Capital Gains Tax in Australia - Exemptions

Exemptions

The law is framed so as to apply to all assets, except those specifically exempted. It applies both to assets owned outright and to a partial interest in an asset, and to both tangible and intangible assets. The current exemptions are, in approximate order of significance,

• Any asset acquired before 20 September 1985, known as a pre-CGT asset. But an asset loses its pre-CGT status if substantial changes are made to it (e.g. major additions to a building), or on the death of the original owner.

• The house, unit, etc., which is the taxpayer's main residence, and up to the first 2 hectares of adjacent land used for domestic purposes. This exemption is generally viewed as being for politically popular reasons, rather than economic reasons (e.g. author and actuary Nicholas Renton takes that view).

• Personal use assets, acquired for up to $10,000. This includes boats, furniture, electrical equipment, etc., which are for personal use. Items normally sold as a set must be treated together for the $10,000 limit.

• Capital loss made from a personal use asset (s108-20(1)ITAA1997…any capital loss you make from a personal use asset is disregarded)

• Collectables acquired for up to $500. This includes art, jewellery, stamps, etc., held for personal enjoyment. Items normally sold as a set must be treated as a set for the $500 limit. If collectables sometimes rise in value then this exemption can be an advantage to a taxpayer collecting small items.

• Cars and other small motor vehicles such as motorcycles ("small" being a carrying capacity less than 1 tonne and less than 9 passengers). Since cars normally decline in value this exemption is actually a disadvantage. But the exemption applies even to antique or collectible vehicles, if they rise in value then the exemption is an advantage.

• Compensation for an occupational injury, or for personal injury or illness of oneself or a relative. (But compensation for breach of contract is subject to CGT.)

• Life insurance policies surrendered or sold by the original holder. Such gains are instead taxed as ordinary income (when held for less than 10 years). A third party who buys such a policy will be subject to CGT as on an ordinary investment though.

• Winnings or losses from gambling (which are free of income tax too).

• Bonds and notes sold at a discount (including zero-coupon bonds) and "traditional securities" (certain interest bearing notes convertible to shares). Gains and losses from these come under ordinary income tax.

• Medals and decorations for bravery and valour, provided they're acquired for no cost.

• Shares in a pooled development fund. A pooled development fund is a special structure with rules facilitating venture financing. Certain other eligible venture capital investments are exempt from CGT too.

• Payments under particular designated government schemes, for example various industry restructuring schemes.

Trading stock is not regarded as an asset and instead comes under ordinary income tax. Items of plant being depreciated are subject to CGT, but only in the unusual case that they're sold for more than original cost (see Depreciating assets below)