Capital gains tax - CGT asset - part of an asset.

When a CGT asset is sold in a single transaction or dealing, can the capital gains tax consequences of the sale be worked out by treating CGT event A1 in section 104-10 of the Income Tax Assessment Act 1997 as happening separately to part ownership interests in the asset?

No. Where an asset is sold in a single transaction, CGT event A1 in section 104-10 of the ITAA 1997 happens once only, in respect of the whole asset.

An individual acquired an asset on or after 20 September 1985 and before 11.45 am (by legal time in the ACT) on 21 September 1999.

After 12 months the asset is sold in a single transaction.

The individual would like to treat the transaction as a disposal of two separate assets and use cost base indexation to calculate the capital gain from one asset and the CGT discount in respect of the other asset.

CGT event A1 in section 104-10 of the ITAA 1997 happens if a CGT asset is disposed of. That is, a change of ownership occurs from one entity to another entity.

CGT asset is defined in section 108-5 of the ITAA 1997 to include part of, or an interest in, an asset. Therefore, where A and B become part owners of an asset previously owned by A alone, there is a disposal of a part of the CGT asset from A to B.

However, the capital gains tax provisions will only apply to parts of assets, or interests in assets, where they have that legal character, or are dealt with as such.

This means that if an undivided interest in an asset is sold by one entity to another entity CGT event A1 happens only once. The capital gain for the event is worked out by comparing the cost base of the asset with the capital proceeds for its disposal. The capital gain is worked out by applying the CGT discount or cost base indexation (if the relevant conditions are satisfied).