“(3) For the purposes of this section, a person, either alone or together with associates, controls a company if:

(a) the person, either alone or together with associates:

(i) controls or is capable of controlling, either directly or through one or more interposed companies, partnerships or trusts, at least 50% of the maximum number of votes that might be cast at a general meeting of the company; or

(ii) is beneficially entitled to receive, directly or indirectly, at least 50% of any dividends that are or might be paid, or of any distribution of capital that is or may be made, by the company; or

(iii) is capable, under a scheme, of gaining such control or such an entitlement; or

(b) the company or its directors are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the person, either alone or together with associates.

“(4) Section 159gzh applies for the purposes of this section in determining the beneficial entitlement of a person to receive indirectly the whole or a particular fraction of a dividend that is, or might be, paid by a company or of a distribution of capital of a company.

“(5) In this section:

‘associate’ has the same meaning as in subsection 26aab (14);

‘scheme’ means:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct, whether there are 2 or more parties or only one party involved.”.

Exemption of certain pensions

6. Section 23ad of the Principal Act is amended:

(a) by omitting “relative” from paragraph (b) of the definition of “carer’s pension” in subsection (1) and substituting “severely handicapped veteran”;

(b) by omitting “or a relative of the person” from subparagraph (ii) of the definition of “excepted payment” in subsection (i) and substituting “, a relative of the person or the veteran being cared for by the person”;

(d) by omitting “or a relative of a person” from paragraph (c) of

the definition of “excepted pension” in subsection (1) and substituting a relative of a person or the veteran being cared for by a person”;

(e) by adding “or” at the end of paragraph (a) of the definition of “wife’s pension” in subsection (1);

(f) by omitting “or” from the end of paragraph (b) of the definition of “wife’s pension” in subsection (1);

(g) by omitting paragraph (c) of the definition of “wife’s pension” in subsection (1).

Assessable income to include annuities and superannuation pensions

7. Section 27h of the Principal Act is amended:

(a) by omitting from paragraph (3) (d) “approved” (wherever occurring);

(b) by omitting the definition of “approved actuary” from subsection (4);

“ ‘actuary’ means a Fellow or Accredited Member of the Institute of Actuaries of Australia;”.

Expenditure on research and development activities

8. (1) Section 73b of the Principal Act is amended by inserting after paragraph (a) of the definition of “aggregate research and development amount” in subsection (1) the following paragraph:

“(aa) the core technology expenditure incurred by the company during the year of income;”.

(2) Section 73b of the Principal Act is amended by inserting in subsection (1) the following definitions:

“ ‘core technology’, in relation to research and development activities, means technology that is core technology in relation to those activities as provided by subsection (lab);

‘core technology expenditure’, in relation to an eligible company, means expenditure incurred by the company after 7 September 1989 and before the end of the deduction period in acquiring, or in acquiring the right to use, technology for the purposes of research and development activities carried on by or on behalf of the company, being technology that is core technology in relation to those activities;

‘knowledge’ means any knowledge or other information, whether or not the possessor of the knowledge or information has legally enforceable rights in relation to it;

‘technology’ means knowledge or anything produced by the application of knowledge;”.

(3) Section 73b of the Principal Act is amended by inserting “core technology expenditure or” after “other than” in the definition of “research and development expenditure” in subsection (1).

(4) Section 73b of the Principal Act is amended by inserting 73ca” after “73c” in subsection (1aa) and in paragraphs (3a) (c), (d) and (f).

(5) Section 73b of the Principal Act is amended by inserting after subsection (1aa) the following subsection:

“(1ab) For the purposes of this section, technology is core technology in relation to particular research and development activities if:

(a) the purpose of the activities was or is:

(i) to obtain new knowledge based on that technology; or

(ii) to create new or improved materials, products, devices, processes, techniques or services to be based on that technology; or

(b) the activities were or are an extension, continuation, development or completion of the activities that produced that technology.”.

(6) Section 73b of the Principal Act is amended by inserting after subsection (11) the following subsection:

“(12) Subject to this section, where an eligible company incurs core technology expenditure during a year of income, the amount of that expenditure is allowable as a deduction from the assessable income of the company of the year of income.”.

(7) Section 73b of the Principal Act is amended by inserting after subsection (27) the following subsections:

“(27a) Subject to subsections (27b) and (27c), where an eligible company that has incurred any expenditure on research and development activities in respect of which:

(a) a deduction under this section has been allowed or is allowable to the company; or

(b) in the case of a company whose income was exempt from tax when the expenditure was incurred—a deduction under this section would have been allowable if the company’s income had not been so exempt from tax;

receives or is entitled to receive:

(d) an amount attributable to the company having incurred the expenditure, including an amount that it is entitled to receive irrespective of the results of the activities;

the assessable income of the company of the year of income in which the company received or became entitled to receive that amount includes that amount.

“(27b) The reference in subsection (27a) to a company receiving or being entitled to receive an amount in respect of the results of any research and development activities includes a reference to:

(a) the company receiving or being entitled to receive an amount from the grant of access to, or the grant of a right to use, any of those results; and

(b) the company receiving or being entitled to receive an amount from the disposal of, or of an interest in, any plant (including pilot plant) or from the grant of a right to use any plant (including pilot plant) where, as a result of the disposal or grant, another person has acquired a right of access to, or a right to use, any of those results; and

(c) the company receiving or being entitled to receive an amount from the disposal of, or of an interest in, or from the grant of a right to occupy or use, a building where, as a result of the disposal or grant, another person has acquired a right of access to, or a right to use, any of those results;

but does not include a reference to the company receiving or being entitled to receive an amount in consequence of the use by the company of any of those results.

“(27c) Where a company receives or is entitled to receive an amount as mentioned in paragraph (27b) (b) or (c), the amount to be included in the company’s assessable income by virtue of subsection (27a) is:

(a) in a case to which paragraph (27b) (b) applies—only so much (if any) of the amount referred to in that paragraph as exceeds the cost to the company of acquiring or constructing the plant or pilot plant concerned; or

(b) in a case to which paragraph (27b) (c) applies—only so much (if any) of the amount referred to in that paragraph as exceeds the sum of the deductions that have been allowed or are allowable to the company under subsection (17) in relation to the building concerned.”.

(8) Section 73b of the Principal Act is amended by inserting after subsection (34) the following subsection:

“(35) If the Board gives to the Commissioner a certificate stating whether particular technology that a specified eligible company has acquired, or has acquired the right to use, for the purpose of particular research and development activities that have been or are being carried on by or on behalf of the company is core technology in relation to those activities, that certificate is binding on the Commissioner for the purpose of making an assessment of the company’s taxable income of any year of income in which the company incurred expenditure in acquiring that technology or the right to use that technology.”.

9. After section 73c of the Principal Act the following section is inserted:

Guaranteed returns to investors

“73ca. (1) For the purposes of interpretation, this section is to be read and construed as if it were part of section 73b.

“(2) Where:

(a) an amount or amounts would, but for this section and section 73d, be allowable as a deduction or deductions under section 73b as affected by section 73c to an eligible company in respect of expenditure incurred in a year of income; and

(b) that amount or the sum of those amounts exceeds the amount of the expenditure; and

(c) the Commissioner is satisfied that, when the expenditure was incurred, the company was not at risk in respect of the whole or a part of the expenditure;

the following provisions of this section have effect.

“(3) If the Commissioner is so satisfied in respect of the whole of the expenditure, the amount, or the sum of the amounts, referred to in paragraph (2) (a) is taken to be reduced by the amount of the excess referred to in paragraph (2) (b).

“(4) If the Commissioner is so satisfied in respect of part of the expenditure, the amount, or the sum of the amounts, referred to in paragraph (2) (a) is taken to be reduced by an amount ascertained in accordance with the formula:

where:

Excess means the amount of the excess referred to in paragraph (2) (b);

Part of expenditure not at risk means the part of the expenditure in respect of which the Commissioner is satisfied that the company was not at risk when the expenditure was incurred.

“(5) For the purposes of the application of this section in relation to any expenditure incurred by a company, the company is taken to have not been at risk at the time when the expenditure was incurred in respect of so much of the expenditure as does not exceed any consideration that, in the opinion of the Commissioner, because of:

(a) any act that occurred, transaction or agreement that was entered into, or circumstance that existed, before or at that time; or

(b) any act that was likely to occur, any transaction or agreement that was likely to be entered into, or any circumstance that was likely to exist, after that time;

the company or any associate of the company could reasonably have expected at that time to receive as the direct or indirect result of the incurring of the expenditure.

“(6) In this section:

‘agreement’ means any agreement, arrangement, understanding or scheme, whether formal or informal, whether express or implied, and whether or not intended to be enforceable by legal proceedings.”.

Reduction of deductions

10. Section 73d of the Principal Act is amended by omitting from subsection (2) “section 73c” and substituting “sections 73c and 73ca”.

Gifts, pensions etc.

11. Section 78 of the Principal Act is amended by omitting subparagraph (1) (a) (lxxxvi) and substituting the following subparagraph:

“(lxxxvi) the Australian Academy of Technological Sciences and Engineering Limited;”.

Transfer of loss within company group

12. Section 80g of the Principal Act is amended by inserting after paragraph (6) (b) the following paragraph:

“(ba) the loss company is not a dual resident investment company in relation to the loss year nor in relation to the income year;”.

Part applies in respect of disposals of assets

13. Section 160l of the Principal Act is amended:

(a) by adding “or” at the end of paragraphs (3) (a), (4) (a) and (a);

(b) by adding at the end of subsection (3) the following word and paragraph:

“; or (d) as a result of the disposal an amount has been or will be included in the assessable income of the taxpayer of any year of income by virtue of subsection 73b (27a).”;

“; or (d) as a result of the disposal an amount has been or will be included in the assessable income of the beneficiary, or the net income of the trust estate, of any year of income by virtue of subsection 73b (27a).”;

(d) by adding at the end of subsection (5) the following word and paragraph:

“; or (d) as a result of the disposal an amount has been or will be included in the assessable income of a partner in the partnership of any year of income by virtue of subsection 73b (27a).”;

(e) by adding at the end the following subsection

“(8) Where:

(a) an asset was disposed of by a taxpayer before 23 May 1986; and

(b) the asset was created after 19 September 1985 (whether the asset existed, either by itself or as part of another asset, before the disposal or was created by the disposal); and

(c) the asset consisted of a legal or equitable estate or interest in, or a right, power or privilege over, or in connection with, another asset that was acquired by that taxpayer before 20 September 1985;

this Part is taken not to have applied in respect of the disposal.”.

What constitutes a disposal or acquisition

14. Section 160m of the Principal Act is amended:

(a) by inserting after subsection (1) the following subsection:

“(1a) It is declared for the avoidance of doubt that a change in the legal ownership of an asset does not constitute a change in the ownership of the asset for the purposes of this Part unless there is also a change in the beneficial ownership of the asset.”;

(b) by inserting after subsection (7) the following subsection:

“(7a) Subsection (7) is taken not to have applied in relation to an act or transaction that took place in relation to an asset during the period that commenced on 20 September 1985 and ended on 22 May 1986, or an event affecting an asset that occurred during that period, if the person who received, or was entitled to receive, the amount of money or other consideration referred to in paragraph (7) (b) by reason of the act, transaction or event acquired the asset before 20 September 1985.”.

Disposals by bare trustees and persons enforcing securities

15. Section 160v of the Principal Act is amended by inserting after subsection (1) the following subsection:

“(1a) For the purposes of subsection (1), where a person holds an asset as trustee for another person, the other person is not taken not to be absolutely entitled to the asset as against the trustee merely because the other person is under a legal disability.”.

Reductions of capital gains in certain circumstances

16. Section 160za of the Principal Act is amended by omitting subsection (4) and substituting the following subsection:

“(4) Where:

(a) but for this subsection a capital gain (in this subsection called

the ‘notional capital gain’) would be deemed for the purposes of this Part to have accrued to a taxpayer during the year of income in respect of the disposal of an asset; and

(b) as a result of the disposal of the asset an amount or amounts (in this subsection called the ‘included amount’ or the ‘included amounts’) has or have been, or will be, included in the assessable income of the taxpayer in respect of any year of income under a provision of this Act other than this Part (not being an amount or amounts so included under a provision having effect where the taxpayer recoups capital expenditure which was incurred in respect of an asset and in respect of which a deduction has been allowed or is allowable to the taxpayer);

the following paragraphs have effect:

(c) if the notional capital gain exceeds the included amount or the sum of the included amounts—the amount of the capital gain that is deemed for the purposes of this Part to have accrued to the taxpayer during the year of income in respect of the disposal of the asset is an amount equal to the excess;

(d) if the notional capital gain does not exceed the included amount or the sum of the included amounts—no capital gain is deemed for the purposes of this Part to have accrued to the taxpayer during the year of income in respect of the disposal of the asset.”.

Exemption of certain gains and losses

17. Section 160zb of the Principal Act is amended by omitting subsection (6) and substituting the following subsection:

“(6) Where a taxpayer has disposed of a traditional security, within the meaning of section 26bb, that was acquired by the taxpayer after 10 May 1989 and:

(a) the security was not acquired by the taxpayer as consideration for the disposal after 15 August 1989 of an asset to which Part IIIa did not apply because of section 160zzo; or

(b) the security was not a debt whose cost base, indexed cost base or reduced cost base is reduced under subsection 160zp (13) because of the giving of a notice under paragraph 160zp (7) (c) after 15 August 1989;

a capital gain is not taken to have accrued to the taxpayer, and a capital loss is not taken to have been incurred by the taxpayer, as a result of the disposal of the security.”.

Consideration in respect of disposal

18. Section 160zd of the Principal Act is amended:

(a) by omitting from subsection (2) “to another person”;

(b) by omitting paragraph (2) (c) and substituting the following paragraph:

“(c) the amount that would, but for this paragraph, be taken to be the consideration received by the taxpayer in respect of the disposal is greater or less than the market value of the asset at the time of the disposal and, in the case where the asset was disposed of to another person, the taxpayer and that other person were not dealing with each other at arm’s length in connection with the disposal;”;

“(2a) For the purposes of the application of subsection (2) to the disposal of an asset otherwise than to another person, the market value of the asset at the time of the disposal is the amount that would have been the market value at that time if that disposal did not occur and was never proposed to occur.

“(2b) Subsection (2) does not apply in relation to a disposal constituted by the loss or destruction of an asset.”.

Cost base, indexed cost base and reduced cost base

19. Section 160zh of the Principal Act is amended:

(a) by inserting after “person” in paragraph (9) (a) “(not being an acquisition resulting from the doing by that other person of an act or thing that did not constitute a disposal of the asset by that other person for the purposes of this Part)”;

(b) by adding “or” at the end of paragraph (9) (a);

“(c) both of the following subparagraphs apply:

(i) the amount that would, but for this paragraph, be taken to be the consideration paid or given by the taxpayer in respect of the acquisition was:

(a) if the taxpayer acquired the asset as a result of the disposal of the asset by another person—greater or less than the market value of the asset at the time of the acquisition; or

(b) if the taxpayer acquired the asset as a result of the doing by another person of an act or thing that did not constitute a disposal of the asset by that other person for the purposes of this Part—greater than the market value of the asset at the time of the acquisition;

(ii) the taxpayer and the person from whom the taxpayer acquired the asset were not dealing with each other at arm’s length in connection with the acquisition;”.

Indexation of amounts for purposes of indexed cost base

20. Section 160zj of the Principal Act is amended by omitting subsections (4), (5) and (6) and substituting the following subsections:

“(3a) Where, in respect of an asset, a taxpayer has paid or given or is required to pay or give any consideration referred to in paragraph 160zh (2) (a), the indexed amount of the consideration in respect of the acquisition of the asset is the amount or the total of the amounts calculated as follows:

(a) if the taxpayer acquired the asset:

(i) as a result of the doing by a person of an act that did not constitute a disposal of the asset for the purposes of this Part; or

(ii) from a person to whose acquisition of the asset subparagraph (i) or this subparagraph applied;

the indexed amount of so much of the consideration as was required to be paid to the person referred to in subparagraph (i) (in this paragraph called the ‘relevant consideration’) is the sum of the amounts ascertained under whichever of the following subparagraphs is or are applicable:

(iii) where the whole or a part of the amount of the relevant consideration was paid or given at or before the time of the acquisition—that amount, or that part of that amount, as the case may be, multiplied by the factor ascertained in accordance with subsections (5) and (6) in relation to that amount or that part of that amount;

(iv) where the whole or a part of the amount of the relevant consideration was paid or given at a later time—that amount or that part of that amount, as the case may be, multiplied by the factor ascertained in accordance with subsections (5a) and (6) in relation to that amount or that part of that amount;

(v) where the whole or a part of the amount of the relevant consideration has not been paid or given—that amount or that part of that amount;

and the indexed amount of the remainder of the consideration is the amount of that remainder multiplied by the factor ascertained in accordance with subsections (5) and (6) in relation to that amount; and

(b) if the taxpayer did not acquire the asset as mentioned in paragraph (a), the indexed amount of the consideration is the amount of the consideration multiplied by the factor ascertained in accordance with subsections (5) and (6) in relation to that amount.

“(4) Where, in respect of an asset, a taxpayer has incurred any costs referred to in paragraph 160zh (2) (b) or (e) or any expenditure

referred to in paragraph 160zh (2) (c) or (d), the reference in paragraph 160zh (2) (b) or (e) to the indexed amount of the costs, or the reference in paragraph 160zh (2) (c) or (d) to the indexed amount of the expenditure, in relation to the asset is a reference to the amount of the costs or the amount of the expenditure, as the case may be, multiplied by the factor ascertained in accordance with subsections (5) and (6) in relation to that amount.

“(5) The factor to be ascertained for the purposes of subparagraph (3a) (a) (iii), paragraph (3a) (b) or subsection (4) in relation to an amount of consideration, an amount of costs or an amount of expenditure is:

(a) the number (calculated to 3 decimal places) ascertained by dividing the index number in respect of the quarter of the year in which the asset was disposed of by the taxpayer by the index number in respect of the quarter of the year in which the liability to pay or give the consideration arose, the costs were incurred or the expenditure was incurred, as the case may be; or

(b) the number 1;

whichever is the higher number.

“(5a) The factor to be ascertained for the purposes of subparagraph (3a) (a) (iv) in relation to an amount of consideration is:

(b) the number 1;

whichever is the higher number.

“(6) Where the factor ascertained in accordance with subsection (5) or (5a) in relation to any amount would, if it were calculated to 4 decimal places, end with a number greater than 4, that factor is to be taken to be the factor calculated to 3 decimal places in accordance with that subsection and increased by 0.001.”.

Return of capital on shares

21. Section 160zl of the Principal Act is amended by omitting subsection (4) and substituting the following subsection:

“(4) If the taxpayer disposed of the shares (otherwise than because of the application of this section) within 12 months after the taxpayer acquired the shares (otherwise than because of the application of this section), subsections (2) and (3) have effect as if the references in those subsections to the indexed cost base to the taxpayer in respect of the shares were references to the cost base to the taxpayer in respect of those shares.”.

Return of capital on investment in trust

22. Section 160zm of the Principal Act is amended by omitting subsection (4) and substituting the following subsection:

“(4) If the taxpayer disposed of the interest or units (otherwise than because of the application of this section) within 12 months after the taxpayer acquired the interest or units (otherwise than because of the application of this section), subsections (2) and (3) have effect as if the references in those subsections to the indexed cost base to the taxpayer in respect of the interest or units were references to the cost base to the taxpayer in respect of the interest or units.”.

Transfer of net capital loss within company group

23. (1) Section 160zp of the Principal Act is amended by inserting after paragraph (7) (b) the following paragraph:

“(ba) the loss company is not a dual resident investment company in relation to the loss year nor in relation to the gain year;”.

(2) Section 160zp of the Principal Act is amended by inserting after subsection (7) the following subsections:

“(7a) Subject to subsection (7b), where an amount is specified in a notice given by the loss company and the gain company under paragraph (7) (c) stating that the whole or a part of a net capital loss should be treated as a capital loss incurred by the gain company during the gain year:

(a) if, at the time when the notice was given:

(i) no company that is a group company in relation to the loss company in relation to the gain year held shares in the loss company that were acquired by that group company after 19 September 1985; and

(ii) the loss company was not, in respect of any loan made to the loss company, indebted to a company that is a group company in relation to the loss company in relation to the gain year in respect of an indebtedness that commenced to be owed after 19 September 1985;

this section has effect as if the notice had not been given; or

(b) if paragraph (a) does not apply and the amount specified in the notice exceeds the sum of:

(i) if any company or companies (in this subparagraph called the ‘parent company’ or ‘parent companies’) which, or each of which, is a group company in relation to the loss company in relation to the gain year held, at the time when the notice was given, shares in the loss company that were acquired by the parent company or parent companies after 19 September 1985—the amount that, if the shares were disposed of at that time, would have been the cost base to the parent company, or the sum of

the cost bases to the parent companies, as the case may be, of the shares; and

(ii) if, at the time when the notice was given, the loss company was, in respect of a loan or loans made to the loss company, indebted to a company or companies (in this subparagraph called the ‘creditor company’ or ‘creditor companies’) which, or each of which, is a group company in relation to the loss company in relation to the gain year, being an indebtedness that commenced to be owed to the creditor company or creditor companies after 19 September 1985—the amount that, if the debt or debts were disposed of at that time, would have been the cost base to the creditor company or the sum of the cost bases to the creditor companies, as the case may be, of the debt or debts;

the amount specified in the notice is taken to be reduced by the excess.

“(7b) Subsection (7a) does not apply in relation to a notice given by the loss company and the gain company under paragraph (7) (c) if the gain company is a subsidiary of the loss company.”.

(3) Section 160zp of the Principal Act is amended by adding at the end the following subsection:

“(13) Where:

(a) an amount has been specified by the loss company in a notice under paragraph (7) (c); and

(b) either:

(i) a company (in this subsection called a ‘parent company’) that is a group company in relation to the loss company in relation to the gain year holds shares in another company that is such a group company, being shares that were acquired by the parent company after 19 September 1985; or

(ii) a company (in this subsection called a ‘creditor company’) that is a group company in relation to the loss company in relation to the gain year is owed a debt by another company that is such a group company in respect of a loan made to that other company, being a debt that commenced to be owed to the creditor company after 19 September 1985; and

(i) the other company referred to in subparagraph (b) (i) or (ii) as the case may be, is the loss company; or

(ii) the money paid to acquire the shares or the money lent, as the case may be, has indirectly, through one or more interposed companies, trusts or partnerships, been applied

in the acquisition of shares in the loss company by a company that is a group company in relation to the loss company in relation to the gain year or in the making of a loan to the loss company by a company that is such a group company;

the cost base, the indexed cost base or the reduced cost base, as the case may be, to the parent company of the shares or to the creditor company of the debt is reduced by such amount as is appropriate having regard to the direct or indirect interest of the parent company or creditor company in the loss company.”.

Application

24. Section 160zyk of the Principal Act is amended by omitting paragraph (b) and substituting the following paragraph:

“(b) both of the following subparagraphs apply:

(i) a company (in this paragraph called the ‘issuing company’) issues to the shareholder rights (in this Division called the ‘rights’) to acquire shares (in this Division called the ‘new shares’) in the issuing company or to acquire an option (in this Division called the ‘option’) to acquire shares in the issuing company;

(ii) either:

(a) the issuing company is the company referred to in paragraph (a); or

(b) the issuing company is, or but for the issuing of the rights would be, another company that is, for the purposes of section 160zzo, a group company in relation to the company referred to in paragraph (a) in relation to the year of income in which the rights are issued; and”.

Application

25. Section 160zyr of the Principal Act is amended by omitting paragraph (b) and substituting the following paragraph:

“(b) both of the following subparagraphs apply:

(i) a company (in this paragraph called the ‘issuing company’) issues to the shareholder an option (in this Division called the ‘option’) to acquire shares (in this Division called the ‘new shares’) in the issuing company;

(ii) either:

(a) the issuing company is the company referred to in paragraph (a); or

(b) the issuing company is, or but for the issuing of the option would be, another company that is, for the purposes of section 160zzo, a group company in relation to the company referred to

in paragraph (a) in relation to the year of income in which the option is issued; and”.

26. After section 160zyy of the Principal Act the following section is inserted:

Division not to apply to traditional securities

“160zyya. This Division does not apply in relation to a convertible note that is a traditional security within the meaning of section 26bb.”.

27. After section 160zzba of the Principal Act the following section is inserted:

Division not to apply to traditional securities

“160zzbaa. This Division does not apply in relation to a convertible note that is a traditional security within the meaning of section 26bb.”.

28. After Division 12a of Part IIIa of the Principal Act the following Division is inserted:

“Division 12b—Convertible Notes that are Traditional Securities

Conversion of notes into shares

“160zzbe. (1) In this section:

‘convertible note’ means a convertible note within the meaning of Division 12 that is a traditional security within the meaning of section 26bb.

“(2) A taxpayer who acquired shares by the conversion of a convertible note acquired after 10 May 1989 and on or before 15 August 1989 is taken, for the purposes of this Part, to have paid as consideration in respect of the acquisition of the shares an amount equal to:

(a) if the market value of the shares at the time of the conversion is not less than the sum of the consideration paid or given for the acquisition of the convertible note and the amount paid by the taxpayer in respect of the conversion—that market value; or

(b) if the market value of the shares at the time of the conversion is less than that sum—the consideration that would be deemed to have been paid or given in respect of the acquisition of the shares under section 160zza if Division 12 had applied in relation to the convertible note.

“(3) A taxpayer who acquired shares by the conversion of a convertible note acquired after 15 August 1989 is taken, for the purposes of this Part, to have paid as consideration in respect of the acquisition

of the shares an amount equal to the market value of the shares at the time of the conversion.

Conversion of notes into units

“160zzbf. (1) In this section:

‘convertible note’ means a convertible note within the meaning of Division 12a that is a traditional security within the meaning of section 26bb.

“(2) A taxpayer who acquired units by the conversion of a convertible note acquired after 10 May 1989 and on or before 15 August 1989 is taken, for the purposes of this Part, to have paid as consideration in respect of the acquisition of the units an amount equal to:

(a) if the market value of the units at the time of the conversion is not less than the sum of the consideration paid or given for the acquisition of the convertible note and the amount paid by the taxpayer in respect of the conversion—that market value; or

(b) if the market value of the units at the time of the conversion is less than that sum—the consideration that would be deemed to have been paid or given in respect of the acquisition of the units under section 160zza if Division 12a had applied in relation to the convertible note.

“(3) A taxpayer who acquired units by the conversion of a convertible note acquired after 15 August 1989 is taken, for the purposes of this Part, to have paid as consideration in respect of the acquisition of the units an amount equal to the market value of the units at the time of the conversion.”.

Options

29. Section 160zzc of the Principal Act is amended:

(a) by omitting from subsection (3) “subsection (3a)” and substituting “subsections (3a), (3aa) and (3ab)”;

(b) by inserting after subsection (3) the following subsections:

“(3aa) If an option was granted after 19 September 1985 but before 23 May 1986 that binds the grantor to dispose of an asset acquired before 20 September 1985, the grant of the option is not taken to have constituted the disposal of the option by the grantor but this subsection does not affect the operation of subsections (7) and (8) in relation to the option.

“(3ab) If an option was granted after 19 September 1985 but before 23 May 1986 that binds the grantor to acquire an asset and the option expires without being exercised or is cancelled, released or abandoned, the grant of the option is not taken to have constituted the disposal of the option by the grantor.”;

(d) by inserting after subparagraph (3a) (e) (ii) the following subparagraph:

“(iii) subsection 160zd (2) does not apply in respect of the disposal.”.

Transfer of asset to wholly-owned company

30. Section 160zzn of the Principal Act is amended:

(a) by omitting paragraph (2) (b) and substituting the following paragraphs:

“(b) subject to subsection (5a), the consideration in respect of the disposal consists only of non-redeemable shares in the company;

(ba) the market value of the shares is substantially the same as the market value of the asset, reduced, if the company assumes in connection with the disposal a liability or liabilities in respect of the asset, by the amount of the liability or the total of the amounts of the liabilities;”;

(b) by omitting paragraph (4) (b) and substituting the following paragraphs:

“(b) subject to subsection (5a), the consideration in respect of the disposal consists only of non-redeemable shares in the company;

“(5a) The consideration in respect of the disposal of an asset is not taken not to consist only of non-redeemable shares in the company merely because the company assumes in connection with the disposal a liability or liabilities in respect of the asset but, if the company so assumes such a liability or liabilities, neither subsection (2) nor subsection (4) applies in relation to the disposal unless:

(a) if the asset was acquired by the taxpayer before 20 September 1985—the amount of the liability or the total of the amounts of the liabilities does not exceed the market value of the asset at the time of the disposal; or

(b) if the asset was acquired by the taxpayer on or after 20 September 1985—the amount of the liability or the total of the amounts of the liabilities does not exceed the amount that, if this Part had applied in respect of the disposal of the asset by the taxpayer to the company, would have been:

(i) if the asset was disposed of within the period of 12 months after the day on which the asset was acquired by the taxpayer—the cost base to the taxpayer of the asset; or

(ii) if the asset was disposed of after that period—the indexed cost base to the taxpayer of the asset.”;

(d) by omitting from subsection (7) “or securities” (wherever occurring);

(e) by inserting after “company” in subparagraph (7) (b) (i) reduced, if the company assumed in connection with the disposal a liability or liabilities in respect of the asset, by the amount of the liability or the total of the amounts of the liabilities”;

(f) by adding at the end of subparagraph (7) (b) (ii) “, reduced, if the company assumed in connection with the disposal a liability or liabilities in respect of the asset, by the amount of the liability or the total of the amounts of the liabilities”;

(g) by omitting from subsection (8) “or securities” (wherever occurring).

Transfer of asset between companies in the same group

31. Section 160zzo of the Principal Act is amended:

(a) by inserting after paragraph (1) (a) the following paragraphs:

“(aa) subject to subsection (2a), the consideration in respect of the disposal consists only of:

(i) if the transferor is prohibited by law from acquiring shares in the transferee securities of the transferee or

(ii) otherwise—non-redeemable shares in or securities of the transferee;

(ab) the market value of the shares or securities is substantially the same as the market value of the asset, reduced, if the transferee assumes in connection with the disposal a liability or liabilities in respect of the asset, by the amount of the liability or the total of the amounts of the liabilities;

(ac) the market value of the asset at the time of the disposal is not less than the amount that would have been the reduced cost base to the transferor of the asset for the purposes of this Part if this Part had applied in respect of the disposal;”;

(b) by inserting after subsection (2) the following subsections:

“(2a) The consideration in respect of the disposal of an asset is not taken not to consist only of securities of, or only of non-redeemable shares in or securities of, as the case may be,

the transferee merely because the transferee assumes in connection with the disposal a liability or liabilities in respect of the asset but, if the transferee so assumes such a liability or liabilities, subsection (1) does not apply in relation to the disposal unless:

(a) where the asset was acquired by the transferor before 20 September 1985—the amount of the liability or the total of the amounts of the liabilities does not exceed the market value of the asset at the time of the disposal; or

(b) where the asset was acquired by the transferor on or after 20 September 1985—the amount of the liability or the total of the amounts of the liabilities does not exceed the amount that, if this Part had applied in respect of the disposal, would have been:

(i) where the asset was disposed of within 12 months after the day on which the asset was acquired by the transferor—the cost base to the transferor of the asset; or

(ii) where the asset was disposed of later than 12 months after that day—the indexed cost base to the transferor of the asset.

“(2b) The shares or securities that constituted the consideration for the disposal:

(a) are, where the asset was acquired by the transferor before 20 September 1985, taken for the purposes of this Part to have been acquired by the transferor before that date; or

(b) are, where the asset was acquired by the transferor on or after 20 September 1985, taken for the purposes of this Part to have been acquired by the transferor for a consideration equal to:

(i) for the purpose of ascertaining whether a capital gain accrued to the transferor in the event of a subsequent disposal of the shares or securities by the transferor—the amount that would have been the indexed cost base to the transferor of the asset for the purposes of this Part if this Part had applied in respect of the disposal of the asset by the transferor to the transferee, reduced, if the transferee assumed in connection with the disposal a liability or liabilities in respect of the asset, by the amount of the liability or the total of the amounts of the liabilities; or

(ii) for the purpose of ascertaining whether the transferor incurred a capital loss in the event of a subsequent disposal of the shares or securities by

the transferor—the amount that would have been the reduced cost base to the transferor of the asset for the purposes of this Part if this Part had applied in respect of the disposal of the asset by the transferor to the transferee, reduced, if the transferee assumed in connection with the disposal a liability or liabilities in respect of the asset, by the amount of the liability or the total of the amounts of the liabilities.

“(2c) If, in the case of shares or securities to which paragraph (2b) (b) applies, the shares or securities are disposed of by the transferor within 12 months after the day on which the asset was acquired by the transferor, the reference in that paragraph to the indexed cost base to the transferor of the asset is a reference to the cost base to the transferor of the asset.”;

“(10) This section does not apply in respect of a disposal of an asset to which section 160zzoa applies.”.

32. After section 160zzo of the Principal Act the following section is inserted:

Transfer of asset from subsidiary to holding company for no consideration

“160zzoa. (1) Where:

(a) one of the following subparagraphs applies:

(i) a company (in this section called the ‘transferor’) that, at the time of the disposal concerned, was a resident of Australia has, after 15 August 1989, disposed of an asset to another company (in this section called the ‘transferee’) that was a resident of Australia at that time;

(ii) a company (in this section also called the ‘transferor’) that was not a resident of Australia at the time of the disposal concerned has, after 15 August 1989, disposed of a taxable Australian asset to another company (in this section also called the ‘transferee’) that was a resident of Australia at that time;

(iii) a company (in this section also called the ‘transferor’) has, after 15 August 1989, disposed of a taxable Australian asset to another company (in this section also called the ‘transferee’) that was not a resident of Australia at the time of the disposal and, immediately after the disposal, the asset was a taxable Australian asset of the transferee; and

(b) the transferor was a subsidiary of the transferee:

(i) during the whole of the year of income in which the disposal took place; or

(ii) if the transferor or the transferee was not, or both the transferor and the transferee were not, in existence during part of that year of income—during that part of that year of income during which both the transferor and the transferee were in existence; and

(c) the market value of the asset at the time of the disposal was not less than the amount that would have been the reduced cost base to the transferor of the asset for the purposes of this Part if this Part had applied in respect of the disposal; and

(d) the transferee did not pay or give any consideration in respect of the disposal other than consideration constituted by assuming any liability or liabilities in respect of the asset; and

(e) the transferee is not a person whose income of the year of income in which the disposal took place is exempt from tax by virtue of a relevant exempting provision; and

(f) the transferor and the transferee have, by notice in writing given to the Commissioner on or before the date of lodgment of the return of income of the transferor for the year of income in which the disposal took place, or within such further period as the Commissioner allows, elected that this section is to apply in respect of the disposal;

this Part (other than this section) does not apply in respect of the disposal and:

(g) if the asset was acquired by the transferor before 20 September 1985—the transferee is taken to have acquired the asset before that date; or

(h) if the asset was acquired by the transferor on or after 20 September 1985, the transferee is taken to have paid as consideration in respect of the acquisition of the asset an amount equal to:

(i) for the purpose of ascertaining whether a capital gain accrued to the transferee in the event of a subsequent disposal of the asset by the transferee—the amount that would have been the indexed cost base to the transferor of the asset for the purposes of this Part if this Part had applied in respect of the disposal of the asset by the transferor to the transferee; or

(ii) for the purpose of ascertaining whether the transferee incurred a capital loss in the event of a subsequent disposal of the asset by the transferee—the amount that would have been the reduced cost base to the transferor of the asset for the purposes of this Part if this Part had applied in respect of the disposal of the asset by the transferor to the transferee.

“(2) If, in the case of an asset to which paragraph (1) (h) applies, the asset is disposed of by the transferee within 12 months after the day on which the asset was acquired by the transferor, the reference in that paragraph to the indexed cost base to the transferor of the asset is taken to be a reference to the cost base to the transferor of the asset.

“(3) If, after the acquisition of the asset by the transferee:

(a) any shares in the transferor (being shares acquired by the holder of the shares on or after 20 September 1985) are disposed of; or

(b) a debt owed by the transferor (being a debt acquired by the creditor on or after 20 September 1985) is disposed of;

the cost base, the indexed cost base or the reduced cost base of the shares or debt to the holder of the shares or the creditor, as the case may be, is reduced by such amount as is reasonable having regard to the reduction in the value of those shares or of that debt resulting from the disposal of the asset, being a reduction in value calculated by reference to:

(c) if the asset was acquired by the transferor before 20 September 1985—the market value of the asset at the time of the disposal less, if the transferee assumed in connection with the disposal any liability or liabilities in respect of the asset, the amount of that liability or the total of the amounts of those liabilities; or

(d) if the asset was acquired by the transferor on or after 20 September 1985—the amount that, if this Part had applied to the disposal of the asset by the transferor to the transferee, would have been:

(i) for the purpose of the application of this subsection in ascertaining the reduction to be effected in the cost base of the shares or debt—the cost base to the transferor of the asset; or

(ii) for the purpose of the application of this subsection in ascertaining the reduction to be effected in the indexed cost base of the shares or debt—the indexed cost base to the transferor of the asset; or

(iii) for the purpose of the application of this subsection in ascertaining the reduction to be effected in the reduced cost base of the shares or debt—the reduced cost base to the transferor of the asset;

less, if the transferee assumed in connection with the disposal any liability or liabilities in respect of the asset, the amount of that liability or the total of the amounts of those liabilities.

“(4) Where, if:

(a) any shares in the transferor (being shares acquired by the holder of the shares on or after 20 September 1985); or

(b) a debt owed by the transferor (being a debt acquired by the creditor on or after 20 September 1985);

were disposed of at the time immediately after the acquisition by the transferee of the asset, the amount of the reduction applicable in relation to the shares or debt under subsection (3) would exceed the indexed cost base of the shares or debt, as the case may be, to the holder of the shares or the creditor, a capital gain equal to the excess is taken to have accrued to the holder or creditor at that time.

“(5) If a holder of shares or creditor referred to in subsection (4) acquired any of those shares, or acquired the debt, within 12 months before the asset was acquired by the transferee, that subsection has effect in relation to those last-mentioned shares or- in relation to the debt as if the reference in that subsection to the indexed cost base of the shares or debt to the holder of the shares or the creditor were a reference to the cost base of the shares or debt to the holder of the shares or the creditor, as the case may be.

“(6) Subsections 160zzo (4) to (9), inclusive, have effect for the purposes of this section as they have effect for the purposes of section 160zzo”.

33. After section 160zzpf of the Principal Act the following sections are inserted:

Strata title conversions

“160zzpg. (1) This section applies where:

(a) under a strata title law of a State or Territory or of a foreign country, land on which is erected one or more buildings is or was subdivided into stratum units, or into stratum units and common property; and

(b) immediately before the subdivision, a taxpayer (in this section called the ‘converting taxpayer’) held a particular asset (in this section called the ‘original asset’), being an asset in relation to the land.

“(2) If:

(a) the converting taxpayer has elected that this subsection is to apply to the taxpayer in respect of the subdivision; and

(b) the Commissioner is satisfied, having regard to the following matters:

(i) the extent (if any) to which any interests in relation to the stratum units are or were held by persons who did not hold assets in relation to the land immediately before the subdivision;

(ii) the extent (if any) to which the rights of occupancy in relation to the stratum units differ from the rights of occupancy held immediately before the subdivision;

(iii) any other matters that the Commissioner considers relevant;

that it is appropriate to grant CGT roll-over relief in relation to the taxpayer in respect of the subdivision;

the Commissioner must take such steps as are necessary to grant CGT roll-over relief in relation to the taxpayer in respect of the subdivision.

“(3) The steps that the Commissioner may take include:

(a) if the taxpayer disposed of an original asset—treating the original asset as if this Part did not apply in respect of the disposal; or

(b) if an original asset was acquired by the taxpayer before 20 September 1985—treating a particular asset held by the taxpayer as having been acquired by the taxpayer before 20 September 1985; or

(c) if an original asset was acquired by the taxpayer on or after 20 September 1985—treating the taxpayer as having paid, as consideration in respect of the acquisition of a particular asset held by the taxpayer, an amount equal to:

(i) for the purpose of ascertaining whether a capital gain accrued to the taxpayer in the event of a subsequent disposal of the asset by the taxpayer—such amount as is ascertained in a manner that the Commissioner determines to be appropriate; or

(ii) for the purpose of ascertaining whether the taxpayer incurred a capital loss in the event of the subsequent disposal of the asset by the taxpayer—such amount as is ascertained in a manner that the Commissioner determines to be appropriate.

“(4) A determination under paragraph (3) (c) may provide for the amount concerned to be ascertained in a different manner in different circumstances.

“(5) An election for the purposes of subsection (2) is to be in writing and lodged with the Commissioner on or before the date of lodgment of the taxpayer’s return of income of the later of the following years of income:

(a) the year of income in which the subdivision concerned occurred;

(b) the year of income in which this section commenced; or within such further period as the Commissioner allows.

“(6) A reference in this section to an asset in relation to land includes a reference to a share in a company that owns a legal or equitable estate or interest in the land, being a share that entitles the holder to a right of occupancy to, or to a part of, a building erected on the land.

“(7) In this section:

‘strata title law’ means a law relating to strata title, group title, cluster title, unit title or similar title;

‘stratum unit’, in relation to a strata title law, means a lot or unit (however described in that law).

Conversion of incorporated association to company incorporated under company law

“160zzph. (1) This section applies where:

(a) company that is not incorporated under company law does any act or thing that results in the company becoming a company incorporated under company law at a particular time (in this section called the ‘conversion time’) without the creation of a new legal entity; and

(b) immediately before the conversion time, each of 2 or more taxpayers (in this section called the ‘converting taxpayers’) held a particular asset (in this section called the ‘original asset’), being an interest of a member in, or in relation to, the company; and

(c) at or about the conversion time, the company issued shares (in this section called the ‘new shares’) to each converting taxpayer; and

(d) the original assets held by each converting taxpayer were disposed of at or about the conversion time; and

(e) the consideration in respect of each of the disposals consists only of the new shares.

“(2) If:

(a) either of the following conditions is satisfied in relation to a particular converting taxpayer:

(i) the taxpayer is a resident of Australia;

(ii) each disposal of an original asset by the taxpayer constitutes a disposal of a taxable Australian asset; and

(b) the taxpayer has elected that this subsection is to apply in respect of the disposal of all of the original assets held by the taxpayer; and

(i) the extent to which each converting taxpayer owned the new shares in the company in the same proportion as the taxpayer held the original assets in the company that were disposed of;

(ii) the extent (if any) to which the ratio worked out using the following formula:

where:

Market value of taxpayer’s original assets is the market value, as at a particular time, of the original assets held by the taxpayer;

Market value of total original assets is the market value, as at that time, of all of the original assets in the company held by all converting taxpayers;

differs from the ratio worked out using the following formula:

where:

Market value of taxpayer’s new shares is the market value, as at a particular time, of the new shares held by the taxpayer;

Market value of total new shares is the market value, as at that time, of all the new shares in the company held by all the converting taxpayers;

(iii) any other matters that the Commissioner considers relevant;

that it is appropriate to grant CGT roll-over relief in relation to the taxpayer in respect of the company becoming a company incorporated under company law;

the Commissioner must take such steps as are necessary to grant CGT roll-over relief in relation to the taxpayer in respect of the company becoming a company incorporated under company law.

“(3) The steps that the Commissioner may take include:

(a) treating an original asset as if this Part did not apply in respect of its disposal; or

(b) if an original asset was acquired by the taxpayer before 20 September 1985—treating a particular new share held by the taxpayer as having been acquired by the taxpayer before 20 September 1985; or

(i) for the purpose of ascertaining whether a capital gain accrued to the taxpayer in the event of a subsequent disposal of the new share by the taxpayer—such amount as is ascertained in a manner that the Commissioner determines to be appropriate; or

(ii) for the purpose of ascertaining whether the taxpayer incurred a capital loss in the event of the subsequent disposal of the new share by the taxpayer—such amount

as is ascertained in a manner that the Commissioner determines to be appropriate.

“(4) A determination under paragraph (3) (c) may provide for the amount concerned to be ascertained in a different manner in different circumstances.

(a) the year of income in which the conversion time occurred;

(b) the year of income in which this section commenced;

or within such further period as the Commissioner allows.

“(6) In this section:

‘company law’ means the Companies Act 1981 or a similar law of the Commonwealth, of a State, of a Territory or of a foreign country relating to companies.”.

Exemption of principal residence

34. (1) Section 160zzq of the Principal Act is amended by omitting “after that date during which the land” from the definition of “relevant period” in subsection (1) and substituting “during which land acquired after that date”.

(2) Section 160zzq of the Principal Act is amended by omitting subsection (5) and substituting the following subsections:

“(5) Where:

(a) a taxpayer has at any time (in this subsection called the ‘relevant time’), whether before or after the commencement of this subsection, acquired a legal or equitable estate or interest (other than a life interest) in land; and

(b) one of the following subparagraphs is applicable:

(i) no dwelling or partly erected dwelling was on the land at the relevant time and, after that time, the taxpayer:

(a) erected a dwelling on the land; or

(b) commenced to erect a dwelling on the land but died before the erection of the dwelling was completed;

(ii) a partly erected dwelling was on the land at the relevant time and, after that time, the taxpayer:

(a) completed the erection of the dwelling; or

(b) commenced to complete the erection of the dwelling but died before the erection of the dwelling was completed;

(iii) a dwelling or partly erected dwelling was on the land at

the relevant time and, after that time, the taxpayer demolished the dwelling or partly erected dwelling and:

(a) erected a new dwelling on the land; or

(b) commenced to erect a new dwelling on the land but died before the erection of the dwelling was completed; and

(i) the dwelling became the sole or principal residence of the taxpayer for the purposes of this Part as soon as practicable after the dwelling was erected or the erection of the dwelling was completed and continued to be the sole or principal residence of the taxpayer for the purposes of this Part for not less than 3 months; or

(ii) the taxpayer died after the dwelling was erected or the erection of the dwelling was completed and the taxpayer’s death occurred:

(a) before it was practicable for the dwelling to become the taxpayer’s sole or principal residence; or

(b) during the period of 3 months referred to in subparagraph (i); and

(d) an election that this subsection is to apply in relation to the dwelling is made in accordance with subsection (5a) or (5b) by:

(i) in a case where subparagraph (ii) does not apply—the taxpayer; or

(ii) in a case where sub-subparagraph (b) (i) (b), (ii) (b) or (iii) (b) or subparagraph (c) (ii) applies or any other case where the taxpayer died before the end of the period allowed for making an election without having made an election:

(a) if the taxpayer held the estate or interest as a joint tenant—the surviving joint tenant; or

(b) otherwise—the trustee of the estate of the taxpayer;

the following provisions have effect:

(e) if subparagraph (c) (i) applies:

(i) the period during which the dwelling was the sole or principal residence of the taxpayer for the purposes of this Part includes:

(a) the period on and from the relevant commencing date to and including the date on which the dwelling was erected or the erection of the dwelling was completed (other than any part of that period during which the taxpayer was the dependent child of another taxpayer); or

(b) the period of 4 years immediately before the dwelling became the sole or principal residence of

the taxpayer (other than any part of that period during which the taxpayer was the dependent child of another taxpayer);

whichever period (in this paragraph called the ‘construction period’) is the shorter period; and

(ii) no other dwelling is to be treated as having been the sole or principal residence of the taxpayer during the construction period;

(f) if sub-subparagraph (b) (i) (b), (ii) (b) or (iii) (b) or subparagraph (c) (ii) applies:

(i) this Part has effect as if the dwelling was the sole or principal residence of the taxpayer at the time of his or her death; and

(ii) the period during which the dwelling was the sole or principal residence of the taxpayer for the purposes of this Part includes:

(a) the period on and from the relevant commencing date to and including the date of the death of the taxpayer (other than any part of that period during which the taxpayer was the dependent child of another taxpayer); or

(b) the period of 4 years immediately before the death of the taxpayer (other than any part of that period during which the taxpayer was the dependent child of another taxpayer);

whichever period (in this paragraph called the ‘construction period’) is the shorter period; and

(iii) no other dwelling is to be treated as having been the sole or principal residence of the taxpayer during the construction period.

“(5aa) For the purposes of subsection (5):

(a) a reference to the relevant commencing date is a reference to:

(i) if subparagraph (5) (b) (iii) applies and the dwelling, or partly completed dwelling, that was demolished was occupied by the taxpayer or another person after the relevant time—the date on which the dwelling ceased, or last ceased, to be so occupied; or

(ii) otherwise—the date on which the taxpayer acquired the estate or interest in the land; and

(b) a taxpayer who has, whether before or after the commencement of this subsection, entered into a contract or contracts for the erection of, or for the completion of the erection of, a dwelling is taken to have commenced to erect, or to have commenced to complete the erection of, the dwelling at the time when the contract or the first contract was entered into.”.

(3) Section 160zzq of the Principal Act is amended by omitting from subsection (5a) “shall be” and substituting “does not have any effect unless it is”.

(4) Section 160zzq of the Principal Act is amended by inserting after subsection (5a) the following subsection:

“(5b) An election by a surviving joint tenant, or a trustee, in relation to a deceased taxpayer for the purposes of subsection (5) does not have any effect unless it is lodged with the Commissioner on or before whichever is the later of the following dates:

(a) the date of lodgment of the return of income of the deceased taxpayer’s estate for the year of income in which the taxpayer died;

(b) the last day of the year of income in which the Act that inserted this subsection received the Royal Assent;

or within such further period as the Commissioner allows.”.

(5) Section 160zzq of the Principal Act is amended by inserting after subsection (6) the following subsection:

“(6a) Where:

(a) a taxpayer and another person owned a dwelling as joint tenants; and

(b) the other person died;

this section applies according to its tenor to the acquisition by the taxpayer of the dwelling as a result of the death of the other person as it applies to a taxpayer who acquired the dwelling as a beneficiary in the estate of a deceased person.”.

(6) Section 160zzq of the Principal Act is amended by omitting subsection (11) and substituting the following subsections:

“(11) Where:

(a) a dwelling owned by a taxpayer temporarily ceases to be the sole or principal residence of the taxpayer; and

(b) either:

(i) the dwelling again becomes the sole or principal residence of the taxpayer within the period of 4 years after the temporary cessation; or

(ii) the taxpayer dies within that period without the dwelling again becoming the sole or principal residence of the taxpayer; and

(c) an election that this subsection is to apply in relation to the taxpayer in relation to the dwelling is made in accordance with subsection (11a) by:

(i) in a case where subparagraph (ii) does not apply—the taxpayer; or

(ii) in a case where subparagraph (b) (ii) applies or any other case where the taxpayer died before the end of the period allowed for making an election without having made an election:

(a) if the taxpayer and another person owned the dwelling as joint tenants—the surviving joint tenant; or

(b) otherwise—the trustee of the estate of the taxpayer;

then, for the purposes of this section, during the period from the time when the dwelling temporarily ceased to be the sole or principal residence of the taxpayer until the time when it again became the sole or principal residence of the taxpayer or the time of the death of the taxpayer:

(d) the dwelling is to be deemed to have been the sole or principal residence of the taxpayer; and

(e) no other dwelling is to be treated as having been the sole or principal residence of the taxpayer; and

(f) any use for the purpose of gaining or producing assessable income of the part of the dwelling that was the sole or principal residence of the taxpayer before it temporarily ceased to be his or her sole or principal residence is to be disregarded.

“(11a) An election for the purposes of subsection (11) does not have any effect unless it is lodged with the Commissioner:

(a) in the case of an election by a taxpayer—on or before the date of lodgment of the taxpayer’s return of income for the year of income in which the dwelling again became the sole or principal residence of the taxpayer; or

(b) in the case of an election by a surviving joint tenant, or a trustee, in relation to a deceased taxpayer—on or before whichever is the later of the following dates:

(i) the date of lodgment of the return of income of the deceased taxpayer’s estate for the year of income in which the taxpayer died;

(ii) the last day of the year of income in which the Act that inserted this subsection received the Royal Assent;

or, in either case, within such further period as the Commissioner allows.”.

(7) Section 160zzq of the Principal Act is amended by omitting paragraph (13) (d) and substituting the following paragraph:

“(d) the dwelling was, throughout the period from the death of the deceased person during which the dwelling was owned by the legal personal representative of the deceased person, the sole or principal residence of any one or more of the following:

(i) the person who was, immediately before the death of the deceased person, the spouse of the deceased person;

(ii) a person who, under the will of the deceased person, had a right to occupy the dwelling;”.

(8) Section 160zzq of the Principal Act is amended by omitting subparagraph (15) (b) (ii) and substituting the following subparagraph:

“(ii) the dwelling was, throughout the period from the death of the deceased person to the time of disposal of the dwelling by the taxpayer, the sole or principal residence of any one or more of the following:

(a) the person who was, immediately before the death of the deceased person, the spouse of the deceased person;

(b) a person who, under the will of the deceased person, had a right to occupy the dwelling; and”.

(9) Section 160zzq of the Principal Act is amended:

(a) by omitting subparagraph (17) (b) (iii) and substituting the following subparagraph:

“(iii) in a case to which paragraph (13) (d) applies—the dwelling was the sole or principal residence of any one or more of the persons referred to in subparagraphs (13) (d) (i) and (ii) during part only of the period referred to in that paragraph; and”;

(b) by omitting from paragraph (17) (f) “the spouse of the deceased person” and substituting “any one or more of the persons referred to in that subparagraph”.

(10) Section 160zzq of the Principal Act is amended:

(a) by omitting from subsection (17a) “subsection (21)” and substituting “subsections (20a) and (21)”;

(b) by omitting from paragraph (17a) (a) “after 12 months after the date of the death of the deceased person”.

(11) Section 160zzq of the Principal Act is amended by omitting from subsection (18) “subsection (21)” and substituting “subsections (20a) and (21)”.

(12) Section 160zzq of the Principal Act is amended:

(a) by omitting from subsection (19) “subsection (21)” and substituting “subsections (20a) and (21)”;

(b) by omitting from paragraph (19) (a) “after 12 months after the date of the death of the deceased person”;

“(i) the dwelling was the sole or principal residence of any one or more of the persons referred to in sub-

subparagraphs (15) (b) (ii) (a) and (b), during part only of the period referred to in subparagraph (15) (b) (ii);”;

(d) by omitting from paragraph (19) (d) “the spouse of the deceased person” and substituting “one or more of the persons referred to in that subparagraph”.

(13) Section 160zzq of the Principal Act is amended by omitting from subsection (20) “subsection (21)” and substituting “subsections (20a) and (21)”.

(14) Section 160zzq of the Principal Act is amended by inserting after subsection (20) the following subsections:

“(20a) Where both subsections (17a) and (18) or both subsections 19 and (20) would, but for this subsection, apply to a taxpayer in respect of the disposal of a dwelling owned by the taxpayer:

(a) if each of the subsections that would so apply has the effect of deeming a capital gain to have accrued to the taxpayer in respect of the disposal—only that subsection applies which deems the smaller capital gain to have accrued; or

(b) if each of the subsections that would so apply has the effect of deeming the taxpayer to have incurred a capital loss in respect of the disposal—only that subsection applies which deems the larger capital loss to have been incurred.

“(20b) Where:

(a) but for this subsection a capital gain would be deemed to have accrued to a taxpayer, or a taxpayer would be deemed to have incurred a capital loss, in respect of the disposal of a dwelling by the taxpayer; and

(b) the taxpayer owned the dwelling as the trustee of, or acquired the dwelling as a beneficiary in, the estate of a deceased person (in this subsection called the ‘relevant deceased person’);

then:

(c) in the case of a dwelling disposed of on or before 15 August 1989—that capital gain is to be reduced or that capital loss is to be increased; or

(d) in the case of a dwelling disposed of after that date—that capital gain is to be increased or reduced or that capital loss is to be increased or reduced;

by such amount as the Commissioner considers appropriate to take into account the extent to which the dwelling was, during any period that occurred after 19 September 1985 and before the dwelling was acquired by the relevant deceased person, the sole or principal residence of any one or more of the following:

(e) any person who owned the dwelling at the time of his or her death;

(f) any person who, immediately before the death of a person referred to in paragraph (e), was the spouse of that person;

(g) any person who, under the will of a person, had a right to occupy the dwelling;

(h) any person who acquired the dwelling as a beneficiary in the estate of a deceased person.

“(20c) Subject to subsection (21), where, pursuant to the will of a deceased person, a taxpayer in the capacity of a trustee of the estate of the deceased person acquired a dwelling after 19 September 1985 for occupation by another person (in this subsection called the ‘beneficiary’):

(a) if the taxpayer disposes of the dwelling to the beneficiary for no consideration:

(i) the taxpayer is not taken for the purposes of this Part other than this subsection to have disposed of the dwelling; and

(ii) the beneficiary is taken for the purposes of this Part to have acquired the dwelling on the date on which it was acquired by the taxpayer; and

(iii) the cost base, the indexed cost base or the reduced cost base to the beneficiary of the dwelling for the purposes of this Part includes any amount that would, if the taxpayer had disposed of the dwelling for the purposes of this Part at the time when ownership of the dwelling passed to the beneficiary, have been included in the cost base, the indexed cost base or the reduced cost base, as the case may be, of the dwelling to the taxpayer as a result of the taxpayer having incurred expenditure in respect of the dwelling; or

(b) if the taxpayer disposes of the dwelling to a person otherwise than as mentioned in paragraph (a):

(i) if the dwelling was the sole or principal residence of the beneficiary during the whole of the period from the time when the dwelling was acquired by the taxpayer to the time when it was so disposed of—a capital gain is not to be deemed to have accrued to the taxpayer, and a capital loss is not to be deemed to have been incurred by the taxpayer, as the case requires, in respect of the disposal of the dwelling; or

(ii) if the dwelling was the sole or principal residence of the beneficiary during part only of the period referred to in subparagraph (i) and, but for this section and subsection 160za (1), a capital gain would have accrued to the taxpayer, or the taxpayer would have incurred a capital loss, in respect of the disposal—a capital gain is to be deemed to have accrued to the taxpayer, or the taxpayer is to be deemed to have incurred a capital loss, as the

case may be, in respect of the disposal of the dwelling, of an amount calculated in accordance with the formula, where:

A is the amount of the capital gain or of the capital loss, as the case may be, first mentioned in this subparagraph;

B is the number of days in the part of the period referred to in subparagraph (i) during which the dwelling was not the sole or principal residence of the beneficiary;

C is the number of days in the period referred to in subparagraph (i).”.

(15) Section 160zzq of the Principal Act is amended by omitting from paragraph (21) (b) “or (20)” and substituting “, (20) or (20c)”.

Disposal of shares or interest in partnership or trust

35. (1) Section 160zzt of the Principal Act is amended by omitting subsection (2) and substituting the following subsections:

“(1a) For the purposes of this section:

(a) a company is taken to have been a private company at a particular time (in this paragraph called the ‘relevant time’) after 19 September 1985 if the company was an unlisted company:

(i) at the relevant time; or.

(ii) at any time during:

(a) where the relevant time was later than 15 August 1994—the period of 5 years immediately preceding the relevant time; or

(b) in any other case—the period that commenced on 15 August 1989 and ended at the relevant time; and

(b) a trust estate is taken to have been a private trust estate at a particular time (in this paragraph called the ‘relevant time’) after 19 September 1985 if the relevant trust is not a unit trust or, where the relevant trust is a unit trust, if the unit trust was an unlisted unit trust:

(i) at the relevant time; or

(ii) at any time during:

(a) where the relevant time was later than 15 August 1994—the period of 5 years immediately preceding the relevant time; or

(b) in any other case—the period that commenced on 15 August 1989 and ended at the relevant time; and

(c) a company is taken to have been an unlisted company at a particular time if at that time no shares in the company were listed for quotation in the official list of a stock exchange in Australia or elsewhere; and

(d) a unit trust is taken to have been an unlisted unit trust at a particular time if at that time no units in the unit trust were listed for quotation in the official list of a stock exchange in Australia or elsewhere or were ordinarily available for subscription or purchase by the public.

“(2) Subject to subsection (1a), expressions used in this section to which meanings are given by section 26aaa for the purposes of that section also have those meanings for the purposes of this section.”.

(2) Section 160zzt of the Principal Act is amended by adding at the end the following subsection:

“(4) For the purposes of this section, if:

(a) after 15 August 1989, a company (in this subsection called the ‘transferor’) disposes of an asset to another company (in this subsection called the ‘transferee’) that is a non-resident; and

(b) the transferor acquired the asset before 20 September 1985; and

(d) the transferee is a group company (within the meaning of section 160zzo) in relation to the transferor in relation to the year of income in which the disposal took place;

the transferee is taken to have acquired the asset before 20 September 1985.”.

Payment of interest by taxpayer where assessment amended

36. Section 170aa of the Principal Act is amended by omitting from subsection (12) “, 202”.

Interpretation

37. Section 267 of the Principal Act is amended by omitting from subsection (1) the definition of “actuary” and substituting the following definition:

“ ‘actuary’ means a Fellow or Accredited Member of the Institute of Actuaries of Australia;”.

Application of amendments

38. (1) In this section:

“amended Act” means the Principal Act as amended by this Act.

(2) The amendments made by paragraphs 6 (a), (b) and (d) apply in relation to payments under section 41 of the Veterans' Entitlements

Act 1986 made in accordance with a claim for carer’s service pension lodged on or after 1 November 1989.

(3) The amendments made by paragraphs 6 (c), (e), (f) and (g) apply to allowances paid on or after the date of commencement of this subsection.

(4) The amendments made by section 7 apply to a certificate issued on or after 1 July 1985.

(5) Subparagraph 78 (1) (a) (lxxxvi) of the amended Act applies to gifts made on or after 29 January 1987.

(6) The amendments made by sections 8, 9 and 10 and paragraphs 13 (a), (b), (c) and (d) apply to expenditure incurred after 7 September 1989.

(7) The amendments made by section 12 and subsection 23 (1) apply to losses incurred in the year of income commencing on 1 July 1989 or in any subsequent year of income.

(8) The amendments made by paragraph 14 (a) and sections 15 and 34 are to be taken to have commenced on 20 September 1985.

(9) The amendments made by section 16 apply to disposals of assets after 30 November 1989.

(10) The amendments made by sections 18, 30 and 31 and subsection 35 (1) apply in respect of disposals of assets that took place or take place after 15 August 1989.

(11) The amendments made by section 19 apply in respect of any acquisition of an asset that took place or takes place after 15 August 1989.

(12) The amendments made by section 20 apply in respect of disposals of assets that were acquired after 15 August 1989.

(13) The amendment made by section 21 applies in relation to shares that were or are disposed of (otherwise than because of the application of section 160zl of the amended Act) after 15 August 1989.

(14) The amendment made by section 22 applies in relation to an interest or units in a trust that were or are disposed of (otherwise than because of the application of section 160zm of the amended Act) after 15 August 1989.

(15) The amendment made by subsection 23 (2) applies in respect of notices given after 15 August 1989.

(16) The amendment made by subsection 23 (3) applies in respect of a disposal of an asset where:

(a) the disposal took place or takes place after 15 August 1989; and

(b) the relevant notice under paragraph 160zp (7) (c) of the amended Act was or is given after that date.

(17) The amendment made by section 24 applies in respect of rights issued after 15 August 1989.

(18) The amendment made by section 25 applies in respect of options issued after 15 August 1989.

(19) Sections 160zzpg and 160zzph of the amended Act apply to assessments in respect of income of the year of income in which 19 September 1985 occurred and of all subsequent years of income.

(20) Sections 160zyya and 160zzbaa of the amended Act apply to convertible notes acquired after 10 May 1989.

(21) The amendment made by section 37 applies in relation to a certificate issued after the commencement of this subsection.

Transitional—section 27h of the amended Act

39. (1) In this section:

“amended Act” means the Principal Act as amended by this Act.

(2) For the purposes of section 27h of the amended Act, where the following conditions are satisfied in relation to a certificate:

(a) the certificate was issued before the commencement of this section;

(b) the certificate purported to be for the purposes of section 27h of the Principal Act;

(c) the certificate was issued by a person who, if subsection 4a (2) of the Life Insurance Act 1945 (as in force immediately before 1 July 1985) had continued in force until the commencement of this section, would have been a person referred to in that subsection of that Act;

the certificate is taken to have been issued by an actuary within the meaning of section 27h of the amended Act.

Transitional—elections under subsection 160zzq (5) of the amended Act

40. Where:

(a) subsection 160zzq (5) of the Principal Act did not apply in relation to a taxpayer in respect of a particular dwelling but subsection 160zzq (5) of that Act as amended by subsection 34 (2) of this Act applies in relation to the taxpayer in respect of the dwelling; and

(b) the dwelling was disposed of by the taxpayer on or before 15 August 1989;

subsection 160zzq (5a) of the Principal Act as amended by subsection 34 (3) of this Act does not apply to an election by the taxpayer in

relation to the dwelling for the purposes of subsection 160zzq (5) of the Principal Act as so amended but such an election does not have any effect unless it is lodged on or before the date of lodgment of the taxpayer’s first return of income in respect of any year of income lodged after the commencement of this section or within such further period as the Commissioner allows.

Amendment of assessments

41. Nothing in section 170 of the Principal Act prevents the amendment of an assessment made before the commencement of this section for the purpose of giving effect to this Act.

PART 3—AMENDMENT OF THE INDUSTRY RESEARCH AND

DEVELOPMENT ACT 1986

Principal Act

42. In this Part, “Principal Act” means the Industry Research and Development Act 19862.

43. After section 39l of the Principal Act the following section is inserted:

Certificate as to core technology

“39la. The Board may, and must if requested in writing by the Commissioner to do so, give to the Commissioner a certificate stating whether particular technology that an eligible company has acquired, or has acquired the right to use, for the purposes of particular research and development activities that have been or are being carried on by or on behalf of the company was core technology in relation to those activities.”.

Joint registration

44. Section 39p of the Principal Act is amended by omitting paragraphs (3) (d) and (e).

Application of amendments

45. The amendments made by this Part are taken to have had effect on and from 8 September 1989.

NOTES

1. No. 27, 1936, as amended. For previous amendments, see No. 88, 1936; No.5, 1937; No. 46, 1938; No. 30, 1939; Nos. 17 and 65, 1940; Nos. 58 and 69, 1941; Nos. 22 and 50, 1942; No. 10, 1943; Nos. 3 and 28, 1944; Nos. 4 and 37, 1945; No. 6, 1946; Nos. 11 and 63, 1947; No. 44, 1948; No. 66, 1949; No. 48, 1950; No. 44, 1951; Nos. 4, 28 and 90, 1952; Nos. 1, 28, 45 and 81, 1953; No. 43, 1954; Nos. 18 and 62, 1955; Nos. 25, 30 and 101, 1956; Nos. 39 and 65, 1957; No. 55, 1958; Nos. 12, 70 and 85, 1959; Nos. 17, 18, 58 and 108,

NOTES—continued

1960; Nos. 17, 27 and 94, 1961; Nos. 39 and 98, 1962; Nos. 34 and 69, 1963; Nos. 46, 68, 110 and 115, 1964; Nos. 33, 103 and 143, 1965; Nos. 50 and 83, 1966; Nos. 19, 38, 76 and 85, 1967; Nos. 4, 70, 87 and 148; 1968; Nos. 18, 93 and 101, 1969; No. 87, 1970; Nos. 6, 54 and 93, 1971; Nos. 5, 46, 47, 65 and 85, 1972; Nos. 51, 52, 53, 164 and 165, 1973; No. 216, 1973 (as amended by No. 20, 1974); Nos. 26 and 126, 1974; Nos. 80 and 117, 1975; Nos. 50, 53, 56, 98, 143, 165 and 205, 1976; Nos. 57, 126 and 127, 1977; Nos. 36, 57, 87, 90, 123, 171 and 172, 1978; Nos. 12, 19, 27, 43, 62, 146, 147 and 149, 1979; Nos. 19, 24, 57, 58, 124, 133, 134 and 159, 1980; Nos. 61, 92, 108, 109, 110, 111, 154 and 175, 1981; Nos. 29, 38, 39, 76, 80, 106 and 123, 1982; Nos. 14, 25, 39, 49, 51, 54 and 103, 1983; Nos. 14, 42, 47, 63, 76, 115, 124, 165 and 174, 1984; No. 123, 1984 (as amended by No. 65, 1985); Nos. 47, 49, 104, 123, 168 and 174, 1985; No. 173, 1985 (as amended by No. 49, 1986); Nos. 41, 46, 48, 51, 109, 112 and 154, 1986; No. 49, 1986 (as amended by No. 141, 1987); No. 52, 1986 (as amended by No. 141, 1987); No. 90, 1986 (as amended by No. 141, 1987); Nos. 23, 58, 61, 120, 145 and 163, 1987; No. 62, 1987 (as amended by No. 108, 1987); No. 108, 1987 (as amended by No. 138, 1987); No. 138, 1987 (as amended by No. 11, 1988); No. 139, 1987 (as amended by Nos. 11 and 78, 1988); Nos. 8, 11, 59, 75, 78, 80, 87, 95, 97, 127 and 153, 1988; Nos. 2, 11, 56, 70, 73, 105, 107, 129, 163 andr167, 1989; No. 97, 1989 (as amended by No. 105, 1989); and No. 20, 1990.

2. No. 89, 1986, as amended. For previous amendments, see No. 59, 1988; and No. 167, 1989.

[Minister’s second reading speech made in—

House of Representatives on 16 May 1990 Senate on 29 May 1990]