital proceeds / 18,701 / 18,701 / Reduced cost base
Less cost base / 15,850 / 15,436 / Less capital proceeds
Capital gain / 2,851 / 3,265 / Capital loss

Alan will be required to choose between the indexed and discount gain

Example 2: Non-assessable share receipts

Harriett acquired shares in Harry Ltd on 17 September 1997 for $2,000 plus stamp duty of $25 and brokerage of $150. On 18 August 1998 Harry Ltd made a capital repayment of $1,500. On 21 September 1999 Harry Ltd made a further capital repayment of $1,200. Harriett sold her shares on 17 February 20xx for $300 and incurred brokerage of $75.

First CGT event

Reduced cost base

/ 2,175.00
Non-assessable distribution adjustment / 1,500.00 / 1,500.00 / 1,500.00
Adjusted cost base/reduced cost base / 675.00 / 703.28 / 675.00
Date of CGT event: / 18/8/98 / CPI for quarter: / 121.3 / Capital proceeds: / N/a
Indexed gain / Discount gain / Other gain
Capital proceeds / Reduced cost base
Less cost base / Less capital proceeds
Capital gain / Capital loss

Second CGT event

Reduced cost base

/ 675.00
Non-assessable distribution adjustment / 675.00 / 715.24 / 675.00
Adjusted cost base/reduced cost base / 0.00 / 0.00 / 0.00
Date of CGT event: / 21/9/99 / CPI for quarter: / 123.4 / Capital proceeds: / N/a
Indexed gain / Discount gain / Other gain
Capital proceeds / 1,200 / 1,200 / Reduced cost base
Less cost base / 715 / 675 / Less capital proceeds
Capital gain / 485 / 525 / Capital loss

Harriett will be required to choose between the indexed and discount gain

Final CGT event

Reduced cost base

/ 75.00
Date of CGT event: / 17/2/xx / CPI for quarter: / 123.4 / Capital proceeds: / 300
Indexed gain / Discount gain / Other gain
Capital proceeds / 300 / 300 / Reduced cost base
Less cost base / 75 / 75 / Less capital proceeds
Capital gain / 225 / 225 / Capital loss

Harriett will be required to choose between the indexed and discount gain

Example 3: Takeover with shares plus cash

Bea acquired shares in Berty Ltd on 23 May 1989 for $5,600 plus $65 stamp duty and $100 brokerage. Berty Ltd was taken over on 12 April 20xx by Big Ltd who provided Bea with $6,500 worth of shares in Big Ltd plus $2,000 cash. Bea sold her shares on 29 June 20xx for $6,600 and incurred brokerage fees of $75.

CGT event upon takeover:

Reduced cost base

/ 5,765.00
Date of CGT event: / 12/4/xx / CPI for quarter: / 123.4 / Capital proceeds: / 8,500
Indexed gain / Discount gain / Other gain
Capital proceeds / 8,500 / 8,500 / Reduced cost base
Less cost base / 7,471 / 5,765 / Less capital proceeds
Capital gain / 1,029 / 2,735 / Capital loss

If gain rolled-over the cost bases are (the cost bases less the cash component):

Indexed cost base = 7,471. – 2,000 = 5,471.

Discount/non-indexed cost base = 5,765 – 2,000 = 3,765

Reduced cost base = 5,765 – 2,000 = 3,765

If gain not rolled over, the gain/loss is:

Reduced cost base

/ 6,575.00
Date of CGT event: / 29/6/xx / CPI for quarter: / 123.4 / Capital proceeds: / 6,600
Indexed gain / Discount gain / Other gain
Capital proceeds / 6,600 / Reduced cost base
Less cost base / 6,575 / Less capital proceeds
Capital gain / 25 / Capital loss

If roll-over not exercised the net gain choices are:

If indexation chosen: 1,029 (indexed gain) + 25 (other gain) = 1,054

If discount chosen: 2,735 (discount gain before discount) + 25 (other gain) = 2,760

If gain rolled over the gain/loss is:

Reduced cost base

/ 3,840.00
Date of CGT event: / 29/6/0x / CPI for quarter: / 123.4 / Capital proceeds: / 6,600
Indexed gain / Discount gain / Other gain
Capital proceeds / 6,600 / 6,600 / Reduced cost base
Less cost base / 5,546 / 3,840 / Less capital proceeds
Capital gain / 1,054 / 2,760 / Capital loss

Example 4: Rental property

Cora purchased a rental property on 8 August 1990 for $90,000 plus stamp duty of $2,500. Cora paid a deposit of $10,000 and borrowed the $80,000 from a financial institution at interest of $4,800 per annum. The interest is paid annually on the anniversary of the loan. Cora replaced a hot water system on 8 July 1999 for $650. Insurance expenditure for the rental property cost $475 per year payable 8 August. She also incurs council rates of $300 per year payable on 8 August. Cora paid off the loan on 8 August 1998. She sold the property on 22 January 20xx for $160,000 and incurs real estate agents fee of $900. Cora received a refund from her insurance of $257 and a refund from her council rates of $163.

Reduced cost base

/ 93,400
Date of CGT event: / 22/1/xx / CPI for quarter: / 123.4 / Capital proceeds: / 160,000
Indexed gain / Discount gain / Other gain
Capital proceeds / 160,000 / 160,000 / Reduced cost base
Less cost base / 111,438 / 93,400 / Less capital proceeds
Capital gain / 48,562 / 66,600 / Capital loss

Note: Insurance, interest and rates can be excluded from the calculation as they are deductible expenses. The hot water system does not fall into any of the CGT elements.

Cora will be required to choose between the indexed and discount gain

Example 5: Holiday house

Freddie buys a holiday home on 24 October (xx-3) (and post 21 September 1999) for $105 000 plus stamp duty of $2750 . He borrows the $105 000 from the bank at $5400 interest per year payable in annual instalments on the anniversary of the loan. He pays out the loan on 24 October (xx-1). Insurance of $490 per year is payable 24 October. He has council rates of $290 per year payable 24 October. He uses the property solely for his personal use. He sells the property on 24 March xx for $380 000 and incurs real estate agents fee of $750. He receives a refund from his insurance company of $287 and a rate refund of $170. Freddie has a principal place of residence.

1
Date incurred / 2
Description of expenditure / 3
Amount / 4
Amount to be excluded from 3 / 5
Net amount (not indexed) / 5A
Net amount (indexed) / 6
CPI figure / 7
Indexation factor / 8
Cost base
(5/5A x 7) / 9
Amount to be deducted from 3 for reduced cost base / 10
Reduced amount
(3 – 9)
24/10/(xx-3) / Purchase / 205,000.00 / 205,000.00 / 205,000.00 / 205,000.00
24/10/(xx-3) / Stamp duty / 2,750.00 / 2,750.00 / 2,750.00 / 2,750.00
24/10/(xx-3) / Insurance / 490.00 / 490.00 / 490.00
24/10/(xx-3) / Rates / 290.00 / 290.00 / 290.00
24/10/(xx-2) / Interest / 5,400.00 / 5,400.00 / 5,400.00
24/10/(xx-2) / Insurance / 490.00 / 490.00 / 490.00
24/10/(xx-2) / Rates / 290.00 / 290.00 / 290.00
24/10/(xx-1) / Interest / 5,400.00 / 5,400.00 / 5,400.00
24/10/(xx-1) / Insurance / 490.00 / 287 / 203.00 / 203.00
24/10/(xx-1) / Land rates / 290.00 / 170 / 120.00 / 120.00
24/3/xx / Real estate agents fee / 750.00 / 750.00 / 750.00 / 750.00
Cost base (discount/non-indexed) / 221,183.00 / Cost base (indexation) / 221,183.00 /

Reduced cost base

/ 208,500
Date of CGT event: / 24/3/xx / CPI for quarter: / N/a / Capital proceeds: / 380,000.00
Indexed gain / Discount gain / Other gain
Capital proceeds / 380,000 / Reduced cost base
Less cost base / 221,183 / Less capital proceeds
Capital gain / 158,817 / Capital loss

Example 6: Personal use asset > $10,000

Jeremy purchases a yacht for $50 000 on 27 August 1997. He gets a personal loan from the bank for the $50 000. He incurs $5000 per year interest payable on the anniversary of the loan. He pays off the loan 27 August 2000 and sells the yacht on 28 February xx for $55 000.

Description: / Personal Use Asset – yacht / Type: / Active / Non-active / x
Shares and units (in unit trusts) / Real estate / Other / X / Collectable
1
Date incurred / 2
Description of expenditure / 3
Amount / 4
Amount to be excluded from 3 / 5
Net amount (not indexed) / 5A
Net amount (indexed) / 6
CPI figure / 7
Indexation factor / 8
Cost base
(5/5A x 7) / 9
Amount to be deducted from 3 for reduced cost base / 10
Reduced amount
(3 – 9)
27/8/97 / Purchase / 50,000.00 / 50,000.00 / 119.7 / 1.031 / 51,550 / 50,000.00
Cost base (discount/non-indexed) / 50,000.00 / Cost base (indexation) / 51,550 /

Reduced cost base

/ 50,000.00
Non-assessable distribution adjustment
Adjusted cost base/reduced cost base
Date of CGT event: / 28/2/xx / CPI for quarter: / 123.4 / Capital proceeds: / 55,000
Indexed gain / Discount gain / Other gain
Capital proceeds / 55,000 / 55,000 / Reduced cost base
Less cost base / 51,550 / 50,000 / Less capital proceeds
Capital gain / 3,450 / 5,000 / Capital loss

Jeremy will be required to choose between the indexed and discount gain.

Note: 3rd element expenses (ie. interest) not available on personal use assets.

If the yacht were sold for $45,000 there would be a capital loss of $5,000 which would be disregarded.

Example 7: Unit trust

Pablo bought units in the Philip Unit Trust on 10/6/96 for $4,000 plus $200 brokerage and stamp duty. The trust year was 1 July to 30 June. The trust made one distribution per year on 1 August. The distribution was made to the registered unitholder as at close of business on 30 June. Paul sold his units on 15 June xx (post 2002) for $6,500 plus $120 brokerage.

The distributions to Pablo were as follows (only amounts relevant for CGT shown):

Date / CGT distributions – all non-active other / Non-assessable amounts
Indexed / Discount / Other / Total / CGT concession amounts / Tax-free amounts / Tax-exempted amounts / Tax-deferred amounts
1/8/96 / 250 / - / 60 / 180 / - / 40 / 80 / 60
1/8/97 / 280 / - / 70 / 190 / - / 40 / 80 / 70
1/8/98 / 290 / - / 80 / 200 / - / 40 / 80 / 80
1/8/99 / 240 / - / 110 / 195 / - / 40 / 80 / 75
1/8/00 / 180 / 120 / 40 / 290 / 120 / 40 / 80 / 50
1/8/01 / 70 / 200 / 30 / 335 / 180 / 40 / 80 / 35
1/8/(xx-1) / 30 / 150 / 10 / 315 / 170 / 40 / 80 / 25

The annual CGT events should show the following cost bases:

Date / CGT event / Amount / Index no. / Cost base (CB) / Indexed cost base (ICB) / Reduced cost base (RCB)
10/6/96 / 4000
10/6/96 / 200
1/8/96 / 1.003 / 4200 / 4213 / 4200
Non-assessable receipt / 180 / 4140 / 4153 / 4100
1/8/97 / 1.000 / 4140 / 4153 / 4100
Non-assessable receipt / 190 / 4070 / 4083 / 3990
30/6/99 / 1.022 / 4070 / 4173 / 3990
Non-assessable receipt / 200 / 3990 / 4093 / 3870
30/6/00 / 1.009 / 3990 / 4130 / 3870
Non-assessable receipt / 195 / 3915 / 4055 / 3755
30/6/01 / 1.000 / 3915 / 4055 / 3755
Non-assessable receipt / 290 / 3745 / 3885 / 3545
30/6/02 / 1.000 / 3745 / 3885 / 3545
Non-assessable receipt / 335 / 3710 / 3850 / 3470
15/6/xx / 1.000 / 3710 / 3850 / 3470
Non-assessable receipt / 315 / 3685 / 3825 / 3405
Sale / 120 / 3805 / 3945 / 3525

The ‘Non-assessable receipt’ calculation is as follows (done on payment date up to 30/6/98 and on 30/6 following date of payment after 30/6/98 – with adjustment for indexation done before ‘Non-assessable receipt’ calculation):

For dates up to 30 June 2001

CB and ICB = Amount as adjusted for indexation (if applicable) – CGT concession amount – Tax deferred amount
RCB = Amount – CGT concession amount – Tax free amount – Tax deferred amount

For dates after 30 June 2001

CB and ICB = Amount as adjusted for indexation (if applicable) – Tax deferred amount
RCB = Amount – Tax free amount – Tax deferred amount

The gains on disposal are:

Indexed – 2555 (ie. 6,500 – 3,945)

Discount – 2695 (ie. 6,500 – 3,805)

Pablo will be required to choose between the indexed and discount gain

Note: If the units were sold for $3,000 the capital loss would be $525 (ie. 3,525 – 3,000)

Example 8: CGT event K7

MrButcher has a mincer that he has used 75% in his business and 25% for non-business use. He acquired the mincer on 1 July 1998 for $2,500 ($2,400 for the mincer plus $100 installation costs) (20% DVM). He sold it on 30 June xx for $2560 ($2,600 less advertising costs of $40).

Reduced cost base

/ 2,500.00
Date of CGT event: / 3/5/xx / CPI for quarter: / 123.4 / Capital proceeds: / 2,560
Indexed gain / Discount gain / Other gain
Capital proceeds / 2,560 / 2,560 / Reduced cost base
Less cost base / 2,543 / 2,500 / Less capital proceeds
Capital gain / 17 / 60 / Capital loss
Indexed gain / Discount gain / Other gain / Capital loss
Termination value / 2560 / 2560
Less cost / 2500 / 2500
Gain/loss / 60 / 60
Taxable use fraction (pooled assets)
Sum of reductions ÷ Total decline* / 25% / 25%
Adjusted gain/loss / 15 / 15
Less indexation component / 43
Capital gain/loss / 0 / 15

*As the non-taxable use is 25%, the ‘Sum of reductions  Total decline’ = 25%

MrButcher will be required to choose between the indexed and discount gain

If the termination value was $500 the result would be:

Indexed gain / Discount gain / Other gain / Capital loss
Termination value / 500
Less cost / 2500
Gain/loss / 2000
Taxable use fraction
Sum of reductions ÷ Total decline / 25%
Adjusted gain/loss / 500
Less indexation component
Capital gain/loss / 500

Note: If the mincer were a pooled asset, the ‘Taxable use fraction’ would be used rather than the ‘Sum of reductions  Total decline’. The ‘Taxable use fraction’ is 0.75 (ie. 75% expressed as a fraction).