Capital Gains Documentation

John Ralls jralls at
Thu Oct 27 22:43:15 EDT 2016

> On Oct 27, 2016, at 6:19 PM, DaveC49 <davidcousens at> wrote:
> Hi John,
> I can't really answer your question on how many clients would use a
> revauation model. I'm a retired physicist who did a Masters in Accounting
> after taking an early retirement 12 years ago and started a business (not
> accounting),  but I don't actually practise as an accountant. I was not very
> happy with accounting advice i received while running my business and ended
> up doing the Masters so I had a better understanding.  I am now fully
> retired which gives me the opportunity to do a fair bit of research and
> fortunately our governments (federal and state)  here have a policy of
> having all legislation and regulations freely available online which makes
> it easier to research albeit tedious at times. I also stay in touch through
> my daughter who is a practising accountant for a large local company.
> I personally would only choose to use a revaluation model in circumstances
> where an asset was appreciating in value or likely to over the longer term,
> e.g. for land or land and buildings and the costs associated with obtaining
> regular valuations were considerably less than the gains in value. For a
> business there has to be a financial advantage in choosing a revaluation
> model over a standard depreciation and write off at the end of useful life. 
> It is not clear from the standards alone here whether a business could
> choose to change the model they choose over time as that is also heavily
> affected by the taxation legislation and regulations which can proscribe
> what models can be used, parameters for the model and in what circumstances,
> at least for taxation purposes.
> I wouldn't mind getting involved in helping with documentation. I found when
> I first started using accounting packages (MYOB on the advice of my
> accountant at the time) about 17 years ago, that gaining a good
> understanding of accounting was a lot more complicated than simply
> understanding how the program worked. Understanding why was often just as
> important as how to do it. I transitioned to Gnucash around 8 years ago and
> used it for both small business and personal finances.
> I think it would be good to keep a general section on Capital Gains in the
> tutorial and concepts guide as is fairly widely applicable in many
> jurisdictions. What you need to do in business accounting is often
> proscribed by legislation and regulation and most people using it for
> business purposes do have access to  professional accountants in their
> jurisdiction. For personal accounting it is still relevant as governments
> try to increase their tax take and private assets are increasingly subject
> to capital gains taxes. In Australia, for example, only a main residence is
> usually exempt and investment properties are not. If you rent a property you
> purchased as a main residence and lived in for a period you can rent it for
> up to 6 years before becoming liable for CGT. If you have to move for a job
> and rent a residence it eventually becomes liable for CGT. There are also
> partial exemptions in some circumstances where you haven't had a property as
> a main residence before renting it. Extremely complicated but it does mean
> that a homeowner can be subjected to CGT in some circumstances.  CGT is also
> applied to bots, paintings and other personal assets.  
> My point I guess is that someone doing personal finances is also likely to
> need to know how to deal with capital gains at least in some general sense
> or at least recording information so they can assess whether they are
> liable. The detailed accounting may vary in various jurisdictions but the
> general concepts should be able to be illustrated. Not everyone dealing with
> CGT on personal possessions would necessarily look for it under Share
> Trading if they are not actively involved in stock and commodity
> investments.  
> I think it is possible to modify the CG section to correct some of the
> problems you identified and emphasize that any approach suggested is largely
> jurisdiction independent general concepts and users should check their local
> requirements carefully and modify the presented treatment accordingly.  I
> don't think it is necessary to illustrate the mixed gains/depreciation cases
> in a concepts guide but possibly just indicate that both appreciation and
> depreciation may apply in some cases. Anyone that really has a mixed
> appreciation/depreciation case should be seeking professional advice in any
> case. I am using the term appreciation here in a general sense where both
> increase and decreases in value are included and separate to depreciation
> over a limited specific lifetime.



>From past experience with users it seems that nearly all experience capital gains and losses in the context of securities investing and occasionally in terms of selling a residence. Other fixed assets seem to be handled according to the "cost model" rules you explained earlier. 

Those bits are already explained in other sections of the Guide, so the only part of the Capital Gains chapter that's not already covered is unrealized gains according to the revaluation model, and I'm inclined not to explain it because there are so many variables (Income/Expense vs. Equity being the most significant). It might be worth mentioning as an "oh by the way" in the business section about depreciation along the lines of "There exists an alternate way of accounting for fixed assets wherein the assets are re-valued periodically instead of depreciated. The rules on this vary substantially depending on the circumstances and the nature of your business, so if you find yourself
needing to do this obtain professional advice on setting up your chart of accounts and the procedures you should follow." As you observe, learning the rules is a lot harder than learning to use any software, and in my experience it's well worth paying a pro a few hundred for some advice. Much cheaper than the fines from the tax folks if you screw it up or getting a master's degree.

John Ralls

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