Things happen. A Capital Gains Tax (CGT) asset can become lost or destroyed or partially destroyed through fire, flood or theft, for example. So what are the implications?
If this happens, you can choose to roll over your CGT liabilities. You can also roll over your CGT if you lose an asset because of fraud or if it is stolen. But you can no longer roll the CGT over if your broker sells your shares by mistake.
While you think you would not owe CGT in these circumstances, you do. Why? Because the ATO considers ownership of the asset changed. It does not matter if the asset is destroyed or lost or whether it was outside your control or accidental. In these scenarios you can use the CGT rollover that covers accidentally lost or destroyed assets. Whatever you do, do not ignore it.
However, you need to meet the conditions before you can apply the rollover.
Rollover conditions
There are strict conditions you need to meet to roll over CGT. The most important one is whether you receive a payout, such as insurance, or a replacement asset. Where you receive money, you need to use it to replace the asset within a certain time. If you do this, the ATO disregards the capital gain it assesses you made as a result of the destruction or loss of the asset. It regards the replacement to have cost the same as the original asset for the sake of CGT.
There are other rules surrounding the receipt of money to compensate for the loss or damage of an asset. For example, if you only spend some of the compensation or more than you received to replace the asset, you could have to pay CGT immediately or there may be other adjustments you are liable for.
If the original asset was bought before CGT was introduced (20 September 1985), the ATO considers that its replacement was also acquired before that date. But there are conditions such as the replacement asset must be almost the same as the original.
How the rollover rules affect you will depend on your circumstances. These rules are complex and you really should seek an expert’s advice.
If you lose an asset that is subject to CGT, do not just do nothing or assume you no longer have to pay CGT. Contact Ben for advice on the situation. He can guide you to keep you out of trouble with the tax office.