How Depreciating Asset CGT Works
How it works
When you dispose of a depreciating asset — by selling, scrapping, losing, or giving it away — two separate tax consequences can arise. The first is a balancing adjustment under Division 40 of the ITAA 1997, which produces assessable income or an allowable deduction (not a capital gain). The second is CGT event K7 under section 104-235, which captures a capital gain or loss on the private-use portion of the asset.
The balancing adjustment compares the asset's termination value (usually the sale price) to its adjustable value (the original cost minus all decline in value deductions claimed). If the termination value is higher, the excess is assessable income — but only the portion attributable to taxable (business) use. If the adjustable value is higher, you can claim a deduction for the shortfall. Under section 118-24, capital gains on depreciating assets are generally disregarded because the balancing adjustment already handles the business-use portion.
CGT event K7 fills the gap by taxing the private-use portion. It applies when the asset was used partly for private purposes and the termination value exceeds the original cost. The gain equals the difference between termination value and cost, multiplied by the lifetime average private-use fraction. This K7 gain is a capital gain — not ordinary income — so it is eligible for the 50% CGT discount if you held the asset for more than 12 months (companies excluded).
When to use this calculator
- You are selling or scrapping a work vehicle, equipment, or machinery that was partly used for private purposes
- You want to calculate the balancing adjustment on a depreciating asset to see if you have assessable income or a deduction
- You need to work out whether CGT event K7 applies to the private-use portion of an asset
- You disposed of a Division 43 capital works asset (building or structural improvement) and need to understand the cost base reduction for depreciation claimed
- You want to see how the motor vehicle cost limit ($69,674 for 2024–25 and 2025–26) caps your calculations for a car
Key concepts
- Balancing adjustment
- The difference between an asset's termination value and its adjustable value at the time of disposal, reduced by the taxable-use proportion. A positive result is assessable income; a negative result is an allowable deduction. This is ordinary income — not a capital gain — and is handled under Division 40.
- CGT event K7
- A capital gain event that applies to the private-use portion of a depreciating asset. It is triggered when the termination value exceeds the original cost. The gain equals (termination value − cost) × private-use proportion. Unlike the balancing adjustment, a K7 gain is a capital gain and may qualify for the CGT discount.
- Taxable-use proportion
- The ratio of depreciation deductions actually claimed to the total decline in value over the asset's life. If you claimed 70% of the total decline (because 70% was business use), the balancing adjustment is reduced to 70%. The remaining 30% is the private-use proportion handled by CGT event K7.
- Motor vehicle cost limit
- For cars, the cost base for depreciation and K7 purposes is capped at $69,674 (2024–25 and 2025–26). If you paid more than this for a car, the excess is not depreciable and is excluded from the K7 calculation. This limit is set by the ATO each financial year.
Worked example — selling a work vehicle with mixed use
Tom bought a ute in July 2021 for $58,000 and used it 70% for his landscaping business and 30% privately. Over 4.5 years he claimed total decline in value deductions of $38,000 (representing the business-use portion of the total $54,286 decline). He sold the ute in January 2026 for $32,000.
| Step | Detail | Amount |
|---|---|---|
| Balancing adjustment | ||
| Adjustable value | $58,000 − $54,286 total decline | $3,714 |
| Raw balance | $32,000 − $3,714 | $28,286 |
| Taxable-use proportion | $38,000 ÷ $54,286 | 70% |
| Assessable income (Div 40) | $28,286 × 70% | $19,800 |
| CGT event K7 | ||
| Termination value − cost | $32,000 − $58,000 | −$26,000 |
| K7 result | Negative — no K7 gain | $0 |
Because the sale price ($32,000) is less than the original cost ($58,000), CGT event K7 does not produce a gain. Tom includes $19,800 as assessable income from the balancing adjustment. If Tom had sold the ute for $65,000 (above cost), the K7 calculation would be: ($65,000 − $58,000) × 30% = $2,100 capital gain, eligible for the 50% CGT discount because he held the asset for more than 12 months.