CGT Events

CGT event	Time of event	Capital gain	Capital loss
B1 – Use and enjoyment before title passes	When use of the CGT asset passes	The capital proceeds less the asset’s cost base	The asset’s reduced cost base less the capital proceeds

What is CGT event B1?

CGT event B1 involves a situation where a taxpayer enters into an agreement with another entity under which:

• the right to use and enjoyment of a CGT asset the taxpayer owns passes to the other entity; and
• title in the asset will or may pass to the other entity at or before the end of the agreement.

The rules governing CGT event B1 are contained in section 104-15 of the Income Tax Assessment Act 1997 (Cth).

At what time does CGT event B1 occur?

CGT event B1 occurs at the time when the other entity first obtains the use and enjoyment of the asset.

The taxpayer who acquires a CGT asset under CGT event B1 will typically be viewed as having acquired the asset at the time of first use and enjoyment, not at the time title is transferred.

How to calculate the capital gain or the capital loss?

A taxpayer makes a capital gain if the capital proceeds from the agreement are more than the asset’s cost base.

A taxpayer makes a capital loss if the capital proceeds are less than the asset’s reduced cost base.

Importantly, the market value substitution rule for capital proceeds does not apply (e.g. if there is no consideration given in exchange for the right of use and enjoyment).

Who makes the capital gain or the capital loss?

The capital gain or loss is borne by the taxpayer who owns the CGT asset and who is providing the right of use and enjoyment.

Exceptions

A capital gain or capital loss will be disregarded if the relevant CGT asset was acquired before 20 September 1985 (i.e. pre-CGT), or if the title in the asset does not pass to the other entity at or before the end of the agreement.

In addition, CGT event B1 will not apply where another CGT event happens which has more specific application (e.g. CGT event A1). CGT event B1 would also not apply where the asset in question is held on revenue account as a revenue asset or as an item of trading stock.

CGT discounts and concessions

Any capital gain which results from CGT event B1 can be discounted under the general CGT discount (Division 115) and the small business CGT concessions (Division 152) where the taxpayer meets the various criteria of eligibility under those divisions.

The main residence exemption (Subdivision 118-B) may also be available to disregard a gain which occurs under CGT event B1.

Other matters and examples

In ID 2005/216, the ATO considered the applicability of CGT event B1 (versus event A1) in a situation where a taxpayer obtained finance and purchased a property on behalf of their adult child because the adult child was unable to obtain finance. It was agreed that the child could use and enjoy the property for a period of five years. After those five years, the child would obtain finance and pay out their parent’s outstanding loan balance and title would be transferred to them.

The ATO’s view was that CGT event B1 happened at the time the right was granted. There was both a formal agreement to grant a right to use and enjoy of the property and an agreement for title to pass at a specified point in time. Event B1 was more specific than event A1 and therefore applied with precedence.

Importantly, the ATO emphasised that for CGT event B1 to happen, the relevant agreement must be one under which title will or may pass at the end of a specific period or on the occurrence of a specific event. Additionally, CGT event B1 will not happen if, under a loose family arrangement, title to an asset may pass at an unspecified time in the future.

In TD 1999/78, the ATO provides several helpful examples which consider if CGT event B1 applies – two of those examples are extracted below:

Example: Perry allows his son use and enjoyment of the family holiday house as and when his son wishes with an expectation that some time in the future, when his son can afford to buy it, the title of the house will pass to him. This type of loose family arrangement does not fall within CGT event B1 because there is no agreement under which title will or may pass and because there is no specific point of time or particular occurrence when the arrangement will end.

Example: Jim owns a boat that his neighbour, Ken, is interested in buying but Ken wants to try out the boat first. Jim agrees to hire the boat to Ken and the agreement provides that Ken will buy the boat at the end of three years unless Ken decides to buy the boat sooner. Jim agrees that, if Ken does buy it, Jim will apply the hire fees against the agreed purchase price. Some months later, Ken inherits some money and approaches Jim to take the boat. The sale is concluded. Because there was an agreement under which Ken had a right to the use and enjoyment of the boat and under that agreement title to it would or might pass to Ken when the hire purchase agreement ends – which could be after three years or within that period - CGT event B1 occurs when Ken first obtained the use and enjoyment of the boat and not when Jim actually transferred the boat to him. Had the three years passed without Ken buying the boat, any capital gain or capital loss Jim made from the CGT event would be disregarded.

Note than CGT event B1 will generally not apply to lease agreements which provide the lessee with a right of first refusal.

Importantly, if title to the asset ultimately does not transfer under the agreement, then any capital gain or loss from CGT event B1 is to be reversed. If the capital gain or loss was recognised in a previously lodged tax return, that return may need to be amended.

CGT event	Time of event	Capital gain	Capital loss
C1 – Loss or destruction of a CGT asset	When compensation is first received or, if none, when the loss is discovered or destruction occurred	The capital proceeds less the asset’s cost base	The asset’s reduced cost base less the capital proceeds
C2 – Cancellation, surrender and similar endings	When the contract ending an asset is entered into or, if none, when an asset ends	The capital proceeds from the ending less the asset’s cost base	The asset’s reduced cost base less the capital proceeds
C3 – End of an option to acquire shares etc	When the option ends	The capital proceeds from granting the option less the expenditure in granting it	The expenditure in granting the option less the capital proceeds

See our CGT Event C1-C2-C3 article for more details

CGT event	Time of event	Capital gain	Capital loss
D1 – Creating contractual or other rights (see our CGT Event D1 article for more details)	When the contract is entered into or the right is created	The capital proceeds from creating the right less the incidental costs of creating the right	The incidental costs of creating the right less the capital proceeds
D2 – Granting an option	When the option is granted	The capital proceeds from the grant less the expenditure to grant it (e.g. buy/sell agreement)	The expenditure to grant the option less the capital proceeds
D3 – Granting a right to income from mining	When the contract is entered into or, if none, when the right is granted	The capital proceeds from the grant of right less the expenditure to grant it	The expenditure to grant the option less the capital proceeds
D4 – Entering into a conservation covenant	When covenant is entered into	The capital proceeds from covenant less the cost base apportioned to the covenant	The reduced cost base apportioned to the covenant less the capital proceeds from covenant

CGT event	Time of event	Capital gain	Capital loss
E1 – Creating a trust over a CGT asset (see our CGT Event E1 article for more details)	When the trust is created	Capital proceeds from creating the trust less the asset’s cost base	The asset’s reduced cost base less the capital proceeds
E2 – Transferring a CGT asset to a trust (e.g. Trust Resettlement)	When the asset is transferred	Capital proceeds from the transfer less the asset’s cost base	The asset’s reduced cost base less the capital proceeds
E3 – Converting a trust to a unit trust	When the trust is converted	Market value of the asset at that time less its cost base	The asset’s reduced cost base less that market value
E4 – Capital payment for trust interest (see our CGT Event E4 article for more details)	When the trustee makes the payment	Non-assessable part of the payment less the cost base of the trust interest	No capital loss
E5 – Beneficiary becoming entitled to a trust asset	When the beneficiary becomes absolutely entitled	For a trustee: market value of the CGT asset at that time less its cost base For a beneficiary: that market value less the cost base of the beneficiary’s capital interest	For a trustee: the reduced cost base of the CGT asset at that time less that market value For a beneficiary: the reduced cost base of the beneficiary’s capital interest less that market value
E6 – Disposal to a beneficiary to end an income right	The time of the disposal	For a trustee: market value of the CGT asset at that time less its cost base For a beneficiary: that market value less the cost base of the beneficiary’s right to income	For a trustee: the reduced cost base of the CGT asset at that time less that market value For a beneficiary: the reduced cost base of the beneficiary’s right to income less that market value
E7 – Disposal to a beneficiary to end capital interest	The time of the disposal	For a trustee: market value of the CGT asset at that time less its cost base For a beneficiary: that market value less the cost base of the beneficiary’s capital interest	For a trustee: the reduced cost base of the CGT asset at that time less that market value For a beneficiary: the reduced cost base of the beneficiary’s capital interest less that market value
E8 – Disposal by a beneficiary of capital interest	When the disposal contract is entered into or, if none, when the beneficiary ceases to own the CGT asset	Capital proceeds less the appropriate proportion of the trust’s net assets	The appropriate proportion of the trust’s net assets less the capital proceeds
E9 – Creating a trust over future property	When the entity makes an agreement	Market value of the property (as if it existed when the agreement was made) less incidental costs in making the agreement	The incidental costs in making the agreement less the market value of the property (as if it existed when the agreement was made)
E10 – Annual cost base reduction exceeds cost base of interest in attribution managed investment trust	When the reduction happens	Excess of cost base reduction over cost base	No capital loss

CGT event	Time of event	Capital gain	Capital loss
F1 – Granting a lease	For granting a lease: when the entity enters into the lease contract or, if none, at the start of the lease For a lease renewal or extension: at the start of the renewal or extension	Capital proceeds less the expenditure on grant, renewal or extension	Expenditure on grant, renewal or extension less the capital proceeds
F2 – Granting a long-term lease	For granting a lease: when the lessor grants the lease For a lease renewal or extension: at the start of the renewal or extension	Capital proceeds from the grant, renewal or extension less the cost base of the leased property	Reduced cost base of the leased property less the capital proceeds from the grant, renewal or extension
F3 – Lessor pays lessee to get lease changed	When the lease term is varied or waived	No capital gain	Amount of expenditure to get lessee’s agreement
F4 – Lessee receives payment for changing a lease (e.g. lease variation)	When the lease term is varied or waived	Capital proceeds less the cost base of lease	No capital loss
F5 – Lessor receives payment for changing a lease	When the lease term is varied or waived	Capital proceeds less expenditure in relation to variation or waiver	Expenditure in relation to variation or waiver less the capital proceeds

CGT event	Time of event	Capital gain	Capital loss
G1 – Capital payment for shares (see our CGT Event G1 article for more details)	When the company pays a non-assessable amount	Payment less the cost base of shares	No capital loss
G3 – Liquidator or administrator declares shares or financial instruments worthless (see our CGT Event G3 article for more details)	When declaration was made	No capital gain	Reduced cost base of shares or financial instruments

CGT event	Time of event	Capital gain	Capital loss
H1 – Forfeiture of a deposit	When the deposit is forfeited	Deposit less expenditure in connection with the prospective sale	Expenditure in connection with the prospective sale less deposit
H2 – Receipt for an event relating to a CGT asset (see our CGT Event H2 article for more details)	When the act, transaction or event occurred	Capital proceeds less the incidental costs	Incidental costs less the capital proceeds

CGT event	Time of event	Capital gain	Capital loss
I1 – Individual or company stops being an Australian resident (see our CGT Event I1 article for more details)	When the individual or company stops being an Australian resident	For each CGT asset the individual or company owns, its market value less its cost base	For each CGT asset the individual or company owns, its reduced cost base less its market value
I2 – Trust stops being a resident trust	When the trust ceases to be a resident trust for CGT purposes	For each CGT asset the trustee owns, its market value less its cost base	For each CGT asset the trustee owns, its reduced cost base less its market value

CGT event	Time of event	Capital gain	Capital loss
J1 – Company stops being a member of a wholly owned group after a rollover	When the company stops being a member of a wholly owned group after a rollover	Market value of the asset at the time of the event less its cost base	Reduced cost base of the asset less that market value
J2 – Change in relation to a replacement asset or improved asset after a rollover under Subdivision 152-E (see our CGT Event J2 article for more details)	When the change happens	The amount mentioned in subsection 104-185(5)	No capital loss
J4 – Trust failing to cease to exist after rollover under Subdivision 124-N	When the failure to cease to exist happens	For a company: market value of the asset at the time the company acquired it less its cost base at that time For a shareholder: market value of the share at the time the shareholder acquired it less its cost base at that time	For a company: reduced cost base of the asset at the time the company acquired it less its market value at that time For a shareholder: reduced cost base of the share at the time the shareholder acquired it less its market value at that time
J5 – Failure to acquire a replacement asset and to incur fourth element expenditure after a rollover under Subdivision 152­E (see our CGT Event J5 article for more details)	At the end of the replacement asset period	The amount of the capital gain that you disregarded under Subdivision 152­E	No capital loss
J6 – Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain (see our CGT Event J6 article for more details)	At the end of the replacement asset period	The amount mentioned in subsection 104-198(3)	No capital loss

CGT event	Time of event	Capital gain	Capital loss
K1 – As the result of an incoming international transfer of a Kyoto unit or an Australian carbon credit unit from your foreign account or your nominee’s foreign account, you start to hold the unit as a registered emissions unit	When you start to hold the unit as a registered emissions unit	Market value of unit less its cost base	Reduced cost base of the unit less its market value
K2 – Bankrupt pays an amount in relation to debt	When payment is made	No capital gain	That part of the payment that relates to the denied part of a net capital loss
K3 – Asset passing to a tax-advantaged entity (see our CGT Event K3 article for more details)	When an individual dies	Market value of the asset at death less its cost base	Reduced cost base of the asset less that market value
K4 – CGT asset starts being trading stock (see our CGT Event K4 article for more details)	When the asset starts being trading stock	Market value of asset less its cost base	Reduced cost base of the asset less that market value
K5 – Special capital loss from a collectable that has fallen in market value	When CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable	No capital gain	Market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8
K6 – Pre-CGT shares or trust interest	When another CGT event involving the shares or interest happens	Capital proceeds from the shares or trust interest that are attributable to post-CGT assets owned by the company or trust, less the assets’ cost bases	No capital loss
K7 – Balancing adjustment occurs for a depreciating asset that you used for purposes other than taxable purposes (see our CGT Event K7 article for more details)	When the balancing adjustment event occurs	Termination value less cost times fraction	Cost less termination value times fraction
K8 – Direct value shifts affecting your equity or loan interests in a company or trust	The decrease time for the interests	Capital gain worked out under section 725-365	No capital loss
K9 – Entitlement to receive payment of a carried interest	When you become entitled to receive the payment	Capital proceeds from the entitlement	No capital loss
K10 – You make a forex realisation gain as a result of forex realisation event 2 and item 1 of the table in subsection 775-70(1) applies	When the forex realisation event happens	Equal to the forex realisation gain	No capital loss
K11 – You make a forex realisation loss as a result of forex realisation event 2 and item 1 of the table in subsection 775-75(1) applies	When the forex realisation event happens	No capital gain	Equal to the forex realisation loss
K12 – Foreign hybrid loss exposure adjustment	Just before the end of the income year	No capital gain	Equal to the forex realisation loss

CGT event	Time of event	Capital gain	Capital loss
L1 – Reduction under section 705-57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group or multiple entry consolidated group	Just after entity becomes subsidiary member	No capital gain	Amount of reduction
L2 – Amount remaining after step 3A (of the table in section 705-60) of joining ‘allocable cost amount’ is negative	Just after entity becomes subsidiary member	Amount remaining	No capital loss
L3 – Tax cost setting amounts for retained cost base assets exceed joining ‘allocable cost amount’	Just after entity becomes subsidiary member	Amount of excess	No capital loss
L4 – No reset cost base assets against which to apply excess of net ‘allocable cost amount’ on joining	Just after entity becomes subsidiary member	No capital gain	Amount of excess
L5 – Amount remaining after step 4 (of the table in section 711-20) of leaving ‘allocable cost amount’ is negative	When entity ceases to be subsidiary member	Amount remaining	No capital loss
L6 – Error in calculation of tax cost setting amount for joining entity’s assets	Start of the income year when the Commissioner becomes aware of the errors	The net overstated amount resulting from the errors, or a portion of that amount	The net understated amount resulting from the errors, or a portion of that amount
L8 – Reduction in tax cost setting amount for reset cost base assets on joining cannot be allocated	Just after entity becomes a subsidiary member	No capital gain	Amount of reduction that cannot be allocated