(1) Structure of Income Tax Assessment Act 1997
ITAA 1997, Part 3-1

CGT: Income that derives from the disposal of property or other capital receipts. E.g. where capital gains may arise are where a person disposes of shares, property etc.

A CGT is essentially a tax upon gains from the realisation of property where the realisation is not an aspect of the carrying on of a business.

There is not a separate tax levied upon capital gains. In fact, where a net capital gain arises, it is included in assessable income and will bear tax at appropriate income tax rates.

The basic structure of the CGT regime requires you to follow the decision process as follows, in order to determine whether a capital gain or a capital loss arises from a CGT event, and in order to establish the amount of the capital gain or the capital loss. 

The Five Step Approach to CGT

Step One:  -  Identify a CGT event
Step Two:  -  Calculate the capital gain or loss
Step Three:  -  Consider any exemptions or exceptions
Step Four:  -  Consider any roll-overs
Step Five:  -  Determine the net capital gain/loss for the income year

If you dispose of an asset, and receive property in return, it is the market value of the property which is the capital proceeds. When you work out your capital gain you have to work out your net capital gain, by adding all capital gains and subtracting all capital losses. You also take into account the net capital loss of the previous year. Your net capital gain goes into assessable income. If you end up with a net capital loss, it is carried forward to next year. 

2 Main Parts 3-1 (general divisions) and 3-3 (Specialist divisions) Part 3-2 left open for expansion.

S10-5 – Talks about statutory income.  It refers ‘capital gains’ to 102-5.  CGT is included in assessable income under 6-10.

(2) CGT Events
ITAA 1997, Divisions 103 and 104

The first step in determining whether a capital or capital loss has arisen is to decide whether a CGT event has taken place, and if so identify the relevant CGT event(s).  Division 104 ITAA 97 sets out all the CGT events that may result in capital gain/loss.

The most common CGT event is “CGT event A1” which arises where a taxpayer “disposes” of a CGT asset (i.e. there is a change of beneficial ownership) (s104-10(1), (2)).  The sale or gift of a CGT asset is an obvious example of CGT event A1.  The CGT event is deemed to occur when the taxpayer entered into the contract for the disposal or, if there is no contract, when the change of ownership occurs (s104-10(3))

The CGT events summarized in s104-5 comprise the following 12 (A - L) categories:

1. disposal of a CGT asset: CGT event A1
2. use and enjoyment of a CGT asset before title passes: CGT event B1 – this event happens if a taxpayer enters into an agreement with another entity under which the right to the use and enjoyment of a CGT asset owned by the taxpayer 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 time of the event is when the other entity first obtains the use and enjoyment of the asset. 
3. end of a CGT asset: CGT events C1 to C3 – Subdivision 104-C ITAA97 contains the rules dealing with the occurrence of this CGT event.  The three occasions where this occurs are:
a. loss or destruction of a CGT asset: (C1)
b. cancellation, surrender and similar ending of an intangible CGT asset (C2)
c. end of an option to acquire shares (C3) – This CGT event happens if an entity is granted an option by a company or the trustee of a unit trust to acquire shares or debentures of the company or units or debentures of the unit trust and the option comes to an end in one of the following ways (s104-30(1) ITAA97):
i. it is not exercised by the latest time for its exercise
ii. it is cancelled, or
iii. it is released or abandoned.
4. bringing into existence a CGT asset: CGT events D1 to D4 – Subdivision 104-D contains the rules governing the following CGT events:
a. creating contractual or other rights (e.g. not to compete, exclusive dealing agreement): (D1) – a CGT event does not take place if the right was created through the borrowing of money or the obtaining of credit from another entity, the right requires the taxpayer concerned to do something which constitutes another CGT event for the taxpayer, a company issues or allots shares, or the trustee of a unit trust issues units in a trust.
b. granting an option: (D2) – includes an option that is granted, renewed or extended.  It does not apply to options granted, renewed or extended by a company or the trustee of a unit trust to acquire shares in the company or units in the unit trust or debentures of the company or of the unit trust, or options relating to personal use assets or collectables.
c. granting a right to income from mining: (D3)
d. entering into a conservation covenant over land: (D4). 
5. trusts: CGT events E1 to E9 – if a CGT event occurs in relation to the trust asset, the person who is absolutely entitled will be subject to the CGT liability, not the trustee. 
6. leases: CGT events F1 to F5 – A lease is a CGT asset that confers on the lessee the rights to exclusive possession of the property, subject to native title rights.  The premium that the lessee pays for obtaining the lease is the capital proceeds from the CGT event. 
7. shares: CGT events G1 to G3 – These events are more concerned with events such as capital returns, value shifting and company liquidations. 
8. special capital receipts: CGT events H1 and H2 – these events include forfeiture of deposits (H1) and receipt for event relating to a CGT asset (H2), 
9. Australian residency ends: CGT events I1 to I2
10. reversal of roll-overs: CGT events J1 to J4
11. other CGT events: CGT events K1 to K12.  The miscellaneous CGT events are:
o bankrupt pays an amount in relation to a debt (K2)
o asset passes to a tax-advantaged entity: (K3)
o CGT asset starts being trading stock: (K4)
o special collectables: (K5)
o pre-CGT shares or trust interest: (K6)
o balancing adjustment events for depreciating assets: (K7)
o direct value shifts (K8)
o carried interests: (K9)
o certain short term forex realization gains: (K10)
o certain short term forex realization losses: (K11)
o foreign hybrid loss exposure adjustment: (K12) 
12. consolidated groups: CGT events L1 to L8.