Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 174

Compilation date:   12 October 2017

Includes amendments up to: Act No. 108, 2017

Registered:    12 October 2017

This compilation is in 11 volumes

Volume 1: sections 11 to 3655

Volume 2: sections 401 to 5510

Volume 3: sections 581 to 122205

Volume 4: sections 1241 to 152430

Volume 5: sections 1641 to 220800

Volume 6: sections 2301 to 31215

Volume 7: sections 3151 to 42070

Volume 8: sections 6151 to 727910

Volume 9: sections 7681 to 9951

Volume 10: Endnotes 1 to 3

Volume 11: Endnote 4

Each volume has its own contents

 

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 12 October 2017 (the compilation date).

The notes at the end of this compilation (the endnotes) include information about amending laws and the amendment history of provisions of the compiled law.

Uncommenced amendments

The effect of uncommenced amendments is not shown in the text of the compiled law. Any uncommenced amendments affecting the law are accessible on the Legislation Register (www.legislation.gov.au). The details of amendments made up to, but not commenced at, the compilation date are underlined in the endnotes. For more information on any uncommenced amendments, see the series page on the Legislation Register for the compiled law.

Application, saving and transitional provisions for provisions and amendments

If the operation of a provision or amendment of the compiled law is affected by an application, saving or transitional provision that is not included in this compilation, details are included in the endnotes.

Editorial changes

For more information about any editorial changes made in this compilation, see the endnotes.

Modifications

If the compiled law is modified by another law, the compiled law operates as modified but the modification does not amend the text of the law. Accordingly, this compilation does not show the text of the compiled law as modified. For more information on any modifications, see the series page on the Legislation Register for the compiled law.

Selfrepealing provisions

If a provision of the compiled law has been repealed in accordance with a provision of the law, details are included in the endnotes.

 

 

 

Contents

Chapter 2—Liability rules of general application

Part 215—Nonassessable income

Division 58—Capital allowances for depreciating assets previously owned by an exempt entity

Guide to Division 58 1

581 What this Division is about

Subdivision 58A—Application

585 Application of Division

5810 When an asset is acquired in connection with the acquisition of a business

Subdivision 58B—Calculating decline in value of privatised assets under Division 40

5860 Purpose of rules in this Subdivision

5865 Choice of method to work out cost of privatised asset

5870 Application of Division 40

5875 Meaning of notional written down value

5880 Meaning of undeducted preexisting audited book value

5885 Preexisting audited book value of depreciating asset

5890 Method and effective life for transition entity

Division 59—Particular amounts of nonassessable nonexempt income

Guide to Division 59 12

591 What this Division is about

Operative provisions

5910 Compensation under firearms surrender arrangements

5915 Mining payments

5920 Taxable amounts relating to franchise fees windfall tax

5925 Taxable amounts relating to Commonwealth places windfall tax

5930 Amounts you must repay

5935 Amounts that would be mutual receipts but for prohibition on distributions to members

5940 Issue of rights

5950 Native title benefits

5965 Water infrastructure improvement payments

5967 Meaning of SRWUIP program, SRWUIP payment, direct SRWUIP payment and indirect SRWUIP payment

5970 List of SRWUIP programs

5975 Commissioner to be kept informed

5980 Amending assessments

Part 220—Tax offsets

Division 61—Generally applicable tax offsets

Subdivision 61A—Dependant (invalid and carer) tax offset

Guide to Subdivision 61A

611 What this Subdivision is about

Object of this Subdivision

615 Object of this Subdivision

Entitlement to the dependant (invalid and carer) tax offset

6110 Who is entitled to the tax offset

6115 Cases involving more than one spouse

6120 Exceeding the income limit for family tax benefit (Part B)

6125 Eligibility for family tax benefit (Part B) without shared care

Amount of the dependant (invalid and carer) tax offset

6130 Amount of the dependant (invalid and carer) tax offset

6135 Families with shared care percentages

6140 Reduced amounts of dependant (invalid and carer) tax offset

6145 Reductions to take account of the other individual’s income

Subdivision 61G—Private health insurance offset complementary to Part 22 of the Private Health Insurance Act 2007

Guide to Subdivision 61G

61200 What this Subdivision is about

Operative provisions

61205 Entitlement to the private health insurance tax offset

61210 Amount of the private health insurance tax offset

61215 Reallocation of the private health insurance tax offset between spouses

Subdivision 61I—First child tax offset (baby bonus)

Guide to Subdivision 61I

61350 What this Subdivision is about

Entitlement to a first child tax offset

61355 Who is entitled to a tax offset under this section

61360 What is a child event?

61365 First child only

61370 Another carer with entitlement for another child

61375 Selection rules

61380 Special rules for death of first child

Transferring an entitlement

61385 You may transfer your entitlement to a tax offset

61390 Transfer is irrevocable

61395 Transferor is not entitled to tax offset

61400 Transferee is entitled to tax offset

Claiming a first child tax offset

61405 How to claim a tax offset for a child

61410 Claim is irrevocable

Amount of a first child tax offset

61415 Formula for working out amount of tax offset

61420 Component of formula—entitlement amount

61425 Component of formula—total of the entitlement days

61430 What is your base year?

Additional tax offset if a child is in your care before you legally adopt the child

61440 Additional tax offset if a child is in your care before you legally adopt the child

61445 When a child is first in your care

61450 What is your base year if a child is in your care before you legally adopt the child?

61455 Old Subdivision applies if you would be worse off

Subdivision 61IA—Child care tax offset

Guide to Subdivision 61IA

61460 What this Subdivision is about

Operative provisions

61465 Object of this Subdivision

Entitlement to the child care tax offset

61470 Who is entitled to the tax offset

61475 Meaning of approved child care

61480 Meaning of entitled to child care benefit and entitlement to child care benefit

Amount of the child care tax offset

61485 Amount of the child care tax offset

61490 Component of formula—approved child care fees

61495 Component of formula—child care offset limit

Transfer of entitlement to unused balance of child care tax offset

61496 Entitlement to transfer

61497 Form of transfer

Subdivision 61L—Tax offset for Medicare levy surcharge (lump sum payments in arrears)

Guide to Subdivision 61L

61575 What this Subdivision is about

Operative provisions

61580 Entitlement to a tax offset

61585 The amount of a tax offset

61590 Definition of MLS lump sums

Subdivision 61N—Seafarer tax offset

Guide to Subdivision 61N

61695 What this Subdivision is about

Operative provisions

61700 Object of this Subdivision

61705 Who is entitled to the seafarer tax offset

61710 Amount of the seafarer tax offset

Subdivision 61P—ESVCLP tax offset

Guide to Subdivision 61P

61750 What this Subdivision is about

Operative provisions

61755 Object of this Subdivision

61760 Who is entitled to the ESVCLP tax offset

61765 Amount of the ESVCLP tax offset—general case

61770 Amount of the ESVCLP tax offset—members of trusts or partnerships

61775 Amount of the ESVCLP tax offset—trustees

Division 63—Common rules for tax offsets

Guide to Division 63 64

631 What this Division is about

6310 Priority rules

Division 65—Tax offset carry forward rules

Guide to Division 65 67

6510 What this Division is about

Operative provisions

6530 Amount carried forward

6535 How to apply carried forward tax offsets

6540 When a company cannot apply a tax offset

6550 Effect of bankruptcy

6555 Deduction for amounts paid for debts incurred before bankruptcy

Division 67—Refundable tax offset rules

Guide to Division 67 71

6710 What this Division is about

Operative provisions

6720 Which tax offsets this Division applies to

6723 Refundable tax offsets

6725 Refundable tax offsets—franked distributions

6730 Refundable tax offsets—R&D

Part 225—Trading stock

Division 70—Trading stock

Guide to Division 70 77

701 What this Division is about

705 The 3 key features of tax accounting for trading stock

Subdivision 70A—What is trading stock

7010 Meaning of trading stock

7012 Registered emissions units

Subdivision 70B—Acquiring trading stock

7015 In which income year do you deduct an outgoing for trading stock?

7020 Nonarm’s length transactions

7025 Cost of trading stock is not a capital outgoing

7030 Starting to hold as trading stock an item you already own

Subdivision 70C—Accounting for trading stock you hold at the start or end of the income year

General rules 

7035 You include the value of your trading stock in working out your assessable income and deductions

7040 Value of trading stock at start of income year

7045 Value of trading stock at end of income year

Special valuation rules

7050 Valuation if trading stock obsolete etc.

7055 Working out the cost of natural increase of live stock

7060 Valuation of horse breeding stock

7065 Working out the horse opening value and the horse reduction amount

Subdivision 70D—Assessable income arising from disposals of trading stock and certain other assets

Guide to Subdivision 70D

7075 What this Subdivision is about

7080 Why the rules in this Subdivision are necessary

Operative provisions

7085 Application of this Subdivision to certain other assets

7090 Assessable income on disposal of trading stock outside the ordinary course of business

7095 Purchase price is taken to be market value

70100 Notional disposal when you stop holding an item as trading stock

70105 Death of owner

70110 You stop holding an item as trading stock but still own it

70115 Compensation for lost trading stock

Subdivision 70E—Miscellaneous

70120 Deducting capital costs of acquiring trees

Part 240Rules affecting employees and other taxpayers receiving PAYG withholding payments

Division 80General rules

Guide to Division 80 99

801 What this Division is about

Operative provisions

805 Holding of an office

8010 Application to the termination of employment

8015 Transfer of property

8020 Payments for your benefit or at your direction or request

Division 82Employment termination payments

Guide to Division 82 102

821 What this Division is about

Subdivision 82AEmployment termination payments: life benefits

Guide to Subdivision 82A

825 What this Subdivision is about

Operative provisions

8210 Taxation of life benefit termination payments

Subdivision 82BEmployment termination payments: death benefits

Guide to Subdivision 82B

8260 What this Subdivision is about

Operative provisions

8265 Death benefits for dependants

8270 Death benefits for nondependants

8275 Death benefits paid to trustee of deceased estate

Subdivision 82CKey concepts

Guide to Subdivision 82C

82125 What this Subdivision is about

Operative provisions

82130 What is an employment termination payment?

82135 Payments that are not employment termination payments

82140 Tax free component of an employment termination payment

82145 Taxable component of an employment termination payment

82150 What is an invalidity segment of an employment termination payment?

82155 What is a preJuly 83 segment of an employment termination payment?

82160 What is the ETP cap amount?

Division 83Other payments on termination of employment

Guide to Division 83 117

831 What this Division is about

Subdivision 83AUnused annual leave payments

Guide to Subdivision 83A

835 What this Subdivision is about

Operative provisions

8310 Unused annual leave payment is assessable

8315 Entitlement to tax offset

Subdivision 83BUnused long service leave payments

Guide to Subdivision 83B

8365 What this Subdivision is about

General 

8370 Application—long service leave

8375 Meaning of unused long service leave payment

8380 Taxation of unused long service leave payments

8385 Entitlement to tax offset

8390 Meaning of pre16/8/78 period, pre18/8/93 period, post17/8/93 period and long service leave employment period

Employment wholly fulltime or wholly parttime

8395 How to work out amount of payment attributable to each period

83100 How to work out unused days of long service leave for each period

83105 How to work out long service leave accrued in each period

Employment partly fulltime and partly parttime

83110 Leave accrued in pre16/8/78, pre18/8/93 and post17/8/93 periods—employment fulltime and parttime

Long service leave taken at less than full pay

83115 Working out used days of long service leave if leave taken at less than full pay

Subdivision 83CGenuine redundancy payments and early retirement scheme payments

Guide to Subdivision 83C

83165 What this Subdivision is about

Operative provisions

83170 Taxfree treatment of genuine redundancy payments and early retirement scheme payments

83175 What is a genuine redundancy payment?

83180 What is an early retirement scheme payment?

Subdivision 83DForeign termination payments

Guide to Subdivision 83D

83230 What this Subdivision is about

Operative provisions

83235 Termination payments tax free—foreign resident period

83240 Termination payments tax free—Australian resident period

Subdivision 83EOther payments

Guide to Subdivision 83E

83290 What this Subdivision is about

Operative provisions

83295 Termination payments made more than 12 months after termination etc.

Division 83A—Employee share schemes

Guide to Division 83A

83A1 What this Division is about

Subdivision 83AA—Objects of Division and key concepts

83A5 Objects of Division

83A10 Meaning of ESS interest and employee share scheme

Subdivision 83AB—Immediate inclusion of discount in assessable income

Guide to Subdivision 83AB

83A15 What this Subdivision is about

Operative provisions

83A20 Application of Subdivision

83A25 Discount to be included in assessable income

83A30 Amount for which discounted ESS interest acquired

83A33 Reducing amounts included in assessable income—start ups

83A35 Reducing amounts included in assessable income—other cases

83A45 Further conditions for reducing amounts included in assessable income

Subdivision 83AC—Deferred inclusion of gain in assessable income

Guide to Subdivision 83AC

83A100 What this Subdivision is about

Main provisions

83A105 Application of Subdivision

83A110 Amount to be included in assessable income

83A115 ESS deferred taxing point—shares

83A120 ESS deferred taxing point—rights to acquire shares

83A125 Tax treatment of ESS interests held after ESS deferred taxing points

Takeovers and restructures

83A130 Takeovers and restructures

Subdivision 83AD—Deduction for employer

Guide to Subdivision 83AD

83A200 What this Subdivision is about

Operative provisions

83A205 Deduction for employer

83A210 Timing of general deductions

Subdivision 83AE—Miscellaneous

83A305 Acquisition by associates

83A310 Forfeiture etc. of ESS interest

83A315 Market value of ESS interest

83A320 Interests in a trust

83A325 Application of Division to relationships similar to employment

83A330 Application of Division to ceasing employment

83A335 Application of Division to stapled securities

83A340 Application of Division to indeterminate rights

Part 242—Personal services income

Division 84—Introduction

Guide to Part 242 163

841 What this Part is about

Operative provisions

845 Meaning of personal services income

8410 This Part does not imply that individuals are employees

Division 85—Deductions relating to personal services income

Guide to Division 85 165

851 What this Division is about

Operative provisions

855 Object of this Division

8510 Deductions for nonemployees relating to personal services income

8515 Deductions for rent, mortgage interest, rates and land tax

8520 Deductions for payments to associates etc.

8525 Deductions for superannuation for associates

8530 Exception: personal services businesses

8535 Exception: employees, office holders and religious practitioners

8540 Application of Subdivision 900B to individuals who are not employees

Division 86—Alienation of personal services income

Guide to Division 86 170

861 What this Division is about

865 A simple description of what this Division does

Subdivision 86A—General

8610 Object of this Division

8615 Effect of obtaining personal services income through a personal services entity

8620 Offsetting the personal services entity’s deductions against personal services income

8625 Apportionment of entity maintenance deductions among several individuals

8627 Deduction for net personal services income loss

8630 Assessable income etc. of the personal services entity

8635 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes

8640 Salary payments shortly after an income year

Subdivision 86B—Entitlement to deductions

8660 General rule for deduction entitlements of personal services entities

8665 Entity maintenance deductions

8670 Car expenses

8675 Superannuation

8680 Salary or wages promptly paid

8685 Deduction entitlements of personal services entities for amounts included in an individual’s assessable income

8687 Personal services entity cannot deduct net personal services income loss

8690 Application of Divisions 28 and 900 to personal services entities

Division 87—Personal services businesses

Guide to Division 87 185

871 What this Division is about

875 Diagram showing the operation of this Division

Subdivision 87A—General

8710 Object of this Division

8715 What is a personal services business?

8718 The results test for a personal services business

8720 The unrelated clients test for a personal services business

8725 The employment test for a personal services business

8730 The business premises test for a personal services business

8735 Personal services income from Australian government agencies

8740 Application of this Division to certain agents

Subdivision 87B—Personal services business determinations

8760 Personal services business determinations for individuals

8765 Personal services business determinations for personal services entities

8770 Applying etc. for personal services business determinations

8775 When personal services business determinations have effect

8780 Revoking personal services business determinations

8785 Review of decisions

Chapter 3—Specialist liability rules

Part 31—Capital gains and losses: general topics

Division 100—A Guide to capital gains and losses

General overview

1001 What this Division is about

1005 Effect of this Division

10010 Fundamentals of CGT

10015 Overview of Steps 1 and 2

Step 1—Have you made a capital gain or a capital loss?

10020 What events attract CGT?

10025 What are CGT assets?

10030 Does an exception or exemption apply?

10033 Can there be a rollover?

Step 2—Work out the amount of the capital gain or loss

10035 What is a capital gain or loss?

10040 What factors come into calculating a capital gain or loss?

10045 How to calculate the capital gain or loss for most CGT events

Step 3—Work out your net capital gain or loss for the income year

10050 How to work out your net capital gain or loss

10055 How do you comply with CGT?

Keeping records for CGT purposes

10060 Why keep records?

10065 What records?

10070 How long you need to keep records

Division 102—Assessable income includes net capital gain

Guide to Division 102 216

1021 What this Division is about

1023 Concessions in working out your net capital gain

Operative provisions

1025 Assessable income includes net capital gain

10210 How to work out your net capital loss

10215 How to apply net capital losses

10220 Ways you can make a capital gain or a capital loss

10222 Amounts of capital gains and losses

10223 CGT event still happens even if gain or loss disregarded

10225 Order of application of CGT events

10230 Exceptions and modifications

Division 103—General rules

Guide to Division 103 225

1031 What this Division is about

Operative provisions

1035 Giving property as part of a transaction

10310 Entitlement to receive money or property

10315 Requirement to pay money or give property

10325 Choices

10330 Reduction of cost base etc. by net input tax credits

Division 104—CGT events

Guide to Division 104 228

1041 What this Division is about

1045 Summary of the CGT events

Subdivision 104A—Disposals

10410 Disposal of a CGT asset: CGT event A1

Subdivision 104B—Use and enjoyment before title passes

10415 Use and enjoyment before title passes: CGT event B1

Subdivision 104C—End of a CGT asset

10420 Loss or destruction of a CGT asset: CGT event C1

10425 Cancellation, surrender and similar endings: CGT event C2

10430 End of option to acquire shares etc.: CGT event C3

Subdivision 104D—Bringing into existence a CGT asset

10435 Creating contractual or other rights: CGT event D1

10440 Granting an option: CGT event D2

10445 Granting a right to income from mining: CGT event D3

10447 Conservation covenants: CGT event D4

Subdivision 104E—Trusts

10455 Creating a trust over a CGT asset: CGT event E1

10460 Transferring a CGT asset to a trust: CGT event E2

10465 Converting a trust to a unit trust: CGT event E3

10470 Capital payment for trust interest: CGT event E4

10471 Adjustment of nonassessable part

10472 Reducing your capital gain under CGT event E4 if you are a trustee

10475 Beneficiary becoming entitled to a trust asset: CGT event E5

10480 Disposal to beneficiary to end income right: CGT event E6

10485 Disposal to beneficiary to end capital interest: CGT event E7

10490 Disposal by beneficiary of capital interest: CGT event E8

10495 Making a capital gain

104100 Making a capital loss

104105 Creating a trust over future property: CGT event E9

104107A AMIT—cost base reduction exceeds cost base: CGT event E10

104107B Annual cost base adjustment for member’s unit or interest in AMIT

104107C AMIT cost base net amount

104107D AMIT cost base reduction amount

104107E AMIT cost base increase amount

104107F Receipt of money etc. increasing AMIT cost base reduction amount not to be treated as income

104107G Effect of AMIT cost base net amount on cost of AMIT membership interest or unit that is a revenue asset—adjustment of cost of asset

104107H Effect of AMIT cost base net amount on cost of AMIT membership interest or unit that is a revenue asset—amount included in assessable income

Subdivision 104F—Leases

104110 Granting a lease: CGT event F1

104115 Granting a longterm lease: CGT event F2

104120 Lessor pays lessee to get lease changed: CGT event F3

104125 Lessee receives payment for changing lease: CGT event F4

104130 Lessor receives payment for changing lease: CGT event F5

Subdivision 104G—Shares

104135 Capital payment for shares: CGT event G1

104145 Liquidator or administrator declares shares or financial instruments worthless: CGT event G3

Subdivision 104H—Special capital receipts

104150 Forfeiture of deposit: CGT event H1

104155 Receipt for event relating to a CGT asset: CGT event H2

Subdivision 104I—Australian residency ends

104160 Individual or company stops being an Australian resident: CGT event I1

104165 Exception for individuals

104170 Trust stops being a resident trust: CGT event I2

Subdivision 104J—CGT events relating to rollovers

104175 Company ceasing to be member of whollyowned group after rollover: CGT event J1

104180 Subgroup breakup

104182 Consolidated group breakup

104185 Change in relation to replacement asset or improved asset after a rollover under Subdivision 152E: CGT event J2

104190 Replacement asset period

104195 Trust failing to cease to exist after rollover under Subdivision 124N: CGT event J4

104197 Failure to acquire replacement asset and to incur fourth element expenditure after a rollover under Subdivision 152E: CGT event J5

104198 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6

Subdivision 104K—Other CGT events

104205 Incoming international transfer of emissions unit: CGT event K1

104210 Bankrupt pays amount in relation to debt: CGT event K2

104215 Asset passing to taxadvantaged entity: CGT event K3

104220 CGT asset starts being trading stock: CGT event K4

104225 Special collectable losses: CGT event K5

104230 PreCGT shares or trust interest: CGT event K6

104235 Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7

104240 Working out capital gain or loss for CGT event K7: general case

104245 Working out capital gain or loss for CGT event K7: pooled assets

104250 Direct value shifts: CGT event K8

104255 Carried interests: CGT event K9

104260 Certain shortterm forex realisation gains: CGT event K10

104265 Certain shortterm forex realisation losses: CGT event K11

104270 Foreign hybrids: CGT event K12

Subdivision 104L—Consolidated groups and MEC groups

104500 Loss of preCGT status of membership interests in entity becoming subsidiary member: CGT event L1

104505 Where preformation intragroup rollover reduction results in negative allocable cost amount: CGT event L2

104510 Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3

104515 Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4

104520 Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5

104525 Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6

104535 Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8

Division 106—Entity making the gain or loss

Guide to Division 106 327

1061 What this Division is about

Subdivision 106A—Partnerships

1065 Partnerships

Subdivision 106B—Bankruptcy and liquidation

10630 Effect of bankruptcy

10635 Effect of liquidation

Subdivision 106C—Absolutely entitled beneficiaries

10650 Absolutely entitled beneficiaries

Subdivision 106D—Securities, charges and encumbrances

10660 Securities, charges and encumbrances

Division 108—CGT assets

Guide to Division 108 333

1081 What this Division is about

Subdivision 108A—What a CGT asset is

1085 CGT assets

1087 Interest in CGT assets as joint tenants

Subdivision 108B—Collectables

10810 Losses from collectables to be offset only against gains from collectables

10815 Sets of collectables

10817 Cost base of a collectable

Subdivision 108C—Personal use assets

10820 Losses from personal use assets must be disregarded

10825 Sets of personal use assets

10830 Cost base of a personal use asset

Subdivision 108D—Separate CGT assets

Guide to Subdivision 108D

10850 What this Subdivision is about

Operative provisions

10855 When is a building a separate asset from land?

10860 Depreciating asset that is part of a building is a separate asset

10865 Land adjacent to land acquired before 20 September 1985

10870 When is a capital improvement a separate asset?

10875 Capital improvements to CGT assets for which a rollover may be available

10880 Deciding if capital improvements are related to each other

10885 Meaning of improvement threshold

Division 109—Acquisition of CGT assets

Guide to Division 109 346

1091 What this Division is about

Subdivision 109A—Operative rules

1095 General acquisition rules

10910 When you acquire a CGT asset without a CGT event

Subdivision 109B—Signposts to other acquisition rules

10950 Effect of this Subdivision

10955 Other acquisition rules

10960 Acquisition rules outside this Part and Part 33

Division 110—Cost base and reduced cost base

Guide to Division 110 361

1101 What this Division is about

1105 Modifications to general rules

11010 Rules about cost base not relevant for some CGT events

Subdivision 110A—Cost base

11025 General rules about cost base

11035 Incidental costs

11036 Indexation

What does not form part of the cost base

11037 Expenditure forming part of cost base or element

11038 Exclusions

11040 Assets acquired before 7.30 pm on 13 May 1997

11043 Partnership interests acquired before 7.30 pm on 13 May 1997

11045 Assets acquired after 7.30 pm on 13 May 1997

11050 Partnership interests acquired after 7.30 pm on 13 May 1997

11053 Exceptions to application of sections 11045 and 11050

11054 Debt deductions disallowed by thin capitalisation rules

Subdivision 110B—Reduced cost base

11055 General rules about reduced cost base

11060 Reduced cost base for partnership assets

Division 112—Modifications to cost base and reduced cost base

Guide to Division 112 382

1121 What this Division is about

1125 Discussion of modifications

Subdivision 112A—General modifications

11215 General rule for replacement modifications

11220 Market value substitution rule

11225 Split, changed or merged assets

11230 Apportionment rules

11235 Assumption of liability rule

11236 Acquisitions of assets involving lookthrough earnout rights

11237 Put options

Subdivision 112B—Finding tables for special rules

11240 Effect of this Subdivision

11245 CGT events

11246 Annual cost base adjustment for member’s unit or interest in AMIT

11248 Gifts acquired by associates

11250 Main residence

11253 Scrip for scrip rollover

11253AA........................Statutory licences

11253AB....................Change of incorporation

11253A MDO rollover

11253B Exchange of stapled ownership interests for units in a unit trust

11253C Water entitlement rollovers

11254 Demergers

11254A Transfer of assets between certain trusts

11255 Effect of you dying

11260 Bonus shares or units

11265 Rights

11270 Convertible interests

11277 Exchangeable interests

11280 Leases

11285 Options

11287 Residency

11290 An asset stops being a preCGT asset

11292 Demutualisation of certain entities

11295 Transfer of tax losses and net capital losses within whollyowned groups of companies

11297 Modifications outside this Part and Part 33

Subdivision 112C—Replacementasset rollovers

112100 Effect of this Subdivision

112105 What is a replacementasset rollover?

112110 How is the cost base of the replacement asset modified?

112115 Table of replacementasset rollovers

Subdivision 112D—Sameasset rollovers

112135 Effect of this Subdivision

112140 What is a sameasset rollover?

112145 How is the cost base of the asset modified?

112150 Table of sameasset rollovers

Division 114—Indexation of cost base

1141 Indexing elements of cost base

1145 When indexation relevant

11410 Requirement for 12 months ownership

11415 Cost base modifications

11420 When expenditure is incurred for rollovers

Division 115—Discount capital gains and trusts’ net capital gains

Guide to Division 115 426

1151 What this Division is about

Subdivision 115A—Discount capital gains

What is a discount capital gain?

1155 What is a discount capital gain?

11510 Who can make a discount capital gain?

11515 Discount capital gain must be made after 21 September 1999

11520 Discount capital gain must not have indexed cost base

11525 Discount capital gain must be on asset acquired at least 12 months before

11530 Special rules about time of acquisition

11532 Special rule about time of acquisition for certain replacementasset rollovers

11534 Further special rule about time of acquisition for certain replacementasset rollovers

What are not discount capital gains?

11540 Capital gain resulting from agreement made within a year of acquisition

11545 Capital gain from equity in an entity with newly acquired assets

11550 Discount capital gain from equity in certain entities

11555 Capital gains involving money received from demutualisation of friendly society health or life insurer

Subdivision 115B—Discount percentage

115100 What is the discount percentage for a discount capital gain

115105 Foreign or temporary residents—individuals with direct gains

115110 Foreign or temporary residents—individuals with trust gains

115115 Foreign or temporary residents—percentage for individuals

115120 Foreign or temporary residents—trusts with certain gains

Subdivision 115C—Rules about trusts with net capital gains

Guide to Subdivision 115C

115200 What this Division is about

Operative provisions

115210 When this Subdivision applies

115215 Assessing presently entitled beneficiaries

115220 Assessing trustees under section 98 of the Income Tax Assessment Act 1936

115222 Assessing trustees under section 99 or 99A of the Income Tax Assessment Act 1936

115225 Attributable gain

115227 Share of a capital gain

115228 Specifically entitled to an amount of a capital gain

115230 Choice for resident trustee to be specifically entitled to capital gain

Subdivision 115D—Tax relief for shareholders in listed investment companies

Guide to Subdivision 115D

115275 What this Subdivision is about

Operative provisions

115280 Deduction for certain dividends

115285 Meaning of LIC capital gain

115290 Meaning of listed investment company

115295 Maintaining records

Division 116—Capital proceeds

Guide to Division 116 466

1161 What this Division is about

1165 General rules

11610 Modifications to general rules

General rules 

11620 General rules about capital proceeds

Modifications to general rules

11625 Table of modifications to the general rules

11630 Market value substitution rule: modification 1

11635 Companies and trusts that are not widely held

11640 Apportionment rule: modification 2

11645 Nonreceipt rule: modification 3

11650 Repaid rule: modification 4

11655 Assumption of liability rule: modification 5

11660 Misappropriation rule: modification 6

Special rules 

11665 Disposal etc. of a CGT asset the subject of an option

11670 Option requiring both acquisition and disposal etc.

11675 Special rule for CGT event happening to a lease

11680 Special rule if CGT asset is shares or an interest in a trust

11685 Section 47A of 1936 Act applying to rolledover asset

11695 Company changes residence from an unlisted country

116100 Gifts of property

116105 Conservation covenants

116110 Rollovers for merging superannuation funds

116115 Farmin farmout arrangements

116120 Disposals of assets involving lookthrough earnout rights

Division 118—Exemptions

Guide to Division 118 488

1181 What this Division is about

Subdivision 118A—General exemptions

Exempt assets 

1185 Cars, motor cycles and valour decorations

11810 Collectables and personal use assets

11812 Assets used to produce exempt income etc.

11813 Shares in a PDF

11815 Registered emissions units

Antioverlap provisions

11820 Reducing capital gains if amount otherwise assessable

11821 Carried interests

11822 Superannuation lump sums and employment termination payments

11824 Depreciating assets

11825 Trading stock

11827 Division 230 financial arrangements and financial arrangements to which Subdivision 250E applies

11830 Film copyright

11835 R&D

Exempt or lossdenying transactions

11837 Compensation, damages etc.

11840 Expiry of a lease

11842 Transfer of stratum units

11845 Sale of rights to mine

11855 Foreign currency hedging gains and losses

11860 Certain gifts

11865 Later distributions of personal services income

11870 Transactions by exempt entities

11875 Marriage or relationship breakdown settlements

11877 Native title and rights to native title benefits

Boat capital gains

11880 Reduction of boat capital gain

Special disability trusts

11885 Special disability trusts

Subdivision 118B—Main residence

Guide to Subdivision 118B

118100 What this Subdivision is about

118105 Map of this Subdivision

Basic case and concepts

118110 Basic case

118115 Meaning of dwelling

118120 Extension to adjacent land etc.

118125 Meaning of ownership period

118130 Meaning of ownership interest in land or a dwelling

Rules that may extend the exemption

118135 Moving into a dwelling

118140 Changing main residences

118145 Absences

118147 Absence from dwelling replacing main residence that was compulsorily acquired, destroyed etc.

118150 If you build, repair or renovate a dwelling

118155 Where individual referred to in section 118150 dies

118160 Destruction of dwelling and sale of land

Rules that may limit the exemption

118165 Separate CGT event for adjacent land or other structures

118170 Spouse having different main residence

118175 Dependent child having different main residence

Rollovers under Subdivision 126A

118178 Previous rollover under Subdivision 126A

118180 Acquisition of dwelling from company or trust on marriage or relationship breakdown—rollover provision applying

Partial exemption rules

118185 Partial exemption where dwelling was your main residence during part only of ownership period

118190 Use of dwelling for producing assessable income

118192 Special rule for first use to produce income

Dwellings acquired from deceased estates

118195 Dwelling acquired from a deceased estate

118197 Special rule for surviving joint tenant

118200 Partial exemption for deceased estate dwellings

118205 Adjustment if dwelling inherited from deceased individual

118210 Trustee acquiring dwelling under will

Special disability trusts

118215 What the following provisions are about

118218 Exemption available to trustee—main case

118220 Exemption available to trustee—after the principal beneficiary’s death

118222 Exemption available to other beneficiary who acquires the CGT asset after the principal beneficiary’s death

118225 Amount of exemption available after the principal beneficiary’s death—general

118227 Amount of exemption available after the principal beneficiary’s death—cost base and reduced cost base

118230 Application of CGT events E5 and E7 in relation to main residence exemption and special disability trusts

Compulsory acquisitions of adjacent land only

118240 What the following provisions are about

118245 CGT events happening only to adjacent land

118250 Compulsory acquisitions of adjacent land

118255 Maximum exempt area

118260 Partial exemption rules

118265 Extension to adjacent structures

Subdivision 118D—Insurance and superannuation

118300 Insurance policies

118305 Superannuation

118310 RSA’s

118313 Superannuation agreements under the Family Law Act

118315 Segregated exempt assets of life insurance companies

118320 Segregated current pension assets of a complying superannuation entity

Subdivision 118E—Units in pooled superannuation trusts

118350 Units in pooled superannuation trusts

Subdivision 118F—Venture capital investment

Guide to Subdivision 118F

118400 What this Subdivision is about

Operative provisions

118405 Exemption for certain foreign venture capital investments through venture capital limited partnerships

118407 Exemption for certain venture capital investments through early stage venture capital limited partnerships

118408 Partial exemption for some capital gains otherwise fully exempt under section 118407

118410 Exemption for certain foreign venture capital investments through Australian venture capital funds of funds

118415 Exemption for certain venture capital investments by foreign residents

118420 Meaning of eligible venture capital partner etc.

118425 Meaning of eligible venture capital investment—investments in companies

118427 Meaning of eligible venture capital investment—investments in unit trusts

118428 Additional investment requirements for ESVCLPs

118430 Meaning of at risk

118435 Special rule relating to investment in foreign resident holding companies

118440 Meaning of permitted entity value

118445 Meaning of committed capital

118450 Values of assets and investments of entities without auditors

Subdivision 118G—Venture capital: investment by superannuation funds for foreign residents

Guide to Subdivision 118G

118500 What this Subdivision is about

118505 Exemption for certain foreign venture capital

118510 Meaning of resident investment vehicle

118515 Meaning of venture capital entity

118520 Meaning of superannuation fund for foreign residents

118525 Meaning of venture capital equity

Subdivision 118H—Demutualisation of Tower Corporation

118550 Demutualisation of Tower Corporation

Subdivision 118I—Lookthrough earnout rights

118560 Object

118565 Lookthrough earnout rights

118570 Extra ways a CGT asset can be an active asset

118575 Creating and ending lookthrough earnout rights

118580 Temporarily disregard capital losses affected by lookthrough earnout rights

Division 121—Record keeping

Guide to Division 121 598

12110 What this Division is about

Operative provisions

12120 What records you must keep

12125 How long you must retain the records

12130 Exceptions

12135 Asset register entries

Part 33—Capital gains and losses: special topics

Division 122—Rollover for the disposal of assets to, or the creation of assets in, a whollyowned company

Guide to Division 122 603

1221 What this Division is about

Subdivision 122A—Disposal or creation of assets by an individual or trustee to a whollyowned company

Guide to Subdivision 122A

1225 What this Subdivision is about

When is a rollover available

12215 Disposal or creation of assets—whollyowned company

12220 What you receive for the trigger event

12225 Other requirements to be satisfied

12235 What if the company undertakes to discharge a liability (disposal case)

12237 Rules for working out what a liability in respect of an asset is

Replacementasset rollover if you dispose of a CGT asset

12240 Disposal of a CGT asset

Replacementasset rollover if you dispose of all the assets of a business

12245 Disposal of all the assets of a business

12250 All assets acquired on or after 20 September 1985

12255 All assets acquired before 20 September 1985

12260 Assets acquired before and after 20 September 1985

Replacementasset rollover for a creation case

12265 Creation of asset

Sameasset rollover consequences for the company (disposal case)

12270 Consequences for the company (disposal case)

Sameasset rollover consequences for the company (creation case)

12275 Consequences for the company (creation case)

Subdivision 122B—Disposal or creation of assets by partners to a whollyowned company

Guide to Subdivision 122B

122120 What this Subdivision is about

When is a rollover available

122125 Disposal or creation of assets—whollyowned company

122130 What the partners receive for the trigger event

122135 Other requirements to be satisfied

122140 What if the company undertakes to discharge a liability (disposal case)

122145 Rules for working out what a liability in respect of an interest in an asset is

Replacementasset rollover if partners dispose of a CGT asset

122150 Capital gain or loss disregarded

122155 Disposal of postCGT or preCGT interests

122160 Disposal of both postCGT and preCGT interests

Replacementasset rollover if the partners dispose of all the assets of a business

122170 Capital gain or loss disregarded

122175 Other consequences

122180 All interests acquired on or after 20 September 1985

122185 All interests acquired before 20 September 1985

122190 Interests acquired before and after 20 September 1985

Replacementasset rollover for a creation case

122195 Creation of asset

Sameasset rollover consequences for the company (disposal case)

122200 Consequences for the company (disposal case)

Sameasset rollover consequences for the company (creation case)

122205 Consequences for the company (creation case)

Chapter 2Liability rules of general application

Part 215Nonassessable income

Division 58Capital allowances for depreciating assets previously owned by an exempt entity

Table of Subdivisions

 Guide to Division 58

58A Application

58B Calculating decline in value of privatised assets under Division 40

Guide to Division 58

581  What this Division is about

This Division sets out special rules that apply in calculating deductions for the decline in value of depreciating assets and balancing adjustments for assets previously owned by an exempt entity if the assets:

There is a choice of 2 methods for each depreciating asset:

Subdivision 58AApplication

Table of sections

585 Application of Division

5810 When an asset is acquired in connection with the acquisition of a business

585  Application of Division

 (1) This Division applies in 2 situations.

Entity sale

 (2) The first (an entity sale situation) is where:

 (a) at a particular time on or after 1 July 2001, an entity is an *exempt entity; and

 (b) just after that time, the entity’s *ordinary income or *statutory income becomes to any extent assessable income.

 (3) In an entity sale situation:

 (a) the entity is a transition entity; and

 (b) the time when the entity’s *ordinary income or *statutory income becomes to that extent assessable is the transition time; and

 (c) the income year in which the *transition time occurs is the transition year for the entity; and

 (d) the *depreciating assets the *transition entity *held just before the transition time are privatised assets.

Asset sale

 (4) The second (an asset sale situation) is where:

 (a) at a particular time on or after 1 July 2001, an entity (the purchaser) whose *ordinary income or statutory income is to any extent assessable acquires a *depreciating asset from the Commonwealth, a State, a Territory or an *exempt entity; and

 (b) the asset is acquired in connection with the acquisition of a *business from the Commonwealth, the State, the Territory or the exempt entity.

 (5) In an asset sale situation:

 (a) the Commonwealth, the State, the Territory or the *exempt entity is the tax exempt vendor; and

 (b) the time when the *depreciating asset is acquired is the acquisition time; and

 (c) the income year in which the *acquisition time occurs is the acquisition year; and

 (d) each *depreciating asset the purchaser acquires from the *tax exempt vendor at the acquisition time is a privatised asset.

5810  When an asset is acquired in connection with the acquisition of a business

 (1) A *depreciating asset is taken to be acquired in connection with the acquisition of a *business from the Commonwealth, the State, the Territory or the *exempt entity if and only if:

 (a) the asset was used by the Commonwealth, the State, the Territory or the exempt entity in carrying on a business and the purchaser or another entity uses the asset in carrying on the business; or

 (b) subsection (2) applies.

 (2) This subsection applies if:

 (a) the asset was used by the Commonwealth, the State, the Territory or the *exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a *business by the Commonwealth, the State, the Territory or the exempt entity and the asset is used by the purchaser or another entity in performing those functions or engaging in those activities as part of carrying on a business; or

 (b) all of these subparagraphs apply:

 (i) the acquisition by the purchaser of the asset was connected with the acquisition of another asset by the purchaser or another entity from the Commonwealth, the State, the Territory or the exempt entity or from an *associate of the Commonwealth, the State, the Territory or the exempt entity;

 (ii) ownership of the other asset gives the purchaser or other entity a right, or imposes on the purchaser or other entity an obligation, to perform functions or engage in activities as part of the carrying on of a business or confers on the purchaser or other entity a commercial advantage or opportunity in connection with performing functions or engaging in activities as part of the carrying on of a business;

 (iii) the asset is used by the purchaser or other entity in performing those functions or engaging in those activities under the right or obligation or in taking the benefit of the advantage or opportunity; or

 (c) the asset was acquired by the purchaser under an *arrangement under which the purchaser or another entity acquired another asset from the Commonwealth, the State, the Territory or the exempt entity or from an associate of the Commonwealth, the State, the Territory or the exempt entity and:

 (i) the other asset is taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection; or

 (ii) where the other asset is not a depreciating asset, it would, if it were a depreciating asset, be taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection;

  to be acquired in connection with the acquisition of a business from the Commonwealth, the State, the Territory or the exempt entity.

 (3) Paragraphs (2)(a), (b) and (c) do not apply if the asset is used by the purchaser solely to *derive assessable income from the provision of office or residential accommodation.

Subdivision 58BCalculating decline in value of privatised assets under Division 40

Table of sections

5860 Purpose of rules in this Subdivision

5865 Choice of method to work out cost of privatised asset

5870 Application of Division 40

5875 Meaning of notional written down value

5880 Meaning of undeducted preexisting audited book value

5885 Preexisting audited book value of depreciating asset

5890 Method and effective life for transition entity

5860  Purpose of rules in this Subdivision

  This Subdivision sets out rules that affect the way in which the *transition entity or the purchaser work out the decline in value of, and balancing adjustments for, *privatised assets under Division 40 after the *transition time or the *acquisition time.

5865  Choice of method to work out cost of privatised asset

 (1) The *transition entity or the purchaser has a choice to work out the first element of the *cost of each *privatised asset.

 (2) The choice is to use either:

 (a) the *notional written down value of the asset; or

 (b) the *undeducted preexisting audited book value (if any) of the asset.

 (3) The choice must be made:

 (a) for the *transition entity—by the day on which the transition entity lodges its *income tax return for the *transition year; or

 (b) for the purchaser—by the day on which the purchaser lodges the purchaser’s income tax return for the *acquisition year;

or within a further period allowed by the Commissioner.

 (4) The choice, once made, cannot be changed.

5870  Application of Division 40

Application of Division 40

 (1) The *transition entity and the purchaser work out the decline in value of, and the effect of a *balancing adjustment event occurring for, each *privatised asset using Division 40 (Capital allowances) as if the asset had been acquired under a contract entered into on or after 1 July 2001.

Entity sale situation

 (2) Division 40 applies to a *privatised asset *held by the *transition entity as if the asset had not been used, or *installed ready for use, for any purpose before the *transition time.

 (3) The first element of the *cost to the *transition entity at the *transition time is the *notional written down value of the asset or the *undeducted preexisting audited book value of the asset (depending on the choice made for the asset).

 (4) No amount incurred before the *transition time is included in the second element of the *cost of a *privatised asset.

Asset sale situation

 (5) The first element of the *cost of a *privatised asset to the purchaser at the *acquisition time is the sum of:

 (a) the *notional written down value of the asset or the *undeducted preexisting audited book value of the asset (depending on the choice made for the asset); and

 (b) the amount of any incidental costs to the purchaser in acquiring the asset.

5875  Meaning of notional written down value

 (1) The notional written down value of a *privatised asset is its *adjustable value in the hands of:

 (a) the *transition entity just before the *transition time; or

 (b) the *tax exempt vendor just before the *acquisition time;

worked out using the assumptions in this section.

Application of Division 40

 (2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset.

Use for taxable purposes

 (3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes.

Cost and acquisition time: exempt Australian government agency

 (4) If the *transition entity or the *tax exempt vendor was an *exempt Australian government agency just before the *transition time and had acquired the *privatised asset from another exempt Australian government agency:

 (a) assume that the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the other exempt Australian government agency and that the first element of its *cost to the transition entity or tax exempt vendor is the amount that was its cost to the other exempt Australian government agency; or

 (b) if it had, before its acquisition by the transition entity or tax exempt vendor, been successively *held by 2 or more exempt Australian government agencies—assume that:

 (i) the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it; and

 (ii) the first element of its cost to the transition entity or tax exempt vendor is the sum of the amount that was the first element of its cost to the first of those exempt Australian government agencies that owned it and any amount included in the second element of its cost for that first agency or a later successive agency.

Effective life

 (5) Assume that:

 (a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and

 (b) subsection 4095(2) did not apply.

 (5A) Assume that section 40102 did not apply to a *privatised asset unless all of the following are satisfied:

 (a) it is an entity sale situation within the meaning of section 585;

 (b) a *capped life applies to the asset under subsection 40102(4) or (5) at both the asset’s *start time and the *transition time;

 (c) the *transition entity chooses, for the purposes of this section, to have section 40102 apply to the asset.

If section 40102 is to be applied to the asset, disregard paragraphs 40102(2)(a) and (b) and assume that the relevant time for the purposes of the application of that section to the asset were the transition time.

 (6) Assume also that section 40110 (about recalculating effective life) did not apply.

5880  Meaning of undeducted preexisting audited book value

 (1) The undeducted preexisting audited book value of a *privatised asset is its *adjustable value in the hands of:

 (a) the *transition entity just before the *transition time; or

 (b) the *tax exempt vendor just before the *acquisition time;

worked out using the assumptions in this section.

Application of Division 40

 (2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset.

Use for taxable purposes

 (3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes.

Cost

 (4) Assume that:

 (a) the first element of the *privatised asset’s *cost to the *transition entity or the *tax exempt vendor is its *preexisting audited book value as at the latest time (the test time) at which it had a preexisting audited book value; and

 (b) no amount was included in the second element of the asset’s cost before the test time; and

 (c) any amount included in the second element of the asset’s cost after the test time had been incurred by the transition entity or the tax exempt vendor.

Acquisition time

 (5) Assume that the *transition entity or the *tax exempt vendor had acquired the *privatised asset at the test time.

Effective life

 (6) Assume that:

 (a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and

 (b) subsection 4095(2) did not apply.

Note: Section 40102 does not apply to a privatised asset for the purposes of this section.

 (7) Assume also that section 40110 (about recalculating effective life) did not apply.

5885  Preexisting audited book value of depreciating asset

 (1) A *privatised asset has a preexisting audited book value if:

 (a) a balance sheet, as at the end of an annual accounting period (the balance date), that was prepared as part of the final accounts of the Commonwealth, a State, a Territory or an *exempt entity for that period showed the asset as an asset of the relevant entity and specified a value for it; and

 (b) a qualified independent auditor who was engaged, or was required by law, to undertake an audit of those accounts had prepared and signed, before 4 August 1997, a final audit report on those accounts; and

 (c) the report did not state that the auditor was not satisfied that the specified value fairly represented the value of the asset.

The asset is taken to have had a preexisting audited book value at the balance date of an amount equal to the specified value.

 (2) If a balance sheet did not specify a value for the asset but specified a total value for 2 or more assets including the asset, the balance sheet is taken to have specified as the value of the asset so much of that total value as is reasonably attributable to the asset.

5890  Method and effective life for transition entity

 (1) The *transition entity must, in working out the decline in value of a *privatised asset, use the *diminishing value method or the *prime cost method for the asset that it used to work out the *notional written down value, or the *undeducted preexisting audited book value, of the asset.

 (2) In working out the decline in value of a *privatised asset held by a *transition entity:

 (a) if section 40102 applied to the asset for the purposes of subsection 5875(5A)—section 40102 applies to the asset and applies as if the relevant time for the asset for the purposes of that section were the *transition time; or

 (b) if section 40102 did not apply to the asset for the purposes of subsection 5875(5A) or section 5880—section 40102 does not apply to the asset.

Division 59Particular amounts of nonassessable nonexempt income

 

Guide to Division 59

591  What this Division is about

This Division details particular amounts that are nonassessable nonexempt income.

Table of sections

Operative provisions

5910 Compensation under firearms surrender arrangements

5915 Mining payments

5920 Taxable amounts relating to franchise fees windfall tax

5925 Taxable amounts relating to Commonwealth places windfall tax

5930 Amounts you must repay

5935 Amounts that would be mutual receipts but for prohibition on distributions to members

5940 Issue of rights

5950 Native title benefits

5965 Water infrastructure improvement payments

5967 Meaning of SRWUIP program, SRWUIP payment, direct SRWUIP payment and indirect SRWUIP payment

5970 List of SRWUIP programs

5975 Commissioner to be kept informed

5980 Amending assessments

Operative provisions

5910  Compensation under firearms surrender arrangements

  A payment made to you by way of compensation under *firearms surrender arrangements for any loss of business is not assessable income and is not *exempt income.

5915  Mining payments

 (1) These are not assessable income and are not *exempt income:

 (a) a *mining payment made to a *distributing body;

 (b) a mining payment made to one or more *Indigenous persons, or applied for their benefit.

 (2) A payment:

 (a) made to a *distributing body; or

 (b) made to one or more *Indigenous persons, or applied for their benefit;

is not assessable income and is not *exempt income if the payment is made by a *distributing body out of a *mining payment that it has received.

 (3) A payment made to a *distributing body by another distributing body, out of a *mining payment received by the other distributing body, is taken to be a mining payment for the purposes of:

 (a) any further applications of subsection (2); and

 (b) any further applications of this subsection.

 (4) Subsection (2) does not apply to a payment by a *distributing body for the purposes of meeting its administrative costs.

 (5) This section does not apply to an amount paid to or applied for the benefit of a person if it is remuneration or consideration for goods or services provided by that person.

5920  Taxable amounts relating to franchise fees windfall tax

  Taxable amounts on which tax is imposed by the Franchise Fees Windfall Tax (Imposition) Act 1997 are not assessable income and are not *exempt income.

5925  Taxable amounts relating to Commonwealth places windfall tax

  Taxable amounts on which tax is imposed by the Commonwealth Places Windfall Tax (Imposition) Act 1998 are not assessable income and are not *exempt income.

5930  Amounts you must repay

 (1) An amount you receive is not assessable income and is not *exempt income for an income year if:

 (a) you must repay it; and

 (b) you repay it in a later income year; and

 (c) you cannot deduct the repayment for any income year.

 (2) It does not matter if:

 (a) you received the amount as part of a larger amount; or

 (b) the obligation to repay existed when you received the amount or it came into existence later.

 (3) This section does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation.

5935  Amounts that would be mutual receipts but for prohibition on distributions to members

  An amount of *ordinary income of an entity is not assessable income and not *exempt income if:

 (a) the amount would be a mutual receipt, but for the entity’s constituent document preventing the entity from making any *distribution, whether in money, property or otherwise, to its members; and

 (b) apart from this section, the amount would be assessable income only because of section 65.

5940  Issue of rights

 (1) The *market value, as at the time of issue (the issue time), of rights issued to you:

 (a) by a company to *acquire *shares in that company; or

 (b) by a trustee of a unit trust to acquire units in that trust;

is not assessable income and is not *exempt income as at the issue time if the conditions in subsection (2) are satisfied.

 (2) The conditions are as follows:

 (a) at the issue time, you must already own *shares in the company or units in the unit trust (the original interests);

 (b) the rights must be issued to you because of your ownership of the original interests;

 (c) the original interests and the rights must not be *revenue assets or *trading stock at the issue time;

 (d) if you acquired a beneficial interest in the rights under an *employee share scheme—neither Subdivision 83AB nor 83AC (about employee share schemes) applies to the beneficial interest;

 (e) the original interests and the rights must not be *traditional securities;

 (f) the original interests must not be *convertible interests.

5950  Native title benefits

 (1) To the extent that a *native title benefit would otherwise be included in your assessable income, it is not assessable income and is not *exempt income if you are an *Indigenous person or an *Indigenous holding entity.

 (2) To the extent that an amount, or other benefit, arising directly or indirectly from a *native title benefit would otherwise be included in your assessable income, it is not assessable income and is not *exempt income if you are an *Indigenous person or an *Indigenous holding entity.

 (3) Neither subsection (1) nor (2) applies to an amount, or benefit, to the extent that it:

 (a) is for the purposes of meeting the provider’s administrative costs; or

 (b) is remuneration or consideration for the provision of goods or services.

 (4) Subsection (2) does not apply to an amount, or benefit, to the extent that it arises directly or indirectly:

 (a) from so much of:

 (i) the *native title benefit; or

 (ii) an amount, or benefit, arising directly or indirectly from the native title benefit;

  as is not *nonassessable nonexempt income of an entity because of this section; or

 (b) from an entity investing any or all of:

 (i) the native title benefit; or

 (ii) an amount, or benefit, arising directly or indirectly from the native title benefit.

 (5) A native title benefit is an amount, or *noncash benefit, that:

 (a) arises under:

 (i) an agreement made under an Act of the Commonwealth, a State or a Territory, or under an instrument made under such an Act; or

 (ii) an ancillary agreement to such an agreement;

  to the extent that the amount or benefit relates to an act that would extinguish *native title or that would otherwise be wholly or partly inconsistent with the continued existence, enjoyment or exercise of native title; or

 (b) is compensation determined in accordance with Division 5 of Part 2 of the Native Title Act 1993.

Note 1: Agreements that can be covered by paragraph (a) include:

(a) indigenous land use agreements (within the meaning of the Native Title Act 1993); and

(b) an agreement of the kind mentioned in paragraph 31(1)(b) of that Act; and

(c) recognition and settlement agreements (within the meaning of the Traditional Owner Settlement Act 2010 (Vic.)).

Note 2: Paragraph (a) does not require a determination of native title under the Native Title Act 1993.

 (6) An Indigenous holding entity is:

 (a) a *distributing body; or

 (b) a trust, if the beneficiaries of the trust can only be *Indigenous persons or Indigenous holding entities; or

 (c) a *registered charity.

5965  Water infrastructure improvement payments

 (1) A *SRWUIP payment, in respect of a *SRWUIP program, to an entity that is a participant in the program is not assessable income and is not *exempt income if:

 (a) the entity has made a choice under subsection (2) for the program; and

 (b) if the payment is an *indirect SRWUIP payment—the entity *derives the payment because it owns an asset (otherwise than under a *financial arrangement) to which the program relates.

Note: One of the requirements for a SRWUIP payment is for the SRWUIP program to be on the published list of SRWUIP programs for the day the payment is made (see subsection 5967(5)).

 (2) An entity may make a choice for a *SRWUIP program under this subsection if, in an income year:

 (a) the entity *derives a *SRWUIP payment in respect of the program but has not, in an earlier income year:

 (i) derived a SRWUIP payment in respect of the program; or

 (ii) incurred *SRWUIP expenditure in respect of the program; or

 (b) the entity incurs SRWUIP expenditure in respect of the program but has not, in an earlier income year:

 (i) derived a SRWUIP payment in respect of the program; or

 (ii) incurred SRWUIP expenditure in respect of the program.

Disregard subsection 26100(3) (about expenditure that is never SRWUIP expenditure) for the purposes of this subsection.

 (3) The choice must be:

 (a) made in the *approved form; and

 (b) made:

 (i) unless subparagraph (ii) or (iii) applies—on or before the day the entity lodges its *income tax return for the income year; or

 (ii) if the Commissioner makes an assessment of the entity’s taxable income for the income year before the entity lodges its income tax return for the income year, and subparagraph (iii) does not apply—on or before the day the Commissioner makes that assessment; or

 (iii) within such further time as the Commissioner allows.

The choice cannot be revoked.

Integrity rule

 (4) Subsection (1) does not apply if, at the time the entity *derives the *SRWUIP payment in respect of a *SRWUIP program, it is reasonable to conclude that:

 (a) the entity will not incur expenditure at least equal to the payment on works required by the program; and

 (b) despite not incurring such expenditure, the entity will comply with the program because an *associate of the entity will incur expenditure on those works; and

 (c) the associate has not made, and will not make, a choice under subsection (2) for the program.

5967  Meaning of SRWUIP program, SRWUIP payment, direct SRWUIP payment and indirect SRWUIP payment

 (1) A SRWUIP program is a program under the program administered by the Commonwealth known as the Sustainable Rural Water Use and Infrastructure program.

 (2) A SRWUIP payment, in respect of a *SRWUIP program, is:

 (a) a *direct SRWUIP payment in respect of the program; or

 (b) an *indirect SRWUIP payment in respect of the program.

 (3) A direct SRWUIP payment is a payment by the Commonwealth to a participant in a *SRWUIP program to the extent that it is made under that program.

 (4) An indirect SRWUIP payment is a payment to a participant in a *SRWUIP program to the extent that it is reasonably attributable to a payment by the Commonwealth under that program.

 (5) For the purposes of subsections (3) and (4), treat a payment as being made under a *SRWUIP program only if that SRWUIP program is on the published list of SRWUIP programs (see section 5970) for the day the payment is made.

 (6) However, treat a payment as if it had never been made under a *SRWUIP program to the extent that the Commonwealth seeks to recover the payment.

Example: The Commonwealth seeks to recover half of a payment made under a SRWUIP program. The remaining half is still a payment made under the SRWUIP program.

5970  List of SRWUIP programs

 (1) The *Water Secretary must keep a list of *SRWUIP programs. The list must:

 (a) specify the days for which each program is on the list; and

 (b) be published on the *Water Department’s website.

Example: A program could be listed for each day on or after 1 July 2011.

Entering SRWUIP programs on the list

 (2) The *Water Secretary must enter on the list each *SRWUIP program (and its days) in accordance with a direction under subsection (3).

 (3) The Minister and the *Water Minister may jointly direct the *Water Secretary to enter a program (and its days) on the list only if the Water Minister has notified the Minister in writing that the Water Minister is satisfied that the program:

 (a) is a *SRWUIP program; and

 (b) will generate efficiencies in water use through infrastructure improvements.

 (4) A direction under subsection (3) must be in writing and specify the days for which the *SRWUIP program is to be on the list. Some or all of those days may be before the day the direction is given.

Changing the days for which a SRWUIP program is listed

 (5) The Minister and the *Water Minister may jointly direct the *Water Secretary to change the list to specify:

 (a) additional days (including days before the day the direction is given) for which a *SRWUIP program is on the list; or

 (b) the final day (which must be after the day the direction is given) for which a SRWUIP program is on the list.

The *Water Secretary must change the list accordingly.

 (6) A direction under subsection (5) must be in writing.

Giving directions

 (7) The Minister and the *Water Minister must have regard to the policies and budgetary priorities of the Commonwealth Government in deciding whether to give a direction under subsection (3) or (5).

5975  Commissioner to be kept informed

  The *Water Secretary must notify the Commissioner about each payment described in subsection 5967(6) that the Commonwealth seeks to recover.

5980  Amending assessments

  Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment for the purpose of giving effect to an outcome that is consequential on any or all of the following events:

 (a) the inclusion of a *SRWUIP program on the published list of SRWUIP programs (see section 5970);

 (b) the publication of a change to a SRWUIP program’s listing on the published list of SRWUIP programs;

 (c) the Commonwealth seeking to recover a payment described in subsection 5967(6);

 (d) the making of a choice under subsection 5965(2);

 (e) the event that causes subsection 26100(3) to treat expenditure as if it had never been *SRWUIP expenditure;

if the amendment is made at any time during the period of 2 years starting immediately after that event.

Note: Section 170 of the Income Tax Assessment Act 1936 specifies the usual period within which assessments may be amended.

Part 220Tax offsets

Division 61Generally applicable tax offsets

Table of Subdivisions

61A Dependant (invalid and carer) tax offset

61G Private health insurance offset complementary to Part 22 of the Private Health Insurance Act 2007

61I First child tax offset (baby bonus)

61IA Child care tax offset

61L Tax offset for Medicare levy surcharge (lump sum payments in arrears)

61N Seafarer tax offset

61P ESVCLP tax offset

Subdivision 61ADependant (invalid and carer) tax offset

Guide to Subdivision 61A

611  What this Subdivision is about

You are entitled to a tax offset for an income year if you maintain certain dependants who are unable to work.

Table of sections

Object of this Subdivision

615 Object of this Subdivision

Entitlement to the dependant (invalid and carer) tax offset

6110 Who is entitled to the tax offset

6115 Cases involving more than one spouse

6120 Exceeding the income limit for family tax benefit (Part B)

6125 Eligibility for family tax benefit (Part B) without shared care

Amount of the dependant (invalid and carer) tax offset

6130 Amount of the dependant (invalid and carer) tax offset

6135 Families with shared care percentages

6140 Reduced amounts of dependant (invalid and carer) tax offset

6145 Reductions to take account of the other individual’s income

Object of this Subdivision

615  Object of this Subdivision

  The object of this Subdivision is to provide a *tax offset to assist with the maintenance of certain types of dependants who are genuinely unable to work because of invalidity, or because of their care obligations.

Entitlement to the dependant (invalid and carer) tax offset

6110  Who is entitled to the tax offset

 (1) You are entitled to a *tax offset for an income year if:

 (a) during the year you contribute to the maintenance of another individual who:

 (i) is your *spouse; or

 (ii) is your *parent or your spouse’s parent; or

 (iii) is aged 16 years or over, and is your *child, brother or sister or a brother or sister of your spouse; and

 (b) during the year, the other individual meets the requirements of one or more of subsections (2), (3) and (4); and

 (c) during the year:

 (i) the other individual is an Australian resident; or

 (ii) if the other individual is your spouse or your child—you had a domicile in Australia.

 (2) The other individual meets the requirements of this subsection if he or she is being paid:

 (a) a disability support pension or a special needs disability support pension under the Social Security Act 1991; or

 (b) an invalidity service pension under the Veterans’ Entitlements Act 1986.

 (3) The other individual meets the requirements of this subsection if he or she:

 (a) is your *spouse or parent, or your spouse’s parent; and

 (b) is being paid a carer allowance or carer payment under the Social Security Act 1991 in relation to provision of care to a person who:

 (i) is your *child, brother or sister, or the brother or sister of your spouse; and

 (ii) is aged 16 years or over.

 (4) The other individual meets the requirements of this subsection if he or she is your *spouse or parent, or your spouse’s parent, and is wholly engaged in providing care to an individual who:

 (a) is your *child, brother or sister, or the brother or sister of your spouse; and

 (b) is aged 16 years or over; and

 (c) is being paid:

 (i) a disability support pension or a special needs disability support pension under the Social Security Act 1991; or

 (ii) an invalidity service pension under the Veterans’ Entitlements Act 1986.

 (5) You may be entitled to more than one *tax offset for the year under subsection (1) if:

 (a) you contributed to the maintenance of more than one other individual (none of whom are your *spouse) during the year; or

 (b) you had different *spouses at different times during the year.

Note 1: If paragraph (b) applies, the amount of the tax offset in relation to each spouse would be only part of the full amount: see section 6140.

Note 2: Section 960255 may be relevant to determining relationships for the purposes of this section.

6115  Cases involving more than one spouse

 (1) Despite paragraph 6110(1)(a), if, during a period comprising some or all of the year, there are 2 or more individuals who are your *spouse, you are taken, for the purposes of section 6110, only to contribute to the maintenance of the spouse with whom you reside during that period.

 (2) Despite paragraph 6110(1)(a) and subsection (1) of this section, if, during a period comprising some or all of the year:

 (a) you reside with 2 or more individuals who are your *spouse; or

 (b) 2 or more individuals are your *spouse but you reside with none of them;

you are taken, for the purposes of section 6110, only to contribute to the maintenance of whichever of those individuals in relation to whom you are entitled to the smaller, or smallest, amount (including a nil amount) of tax offset under this Subdivision in relation to that period.

6120  Exceeding the income limit for family tax benefit (Part B)

 (1) Despite section 6110, you are not entitled to a *tax offset for an income year if the sum of:

 (a) your *adjusted taxable income for offsets for the year; and

 (b) if you had a *spouse for the whole or part of the year, and your spouse was not the other individual referred to in subsection 6110(1)—the spouse’s adjusted taxable income for offsets for the year;

is more than the amount specified in subclause 28B(1) of Schedule 1 to the A New Tax System (Family Assistance) Act 1999, as indexed under Part 2 of Schedule 4 to that Act.

 (2) However, if you had a *spouse for only part of the year, the spouse’s *adjusted taxable income for offsets for the year is taken, for the purposes of paragraph (1)(b), to be this amount:

 (3) If you had a different *spouse during different parts of the year, include the *adjusted taxable income for offsets of each spouse under paragraph (1)(b) and subsection (2).

6125  Eligibility for family tax benefit (Part B) without shared care

  Despite section 6110, you are not entitled to a *tax offset in relation to another individual for an income year if:

 (a) your entitlement to the tax offset would, apart from this section, be based on the other individual being your spouse during the year; and

 (b) during the whole of the year:

 (i) you, or your *spouse while being your partner (within the meaning of the A New Tax System (Family Assistance) Act 1999), is eligible for family tax benefit at the Part B rate (within the meaning of that Act); and

 (ii) clause 31 of Schedule 1 to that Act does not apply in respect of the Part B rate.

Note: Clause 31 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999 reduces the standard rate for the family tax benefit to take account of shared care percentages.

Amount of the dependant (invalid and carer) tax offset

6130  Amount of the dependant (invalid and carer) tax offset

  The amount of the *tax offset to which you are entitled in relation to another individual under section 6110 for an income year is $2,423. The amount is indexed annually.

Note 1: Subdivision 960M shows you how to index amounts.

Note 2: The amount of the tax offset may be reduced by the application, in order, of sections 6135 to 6145.

6135  Families with shared care percentages

 (1) The amount of the *tax offset under section 6130 in relation to the other individual for the year is reduced by the amount worked out under subsection (2) of this section if:

 (a) your entitlement to the tax offset is based on the other individual being your spouse during the year; and

 (b) during a period (the shared care period) comprising the whole or part of the year:

 (i) you, or your *spouse while being your partner (within the meaning of the A New Tax System (Family Assistance) Act 1999), was eligible for family tax benefit at the Part B rate within the meaning of that Act; and

 (ii) clause 31 of Schedule 1 to that Act applied in respect of that Part B rate because you, or your spouse, had a shared care percentage for an FTB child (within the meaning of that Act).

 (2) The reduction is worked out as follows:

where:

nonshared care rate is the rate that would be the standard rate in relation to you or your *spouse under clause 30 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999 if:

 (a) clause 31 of that Schedule did not apply; and

 (b) the FTB child in relation to whom the standard rate was determined under clause 31 of that Schedule was the only FTB child of you or your spouse, as the case requires.

shared care rate is the standard rate in relation to you or your *spouse worked out under clause 31 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999.

unaltered offset amount is what would, but for this section, be the amount of your *tax offset in relation to the other individual under section 6110 for the year.

6140  Reduced amounts of dependant (invalid and carer) tax offset

 (1) The amount of the *tax offset under sections 6130 and 6135 in relation to the other individual for the year is reduced by the amount in accordance with subsection (2) of this section if one or more of the following applies:

 (a) you contribute to the maintenance of the other individual during part only of the year;

 (b) during the whole or part of the year, 2 or more individuals contribute to the maintenance of the other individual;

 (c) the other individual is an individual of a kind referred to in subparagraph 6110(1)(a)(i), (ii) or (iii) during part only of the year;

 (d) paragraph 6110(1)(b) applies to the other individual during part only of the year;

 (e) paragraph 6110(1)(c) applies during part only of the year;

 (f) the other individual is your spouse, and, during part of the year:

 (i) you, or your *spouse while being your partner (within the meaning of the A New Tax System (Family Assistance) Act 1999), is eligible for family tax benefit at the Part B rate (within the meaning of that Act); and

 (ii) clause 31 of Schedule 1 to that Act does not apply in respect of the Part B rate;

 (g) the other individual is your spouse, and, during part of the year, parental leave pay is payable under the Paid Parental Leave Act 2010 to you, or to your spouse while being your partner (within the meaning of that Act).

 (2) The amount of the tax offset under sections 6130 and 6135 is reduced to an amount that, in the Commissioner’s opinion, is a reasonable apportionment in the circumstances, having regard to the applicable matters referred to in paragraphs (1)(a) to (g).

 (3) If paragraph (1)(f) or (g) applies, the Commissioner is not to consider the part of the year covered by that paragraph.

6145  Reductions to take account of the other individual’s income

  The amount of the *tax offset under sections 6130 to 6140 in relation to the other individual for the year is reduced by $1 for every $4 by which the following exceeds $282:

 (a) if you contribute to the maintenance of the other individual for the whole of the year—the other individual’s *adjusted taxable income for offsets for the year;

 (b) if paragraph (a) does not apply—the other individual’s *adjusted taxable income for offsets for that part of the year during which you contribute to the maintenance of the other individual.

Subdivision 61GPrivate health insurance offset complementary to Part 22 of the Private Health Insurance Act 2007

Guide to Subdivision 61G

61200  What this Subdivision is about

You can choose to claim a tax offset for a premium, or an amount in respect of a premium, paid under a private health insurance policy instead of having the premium reduced under Division 23 of the Private Health Insurance Act 2007.

Table of sections

Operative provisions

61205 Entitlement to the private health insurance tax offset

61210 Amount of the private health insurance tax offset

61215 Reallocation of the private health insurance tax offset between spouses

Operative provisions

61205  Entitlement to the private health insurance tax offset

 (1) You are entitled to a *tax offset for the 201213 income year or a later income year if:

 (a) a premium, or an amount in respect of a premium, was paid by you or another entity during the income year under a *complying health insurance policy in respect of a period (the premium period); and

 (b) you are a *PHIIB in respect of the premium or amount; and

 (c) each person insured under the policy during the premium period is, for the whole of the time that he or she is insured under the policy during the premium period:

 (i) an eligible person (within the meaning of section 3 of the Health Insurance Act 1973); or

 (ii) treated as such because of section 6, 6A or 7 of that Act.

 (2) You are also entitled to the *tax offset if:

 (a) you are a trustee who is liable to be assessed under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the net income of a trust estate; and

 (b) the beneficiary who is presently entitled to the share of the income of the trust estate would be entitled to the tax offset because of subsection (1).

61210  Amount of the private health insurance tax offset

 (1) The amount of the *tax offset is your *share of the PHII benefit in respect of the premium or amount.

Reduction because PHII benefit received in another form

 (2) Subsections (3), (4) and (5) apply if the amount of the premium was reduced because of the operation or purported operation of Division 23 of the Private Health Insurance Act 2007.

 (3) Divide the total of the reduction by the number of persons who are *PHIIBs in respect of the premium or amount.

 (4) Reduce your *tax offset under subsection (1) to nil if the amount worked out under subsection (3) equals or exceeds your *share of the PHII benefit in respect of the premium or amount.

Note: If the amount worked out under subsection (3) exceeds your share of the PHII benefit, you are liable to pay the excess to the Commonwealth. See section 28218 of the Private Health Insurance Act 2007 (Liability for excess private health insurance premium reduction or refund).

 (5) Otherwise, reduce your *tax offset under subsection (1) by the amount worked out under subsection (3).

61215  Reallocation of the private health insurance tax offset between spouses

 (1) You can make a choice under this section in relation to the income year if:

 (a) you are a *PHIIB in respect of the premium or amount; and

 (b) on the last day of the income year, you are married (within the meaning of the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999; and

 (c) the individual to whom you are married is also a PHIIB in respect of the premium or amount; and

 (d) the individual to whom you are married has not made a choice under this section in relation to the income year.

Note: If you make a choice under this section, you might be liable to pay an amount under section 28218 of the Private Health Insurance Act 2007 (Liability for excess private health insurance premium reduction or refund).

 (2) If you make a choice under this section in relation to the income year:

 (a) the amount (if any) of the *tax offset for the income year under section 61205 in respect of the premium or amount of the individual to whom you are married is reduced to nil; and

 (b) your tax offset for the income year under that section in respect of the premium or amount is increased by that amount.

 (3) A choice under this section in relation to the income year can only be made in your *income tax return for the income year.

 (4) A choice under this section in relation to an income year has effect for all premiums, or amounts in respect of premiums, paid during the income year.

Subdivision 61IFirst child tax offset (baby bonus)

Guide to Subdivision 61I

61350  What this Subdivision is about

You are entitled to a tax offset for your first child, for income years up to and including the year the child turns 5, if you meet certain conditions.

The amount of the offset is usually based on your tax liability in the year before you became responsible for the child, and on a comparison between your taxable income in that year and the year you are claiming for. However, if you are a low income taxpayer, a minimum offset will generally be available.

Instead of claiming the offset yourself, you may transfer your entitlement to your spouse.

If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption.

Table of sections

Entitlement to a first child tax offset

61355 Who is entitled to a tax offset under this section

61360 What is a child event?

61365 First child only

61370 Another carer with entitlement for another child

61375 Selection rules

61380 Special rules for death of first child

Transferring an entitlement

61385 You may transfer your entitlement to a tax offset

61390 Transfer is irrevocable

61395 Transferor is not entitled to tax offset

61400 Transferee is entitled to tax offset

Claiming a first child tax offset

61405 How to claim a tax offset for a child

61410 Claim is irrevocable

Amount of a first child tax offset

61415 Formula for working out amount of tax offset

61420 Component of formula—entitlement amount

61425 Component of formula—total of the entitlement days

61430 What is your base year?

Additional tax offset if a child is in your care before you legally adopt the child

61440 Additional tax offset if a child is in your care before you legally adopt the child

61445 When a child is first in your care

61450 What is your base year if a child is in your care before you legally adopt the child?

61455 Old Subdivision applies if you would be worse off

Entitlement to a first child tax offset

61355  Who is entitled to a tax offset under this section

 (1) You are entitled to a *tax offset for a child for an income year if you meet the conditions in subsection (3) at any time in the income year.

Note: If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption (see section 61440).

 (2) To meet those conditions for a child at a given time is to have a primary entitlement to the *tax offset for the child at that time.

 (3) The conditions are that:

 (a) you have had a *child event (see section 61360) in relation to the child (whether or not in the income year); and

 (b) section 61365 (first child only) does not prevent you from having a *primary entitlement to the offset for the child; and

 (c) at the time:

 (i) the child is less than 5; and

 (ii) you are *legally responsible for the child; and

 (iii) the child is in your care; and

 (iv) you are an Australian resident; and

 (v) section 61370 (another carer) does not prevent you from having a primary entitlement to the offset for the child; and

 (vi) if section 61375 (selection rules) applies—you are selected by subsection (3) of that section.

61360  What is a child event?

  You have a child event at a particular time (the event time) if:

 (a) you become *legally responsible for a child at the event time; and

Example: Giving birth is generally an example of becoming legally responsible for a child.

 (b) the event time is on or after 1 July 2001 and before 1 July 2004; and

 (c) you are an Australian resident at the event time; and

 (d) you were not legally responsible for the child at any time before 1 July 2001; and

 (e) there is no other person who is also legally responsible for the child at the event time and who was legally responsible for the child at any time before 1 July 2001.

61365  First child only

  You cannot have a *primary entitlement to a *tax offset under section 61355 for a child if:

 (a) you have had a *child event in relation to another child that was earlier than the child event you had for the firstmentioned child; and

 (b) you meet, or met at any time, the conditions in subparagraphs 61355(3)(c)(i) to (iv) for that other child.

61370  Another carer with entitlement for another child

  You cannot have a *primary entitlement to a *tax offset under section 61355 for a child at a time if:

 (a) at that time:

 (i) another person is *legally responsible for the child; and

 (ii) the child is in the other person’s care; and

 (b) the other person has, or had at any time, a primary entitlement to a tax offset for another child.

61375  Selection rules

 (1) This section applies if the conditions in subsection 61355(3) (other than subparagraph (c)(vi)) are met by more than one person at the same time in relation to the same child.

 (2) Only one of those persons can have a *primary entitlement to a *tax offset under section 61355 for the child at that time.

 (3) The person who gets the *primary entitlement to the offset at that time is selected in the following order of priority:

 (a) the natural mother;

 (b) if only one is the adoptive mother—the adoptive mother;

 (c) if only one is a woman—the woman;

 (d) the natural father;

 (e) if only one is the adoptive father—the adoptive father;

 (f) the person determined by the Commissioner, having regard to:

 (i) any agreement between the persons; and

 (ii) any other matters that the Commissioner considers relevant.

61380  Special rules for death of first child

Child dies aged less than 5

 (1) This section applies if your *primary entitlement to a *tax offset under section 61355 for a child ends because the child dies aged less than 5.

Special extension of time in year of death

 (2) Your *primary entitlement is extended until the end of the income year in which the death occurred.

Limit on application of first child only rule

 (3) Section 61365 does not prevent you from having a *primary entitlement to a *tax offset for another child after the end of the income year in which the death occurred.

Transferring an entitlement

61385  You may transfer your entitlement to a tax offset

 (1) If you are entitled to a *tax offset for a child for an income year under section 61355 or 61440, you may transfer that entitlement to another person.

 (1A) However, if you are entitled to a *tax offset for a child for a particular income year under both of sections 61355 and 61440, you may only transfer one of those entitlements to another person if you also transfer the other entitlement to the same person.

 (2) A transfer has effect only if:

 (a) the transferee was your *spouse at all times when you had a *primary entitlement for the child for the income year; and

 (b) the transferee does not have a primary entitlement for that, or another, child for any time during the income year; and

 (c) you have not already claimed the *tax offset for the income year; and

 (d) you make the transfer after the end of the income year; and

 (e) the transfer is in the *approved form.

61390  Transfer is irrevocable

  A transfer cannot be changed or revoked.

61395  Transferor is not entitled to tax offset

  You are no longer yourself entitled to a *tax offset for a child for an income year if you transfer the entitlement under section 61385 for that income year.

61400  Transferee is entitled to tax offset

  If an entitlement to a *tax offset is transferred under section 61385, the transferee is entitled to the offset for the income year.

Claiming a first child tax offset

61405  How to claim a tax offset for a child

  If you are entitled under this Subdivision to a *tax offset for an income year, you may claim the offset only:

 (a) in the *income tax return you give the Commissioner, before 1 July 2014, for the income year for which you are entitled to the offset; or

 (b) if you are not required to give the Commissioner a return for the income year—in the *approved form given to the Commissioner before 1 July 2014.

61410  Claim is irrevocable

  A claim for a *tax offset under this Subdivision cannot be revoked.

Amount of a first child tax offset

61415  Formula for working out amount of tax offset

  The amount of your *tax offset under sections 61355 and 61440 for an income year is the amount (rounded up to the nearest whole dollar) worked out using the formula:

where:

entitlement amount has the meaning given by section 61420.

total of the entitlement days has the meaning given by section 61425.

61420  Component of formula—entitlement amount

 (1) In section 61415, the entitlement amount is the amount (rounded up to the nearest whole dollar) worked out using the formula:

where:

base amount is the lesser of:

 (a) onefifth of your basic income tax liability for your *base year (as worked out in step 2 of the method statement in subsection 410(3)); and

 (b) $2,500.

 (2) However, if:

 (a) the current income year is not your *base year; and

 (b) your taxable income for the current income year is not more than $25,000; and

 (c) the amount worked out under subsection (1) is less than $500;

then the entitlement amount is $500.

 (3) If the amount worked out under subsection (1) is negative, then, unless subsection (2) applies, the entitlement amount is nil.

61425  Component of formula—total of the entitlement days

 (1) In section 61415, the total of the entitlement days is the total number of days for which the primary person (see subsection (3)) had a *primary entitlement to a *tax offset under either or both of sections 61355 and 61440 for the child for the income year.

 (2) In addition, if:

 (a) the relevant *child event happened in the primary person’s *base year; and

 (b) the primary person did not transfer the entitlement under section 61385 for the primary person’s base year; and

 (c) the relevant child turns 5 during the income year;

the total of the entitlement days also includes the number of days in the base year for which the primary person had a primary entitlement to a *tax offset under either or both of sections 61355 and 61440 for the child.

 (3) In this section, the primary person is:

 (a) if you are claiming the offset as a person who has a *primary entitlement to the offset for the child—you; or

 (b) if you are claiming the offset as a transferee under section 61400—the transferor.

61430  What is your base year?

Primary entitlement

 (1) Your base year for an entitlement to a *tax offset for a child under section 61355 is:

 (a) if you were an Australian resident at any time in the income year just before the income year in which the *child event for the child happened (the event year)—the income year just before the event year; and

 (b) otherwise—the event year.

Note: If a child is in your care before you adopt the child, your base year can instead be the year the child was first in your care or the year before that (see section 61450).

 (2) If paragraph (1)(a) applies to you, you may choose the event year to be your base year, in the *approved form. A choice cannot be revoked.

 (3) A choice cannot be made:

 (a) after you have claimed the *tax offset under section 61355 for any income year; or

 (b) after you have transferred your entitlement to the tax offset under section 61355 for any income year.

Transferred entitlement

 (4) Your base year for an entitlement transferred to you under section 61385 is the income year before the first income year for which the entitlement for the child was transferred to you.

Additional tax offset if a child is in your care before you legally adopt the child

61440  Additional tax offset if a child is in your care before you legally adopt the child

 (1) You are entitled to a *tax offset for a child for an income year if:

 (a) you meet the conditions in paragraph (3)(a) at any time in the income year; and

 (b) you meet the conditions in paragraphs (3)(b), (c) and (d).

Note: You are not entitled to a tax offset under this section if section 61455 applies to you.

 (2) To meet those conditions for a child at a given time is to have a primary entitlement to the *tax offset for the child at that time.

 (3) The conditions are that:

 (a) at the time:

 (i) the child is less than 5; and

 (ii) the child is in your care (but you are not legally responsible for the child); and

 (iii) you are an Australian resident; and

 (b) you meet the conditions in subsection 61355(3) in relation to the child in that year or a later income year; and

 (c) you have become legally responsible for the child by adopting the child; and

 (d) the time is on or after 1 July 2001 and before 1 July 2004.

Note: See section 61445 for when a child is first in your care.

61445  When a child is first in your care

  For the purposes of sections 61440 and 61450, a child is first in your care on the date evidenced in writing by a court or relevant department of the relevant State or Territory.

61450  What is your base year if a child is in your care before you legally adopt the child?

Your base year can relate to a year during which a child was in your care before you adopted the child

 (1) This section defines your base year if you are entitled to a *tax offset for a child under section 61440 (which is where a child is in your care before you legally adopt the child).

Primary entitlement

 (2) Your base year for a *tax offset under sections 61355 and 61440 is:

 (a) if you were an Australian resident at any time in the income year (the previous income year) just before the income year in which the child was first in your care—the later of the following years:

 (i) the previous income year;

 (ii) the income year commencing on 1 July 2000; and

 (b) otherwise—the later of the following years:

 (i) the earliest income year in which you were an Australian resident and the child was in your care;

 (ii) the income year commencing on 1 July 2001.

Note: See section 61445 for when a child is first in your care.

 (3) If paragraph (2)(a) applies to you, you may choose, in the *approved form, the later of the following years to be your base year:

 (a) the year the child was first in your care;

 (b) the income year commencing on 1 July 2001.

A choice cannot be revoked.

 (4) A choice cannot be made:

 (a) after you have claimed the *tax offset under section 61440 for any income year; or

 (b) after you have transferred your entitlement to the tax offset under section 61440 for any income year.

Transferred entitlement

 (5) Your base year for an entitlement transferred to you under section 61385 is the income year before the first income year for which the entitlement for the child was transferred to you.

61455  Old Subdivision applies if you would be worse off

  This Subdivision as in force on 30 June 2004 (instead of this Subdivision as amended by Schedule 10 to the Tax Laws Amendment (2004 Measures No. 6) Act 2005) continues to apply to you if the amount of all *tax offsets to which you would be entitled under this Subdivision as in force on that date is more than the amount of all tax offsets to which you would be entitled under the amended Subdivision.

Note: The effect of this is that:

(a) you are only entitled to a tax offset in respect of days for which you are legally responsible for the child (and not days during which the child is in your care); and

(b) your base year is the income year in which the child event happened or the year before.

Subdivision 61IAChild care tax offset

Guide to Subdivision 61IA

61460  What this Subdivision is about

You are entitled to a tax offset for an income year for child care fees if you meet certain conditions.

The amount of the offset is 30% of the difference between the amounts for each child, in the previous year, of child care fees incurred and child care benefit entitlement. This is subject to an indexed cap of $4,000 per child.

If the amount of the tax offset exceeds the amount of your income tax liability, the excess may be transferred to your spouse as a tax offset.

Table of sections

Operative provisions

61465 Object of this Subdivision

Entitlement to the child care tax offset

61470 Who is entitled to the tax offset

61475 Meaning of approved child care

61480 Meaning of entitled to child care benefit and entitlement to child care benefit

Amount of the child care tax offset

61485 Amount of the child care tax offset

61490 Component of formula—approved child care fees

61495 Component of formula—child care offset limit

Transfer of entitlement to unused balance of child care tax offset

61496 Entitlement to transfer

61497 Form of transfer

Operative provisions

61465  Object of this Subdivision

  The object of this Subdivision is to provide a *tax offset to assist families with the cost of child care.

Entitlement to the child care tax offset

61470  Who is entitled to the tax offset

 (1) You are entitled to a *tax offset for an income year ending before 1 July 2007 (the child care offset year) for *approved child care provided in the previous income year (the child care base year) if:

 (a) you are an individual; and

 (b) there is at least 1 *child care base week for you and a particular child in the child care base year.

Example: If there is at least 1 child care base week for you and a child in the 20042005 income year (the child care base year), you are entitled to a tax offset for the child for the 20052006 income year (the child care offset year).

 (2) A week is a child care base week for you and a particular child in the child care base year if:

 (a) the week starts on a Monday in the child care base year (whether or not it finishes in the child care base year); and

 (b) you are *entitled to child care benefit for *approved child care provided for the child in the week; and

 (c) one or more of the following limits applies under Subdivision G of Division 4 of Part 3 of the A New Tax System (Family Assistance) Act 1999 to your *entitlement to child care benefit for that week:

 (i) the 50 hour limit (see section 54 of that Act);

 (ii) the more than 50 hour limit (see section 55 of that Act);

 (iii) the 24 hour care limit for a particular session (or sessions) of care (see section 56 of that Act).

Note: If one of the paragraph (c) limits applies, you satisfy the paragraph (c) condition even if you have not used approved child care for the child during the week up to the full extent of the limit.

 (3) If you are *entitled to child care benefit subject to a limit of only 24 hours for a week under subsection 53(3) of the A New Tax System (Family Assistance) Act 1999, the condition mentioned in paragraph (2)(c) is not satisfied for the week.

 (4) The 50 hour limit is taken, for the purposes of paragraph (2)(c), to apply to your entitlement for child care benefit for the week if it would have applied but for the fact that you failed to meet the requirements of paragraph 17A(1)(b) of the A New Tax System (Family Assistance) Act 1999 in relation to the week.

61475  Meaning of approved child care

 (1) Approved child care, for a particular child, is care provided for the child by a child care service that is approved under section 195 of the A New Tax System (Family Assistance) (Administration) Act 1999.

 (2) Approved child care is also taken to have been provided by such a child care service for the child during a period of absence from care if section 10 or 10A of the A New Tax System (Family Assistance) Act 1999 applies to the period of absence.

Note: If a child is absent from care during a period for which child care fees are incurred for the child, but neither of sections 10 or 10A of the A New Tax System (Family Assistance) Act 1999 apply to the period of absence, approved child care would not be taken to have been provided for the child. As a result, child care fees incurred for the child during the period would not count as approved child care fees for which the child care tax offset is payable (see sections 61485 and 61490).

61480  Meaning of entitled to child care benefit and entitlement to child care benefit

 (1) You are entitled to child care benefit for *approved child care for a child as provided in this section, and not otherwise. The amount of your entitlement to child care benefit for the care is as provided in this section, and not otherwise.

Note: Child care benefit is a benefit provided for by the A New Tax System (Family Assistance) Act 1999.

General rule—actual determination of entitlement must have been made

 (2) You are only entitled to child care benefit for the care if you are so entitled because of a determination made under section 51B or 52E of the A New Tax System (Family Assistance) (Administration) Act 1999. The amount of your entitlement to child care benefit for the care is the amount worked out under that Act by reference to that determination.

Entitlement based on fee reductions under a determination of conditional entitlement

 (3) However, if:

 (a) a determination (the conditional determination) has been made under section 50F of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are conditionally eligible for child care benefit by fee reduction for the care; and

 (b) under section 219A of that Act as it applies in relation to the determination, fees for the care have been reduced;

you are, subject to subsections (4) and (5), taken to be entitled to child care benefit for the care. The amount of your entitlement to child care benefit for the care is the amount of the reduction.

 (4) Despite subsection (3), if:

 (a) a determination (the final determination) is subsequently made under section 51B of the A New Tax System (Family Assistance) (Administration) Act 1999 of your entitlement to be paid child care benefit by fee reduction for the care; and

 (b) the amount (the final determination amount) of your entitlement to child care benefit for the care, as worked out by reference to the final determination, differs from the amount of the reduction referred to in paragraph (3)(b);

the amount of your entitlement to child care benefit for the care is taken to be, and always to have been, the final determination amount.

 (5) Despite subsection (3), if a determination is subsequently made under section 51C of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are not entitled to be paid child care benefit by fee reduction for the care, you are taken not to be, and never to have been, entitled to be paid any child care benefit for the care.

Entitlement does not end with receipt

 (6) In applying this Act at a particular time in relation to yourself and the care, the fact that you have, by that time, received some or all of your entitlement to child care benefit for the care does not mean that you are no longer to be regarded as being entitled to child care benefit for the care.

Later determinations, variations and substitutions to be taken into account

 (7) If, after applying this Act at a particular time in relation to yourself and the care, a determination mentioned in this section is made or varied, or is set aside and a new determination substituted, the question of your entitlement to child care benefit for the care is to be redetermined taking account of the making, variation or substitution.

Amount of the child care tax offset

61485  Amount of the child care tax offset

  The amount of your *tax offset for a child care offset year is worked out in this way:

Method statement

Step 1. For each child in relation to whom you are entitled to the *tax offset for the child care offset year, work out amounts in accordance with steps 2, 3 and 4.

Step 2. Work out the total amount of your *approved child care fees for the child in each *child care base week for you and the child in the child care base year.

Step 3. Work out the total amount of your *entitlement to child care benefit for *approved child care for the child in each *child care base week for you and the child in the child care base year.

Step 4. Work out the lesser of the following amounts (the child offset) for the child:

 (a) the amount worked out using the formula:

 

 (b) the *child care offset limit for the child care base year.

Step 5. Total the child offsets for each of those children. The result is the amount of your *tax offset for the child care offset year.

61490  Component of formula—approved child care fees

General rule—approved child care fees for a child care base week for you and a child

 (1) The amount of your approved child care fees for a child for a *child care base week for you and the child is the amount of fees for *approved child care for the child during the week that are incurred by:

 (a) you; or

 (b) your partner, within the meaning of the A New Tax System (Family Assistance) Act 1999, during the week.

Subject to subsection (2), it does not matter whether you are *entitled to child care benefit for all of that care.

Special rule if the week is also a child care base week for your partner and the child

 (2) If the *child care base week is also a child care base week for your partner and the child, your approved child care fees for the week do not include any fees incurred by your partner for *approved child care, for the child in the week, for which you are not *entitled to child care benefit.

If fee reduction applies, count unreduced amount of fees

 (3) If fees for *approved child care have been reduced under section 219A of the A New Tax System (Family Assistance) (Administration) Act 1999, then for this section, a reference to the fees incurred for the care is taken to be a reference to the fees that would have been incurred for the care if they had not been so reduced.

61495  Component of formula—child care offset limit

 (1) The child care offset limit for the 20042005 child care base year is $4,000. The limit is indexed annually.

Note: Subdivision 960M shows you how to index amounts.

 (2) In applying the indexation formula in subsection 960275(1) to determine the child care offset limit for the 20052006 child care base year or a later child care base year, the relevant financial year is the child care base year rather than the child care offset year for which the offset is being calculated.

Transfer of entitlement to unused balance of child care tax offset

61496  Entitlement to transfer

 (1) You may transfer your entitlement to so much of your *tax offset as is equal to the excess to the individual who was your *spouse as at the last day of the child care offset year.

Note: The excess part of a tax offset is worked out under Division 63.

 (2) If you make a transfer:

 (a) the transferee is entitled to the transferred part of the *tax offset for the child care offset year; and

 (b) you are no longer entitled to the transferred part of the tax offset.

 (3) A transfer cannot be revoked.

 (4) If you die during the child care offset year, the reference to your *spouse in subsection (1) is taken to be a reference to your spouse just before your death.

61497  Form of transfer

 (1) A transfer has effect only if you have applied for it in the *approved form.

 (2) The *approved form must require the inclusion of:

 (a) your *tax file number; and

 (b) the tax file number of the transferee; and

 (c) the transferee’s signed consent to:

 (i) the transfer; and

 (ii) the disclosure of his or her tax file number in the form.

 (3) Subsection (2) does not limit what may be required by the *approved form.

Subdivision 61LTax offset for Medicare levy surcharge (lump sum payments in arrears)

Guide to Subdivision 61L

61575  What this Subdivision is about

You may get a tax offset under this Subdivision if:

 (a) Medicare levy surcharge is payable by you for the current year; and

 (b) a substantial lump sum was paid to you in the current year; and

 (c) the lump sum accrued in whole or in part in a previous year.

The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your lump sums and your spouse’s lump sums.

Alternatively, you may get a tax offset under this Subdivision if your spouse gets a tax offset under this Subdivision. The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your spouse’s lump sums.

Table of sections

Operative provisions

61580 Entitlement to a tax offset

61585 The amount of a tax offset

61590 Definition of MLS lump sums

Operative provisions

61580  Entitlement to a tax offset

Tax offset for MLS lump sums paid to you

 (1) You are entitled to a *tax offset for the *current year if:

 (a) you are an individual; and

 (b) *Medicare levy surcharge is payable by you for the current year because of:

 (i) section 8B, 8C or 8D of the Medicare Levy Act 1986; or

 (ii) the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999; and

 (c) your assessable income or *exempt foreign employment income for the current year includes one or more *MLS lump sums paid to you; and

 (d) the total of the MLS lump sums paid to you is greater than or equal to oneeleventh of the total of the following amounts:

 (i) your normal taxable income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) for the current year;

 (ii) your exempt foreign employment income for the current year;

 (iii) your *reportable fringe benefits total for the current year;

 (iv) the amounts that would be included in your assessable income for the current year if, and only if, subsection 271105(1) (family trust distribution tax) in Schedule 2F to the Income Tax Assessment Act 1936 were ignored;

 (v) your *reportable superannuation contributions for the current year;

 (vi) your *total net investment loss for the current year.

Note: The test in paragraph (d) is similar to the 10% test in paragraph 159ZRA(1)(b) of the Income Tax Assessment Act 1936, which also deals with a tax offset for lump sum payments in arrears.

Tax offset for MLS lump sums paid to your spouse

 (2) You are also entitled to a *tax offset for the *current year if:

 (a) during all or part of the current year, you were married to an individual (within the meaning of section 3 of the Medicare Levy Act 1986 or section 7 of the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999); and

 (b) the individual is entitled to a tax offset for the current year under subsection (1); and

 (c) *Medicare levy surcharge is payable by you for the current year because of:

 (i) section 8D of the Medicare Levy Act 1986; or

 (ii) Division 4 of Part 3 of the A New Tax System (Medicare Levy Surcharge—Fringe Benefits) Act 1999;

  (which are about Medicare Levy surcharge for individuals who are married); and

 (d) you are not entitled to a tax offset for the current year under subsection (1); and

 (e) less of the Medicare levy surcharge referred to in paragraph (c) would be payable by you for the current year if the *MLS lump sums paid to the individual referred to in paragraph (a) were disregarded.

61585  The amount of a tax offset

 (1) The amount of a *tax offset under subsection 61580(1) is the amount worked out using the following formula:

where:

total Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61580(1)(b) that is payable by you for the *current year.

total nonarrears Medicare levy surcharge means the amount that would be the total Medicare levy surcharge if the *MLS lump sums paid to you (and the MLS lump sums paid to the individual referred to in paragraph 61580(2)(a)) were disregarded.

 (2) The amount of a *tax offset under subsection 61580(2) is the amount worked out using the following formula:

where:

total family Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61580(2)(c) that is payable by you for the *current year.

total nonarrears family Medicare levy surcharge means the amount that would be the total family Medicare levy surcharge if the *MLS lump sums referred to in paragraph 61580(2)(e) were disregarded.

61590  Definition of MLS lump sums

  Both of the following are MLS lump sums paid to an individual:

 (a) a lump sum payment of eligible income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) that is included in the individual’s assessable income for the *current year (but only to the extent that it accrued in an earlier income year);

 (b) a lump sum payment that is included in the individual’s *exempt foreign employment income for the current year (but only to the extent that it accrued during a period ending more than 12 months before the date on which it was paid).

Subdivision 61NSeafarer tax offset

Guide to Subdivision 61N

61695  What this Subdivision is about

A company may get a refundable tax offset for withholding payments made to Australian seafarers for overseas voyages if:

 (a) the voyage is made by a vessel for which the company, or another entity, has a certificate under the Shipping Reform (Tax Incentives) Act 2012; and

 (b) the company employs or engages the seafarer on such voyages for at least 91 days in the income year.

Table of sections

Operative provisions

61700 Object of this Subdivision

61705 Who is entitled to the seafarer tax offset

61710 Amount of the seafarer tax offset

Operative provisions

61700  Object of this Subdivision

  The object of this Subdivision is to stimulate opportunities for Australian seafarers to:

 (a) be employed or engaged on overseas voyages; and

 (b) acquire maritime skills.

61705  Who is entitled to the seafarer tax offset

 (1) A company is entitled to a *tax offset for an income year if:

 (a) the company is a corporation to which paragraph 51(xx) of the Constitution applies; and

 (b) there is at least one individual in respect of whom the company has 91 days or more in the income year that qualify for the tax offset as mentioned in subsection (2).

 (2) A particular day qualifies for the *tax offset under this Subdivision for a company for an individual if:

 (a) on the day, the individual is an Australian resident who:

 (i) is employed by the company; or

 (ii) performs work or services under an *arrangement under which the company makes, at any time, a payment that is a *withholding payment covered by subsection 1260(1) in Schedule 1 to the Taxation Administration Act 1953 (about labour hire arrangements); and

 (b) on the day, the individual is so employed, or performs the work or services, on a voyage of a vessel as master, deck officer, integrated rating, steward or engineer; and

 (c) the company, or another entity, has a certificate for the vessel that applies to the day under Part 2 of the Shipping Reform (Tax Incentives) Act 2012; and

 (d) in the course of the voyage, the vessel travels between:

 (i) a port in Australia and a port outside Australia; or

 (ii) a port in Australia and a place in the waters of the sea above the continental shelf of a country other than Australia; or

 (iii) a port outside Australia and a place in the waters of the sea above the continental shelf of Australia; or

 (iv) a place in the waters of the sea above the continental shelf of Australia and a place in the waters of the sea above the continental shelf of a country other than Australia; or

 (v) ports outside Australia; or

 (vi) places beyond the continental shelf of Australia;

  whether or not the ship travels between 2 or more ports in Australia in the course of the voyage.

Note 1: An entity may be entitled to a certificate for a vessel under Part 2 of the Shipping Reform (Tax Incentives) Act 2012 if it meets the requirements (relating to such things as tonnage, registration and usage) in that Act.

Note 2: An entity cannot be entitled to a certificate for a vessel under Part 2 of that Act for a day before 1 July 2012: see paragraph 8(4)(b) of that Act.

 (3) For the purposes of paragraph (2)(b), the voyage of a vessel is taken to:

 (a) start on the earliest day on which one or more of the following occurs:

 (i) *shipping cargo to be carried on the voyage, or any part of the voyage, is first loaded into the vessel;

 (ii) *shipping passengers to be carried on the voyage, or any part of the voyage, first board the vessel;

 (iii) the voyage begins; and

 (b) end on the latest day on which any of the following occurs:

 (i) all shipping cargo carried on the voyage, or any part of the voyage, is completely unloaded from the vessel;

 (ii) all shipping passengers carried on the voyage, or any part of the voyage, finally disembark from the vessel;

 (iii) the voyage ends.

61710  Amount of the seafarer tax offset

  The amount of the company’s *tax offset for the income year is the amount (rounded up to the nearest whole dollar) worked out using the formula:

where:

gross payment amounts means the total amount of *withholding payments covered by section 1235 or subsection 1260(1) in Schedule 1 to the Taxation Administration Act 1953 payable by the company in the income year:

 (a) to individuals in respect of whom the company has 91 days or more in the income year that qualify for the offset as mentioned in subsection 61705(2); and

 (b) in respect of any of the following:

 (i) the employment of, or the work or services performed by, such individuals in relation to which the company so qualifies for the offset;

 (ii) leave accrued by such individuals during such employment, work or services;

 (iii) training of such individuals that relates to such employment, work or services.

Subdivision 61PESVCLP tax offset

Guide to Subdivision 61P

61750  What this Subdivision is about

A limited partner in an ESVCLP may be entitled to a tax offset for investing in the ESVCLP.

Table of sections

Operative provisions

61755 Object of this Subdivision

61760 Who is entitled to the ESVCLP tax offset

61765 Amount of the ESVCLP tax offset—general case

61770 Amount of the ESVCLP tax offset—members of trusts or partnerships

61775 Amount of the ESVCLP tax offset—trustees

Operative provisions

61755  Object of this Subdivision

  The object of this Subdivision is to encourage new investment in early stage venture capital by providing investors with a *tax offset to reduce the effective cost of such investments.

61760  Who is entitled to the ESVCLP tax offset

General case

 (1) A *limited partner of an *ESVCLP is entitled to a *tax offset for an income year if:

 (a) the partner contributes to the ESVCLP during the income year; and

 (b) the partner is not a trust or partnership.

Members of trusts or partnerships

 (2) A *member of a trust or partnership is entitled to a *tax offset for an income year if the trust or partnership would be entitled to a tax offset, under this section, for the income year if it were an individual.

Trustees

 (3) A trustee of a trust is entitled to a *tax offset for an income year if:

 (a) the trust would be entitled to a tax offset, under this section, for the income year if it were an individual; and

 (b) in a case where the trustee has determined percentages under subsection 61770(2) in relation to the *members of the trust—the sum of those percentages is not 100%; and

 (c) the trustee is liable to be assessed or has been assessed, and is liable to pay *tax, on a share of, or all or a part of, the trust’s *net income under section 98, 99 or 99A of the Income Tax Assessment Act 1936 for that income year.

61765  Amount of the ESVCLP tax offset—general case

 (1) If subsection 61760(1) applies, the amount of the *tax offset for the income year is 10% of the lesser of:

 (a) the sum of the amounts the partner contributes to the *ESVCLP during the income year, reduced by any amounts excluded under subsection (2); and

 (b) the amount (the investment related amount) worked out under subsection (3).

 (2) The following amounts are excluded for the purposes of paragraph (1)(a) in relation to the income year:

 (a) any parts of a contribution the partner made to the *ESVCLP that the ESVCLP is, or will become, obliged to repay to the partner, whether or not:

 (i) the obligation arises during the income year; or

 (ii) the obligation arises only when the partner requests repayment;

 (b) any parts of a contribution the partner made to the ESVCLP that, during the income year, are repaid to the partner within 12 months after the contribution was made;

 (c) any parts of a contribution the partner made to the ESVCLP to the extent that they comprise a commitment to provide money or property in the future.

 (3) Work out the investment related amount as follows:

where:

partner’s share is the partner’s share of the capital of the *ESVCLP at the end of the income year, expressed as a percentage of the entire capital of the ESVCLP.

sum of eligible venture capital investments is the sum of:

 (a) all the amounts of the *eligible venture capital investments made by the *ESVCLP during the period starting at the start of the income year and ending 2 months after the end of the income year; and

 (b) all the incidental costs, incurred during that period, of making those investments; and

 (c) all the administrative expenses, incurred during that period, associated with those investments.

 (4) For the purposes of paragraph (a) of the definition of sum of eligible venture capital investments in subsection (3), disregard the amounts of any *eligible venture capital investments that were taken into account in working out the amount of a *tax offset under this Subdivision for a preceding income year.

61770  Amount of the ESVCLP tax offset—members of trusts or partnerships

 (1) If subsection 61760(2) applies, the amount of the *member’s *tax offset for the income year is as follows:

where:

determined share of notional tax offset is the percentage determined under subsection (2) for the *member.

notional tax offset amount is what would, under section 61765, have been the amount of the trust’s or partnership’s *tax offset (the notional tax offset) if the trust or partnership had been an individual.

 (2) The trustee or partnership may determine the percentage of the notional tax offset that is the *member’s share of the notional tax offset.

 (3) If, under the terms and conditions under which the trust or partnership operates, the *member would be entitled to a fixed proportion of any *capital gain from a *disposal, were the disposal to happen in relation to trust or partnership, of investments made as a result of contributions that gave rise to the notional tax offset:

 (a) the percentage determined under subsection (2) must be equivalent to that fixed proportion at the end of the income year to which the notional tax offset relates; and

 (b) a determination of any other percentage has no effect.

 (4) The trustee or partnership must give the *member written notice of the determination. The notice:

 (a) must enable the member to work out the amount of the member’s *tax offset by including enough information to enable the member to work out the member’s share of the notional tax offset; and

 (b) must be given to the member within 3 months after the end of the income year, or within such further time as the Commissioner allows.

 (5) The sum of all the percentages determined under subsection (2) in relation to the *members of the trust or partnership must not exceed 100%.

61775  Amount of the ESVCLP tax offset—trustees

  If subsection 61760(3) applies, the amount of the *tax offset for the income year is the difference between:

 (a) what would, under section 61765, have been the amount of the tax offset to which the trust would have been entitled if it had been an individual; and

 (b) if *members of the trust are entitled to tax offsets under subsection 61760(2) arising from the same contributions from which the trustee’s entitlement arises under subsection 61760(3)—the sum of the amounts, under section 61770, of those tax offsets.

Division 63Common rules for tax offsets

Guide to Division 63

631  What this Division is about

This Division sets out some rules that are common to all tax offsets.

Table of sections

6310 Priority rules

6310  Priority rules

 (1) If you have one or more *tax offsets for an income year, apply them against your basic income tax liability in the order shown in the table. To the extent that an amount of a tax offset remains, the table tells you what happens to it.

 

Order of applying tax offsets

Item

Tax offset

What happens to any excess

5

*Tax offset under section 160AAAA of the Income Tax Assessment Act 1936 (tax offset for low income aged persons and pensioners)

Your entitlement to it is transferred in accordance with regulations made under that Act

10

*Tax offset under section 160AAAB of the Income Tax Assessment Act 1936 (tax offset for low income aged persons and pensioners —trustee assessed under section 98)

Your entitlement to it is transferred in accordance with regulations made under that Act

15

*Tax offset under section 160AAA of the Income Tax Assessment Act 1936 (tax offset in respect of certain benefits)

Your entitlement to it is transferred in accordance with regulations made under that Act

17

*Tax offset under section 159N of the Income Tax Assessment Act 1936 (rebate for certain lowincome taxpayers)

You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year

20

Any *tax offset not covered by another item in this table

You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year

22

*Tax offset for *foreign income tax under Division 770

Apply it against your liability (if any) to pay *Medicare levy for the income year.

To the extent that an amount of it remains, apply it against your liability (if any) to pay *Medicare levy (fringe benefits) surcharge for the income year.

To the extent that an amount of it remains, you cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year

25

Child care *tax offset under Subdivision 61IA

You may transfer your entitlement to it to your *spouse (under sections 61496 and 61497)

30

Landcare and water facility *tax offset under the former Subdivision 388A

You may carry it forward to a later income year (under Division 65)

32

ESVCLP *tax offset under Subdivision 61P

You may carry it forward to a later income year (under Division 65)

33

*Tax offset under Subdivision 360A (about early stage investors in innovation companies)

You may carry it forward to a later income year (under Division 65)

35

A *tax offset under Division 355 (about R&D) that is not covered by section 6730

You may carry it forward to a later income year (under Division 65)

40

*Tax offset that is subject to the refundable tax offset rules (see Division 67)

You can get a refund of the remaining amount

45

*Tax offset arising from payment of *franking deficit tax (see section 20570)

You may carry it forward to a later income year (under section 20570)

Note 1: Section 131 lists tax offsets.

Note 2: Former Division 388 was repealed by the New Business Tax System (Capital Allowances—Transitional and Consequential) Act 2001.

Note 4: The remaining amount of a carry forward tax offset may be reduced by section 6530 or 6535 to take account of net exempt income.

Note 5: Tax offsets mentioned in items 5 and 10 are more commonly referred to as the Senior Australians Tax Offset.

Note 6: Rules about applying the rebate for certain lowincome taxpayers are set out in subsection 159N(4) of the Income Tax Assessment Act 1936.

 (2) Within each item, apply the tax offsets in the order in which they arose.

Note: This would be relevant if you have carry forward tax offsets of the same category for different income years.

Division 65Tax offset carry forward rules

Guide to Division 65

6510  What this Division is about

This Division sets out the rules about carrying forward excess tax offsets to later income years.

You can only carry forward certain tax offsets.

Before you can apply a tax offset to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income.

The same rules that prevent companies from utilising certain losses of earlier income years prevent companies from applying tax offsets that they have carried forward.

Table of sections

Operative provisions

6530 Amount carried forward

6535 How to apply carried forward tax offsets

6540 When a company cannot apply a tax offset

6550 Effect of bankruptcy

6555 Deduction for amounts paid for debts incurred before bankruptcy

Operative provisions

6530  Amount carried forward

 (1) The amount of the *tax offset that is carried forward is the amount of the excess worked out under Division 63.

 (2) However, reduce the *tax offset by the amount worked out by multiplying your *net exempt income by:

 (a) if you are a base rate entity (within the meaning of the Income Tax Rates Act 1986) for the income year—0.275; or

 (b) otherwise—0.3;

if you have a taxable income for the income year.

6535  How to apply carried forward tax offsets

 (1) A *tax offset that you have carried forward decreases the amount of income tax that you would otherwise have to pay under section 410 in a later income year.

 (2) You apply a *tax offset that is carried forward to a later year in accordance with the priorities set out in Division 63 as if it were a tax offset for that later year.

 (3) Before you apply a *tax offset to reduce the amount of income tax that you pay in a later income year in which you have a taxable income, you must apply it to reduce to nil any *net exempt income for:

 (a) that later income year; or

 (b) any income year after the year in which the tax offset arose and before the later income year in which you had a taxable income but did not apply the tax offset to reduce the amount of income tax you had to pay.

Note: Paragraph (b) would apply to cases such as where your taxable income was below your taxfree threshold or where you had other tax offsets that reduced your income tax to nil.

 (3A) In reducing *net exempt income for an income year under subsection (3):

 (a) if you were a base rate entity (within the meaning of the Income Tax Rates Act 1986) for the year—each 27.5 cents of *tax offset reduces the net exempt income by $1; or

 (b) otherwise—each 30 cents of tax offset reduces the net exempt income by $1.

 (4) You can only apply a *tax offset that you have carried forward to the extent that it has not already been applied.

Note: Section 6540 contains special restrictions on applying carried forward tax offsets.

6540  When a company cannot apply a tax offset

 (1) In working out its *tax offset for the *current year, a company cannot apply a *tax offset it has carried forward if, assuming:

 (a) the tax offset were a *tax loss of the company for the income year in which it became entitled to the tax offset; and

 (b) section 16520 (deducting part of a tax loss) were disregarded;

Subdivision 165A would prevent the company from deducting it for the current year.

Note: Subdivision 165A deals with the deductibility of a company’s tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year.

 (2) If subsection (1) prevents the company from applying the *tax offset, it can apply the part of the tax offset that it is reasonable to consider relates to a part of the income year in which it became entitled to the tax offset, but only if, assuming that part of that income year had been treated as the whole of it, the company would have been entitled to apply the tax offset.

6550  Effect of bankruptcy

 (1) If during the *current year:

 (a) you became bankrupt; or

 (b) you were released from debts under a law relating to bankruptcy;

you cannot apply a *tax offset that you have carried forward from an earlier income year in working out the tax offset for the current year or a later income year.

 (2) Subsection (1) applies even though your bankruptcy is annulled if:

 (a) the annulment happens under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and

 (b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy.

6555  Deduction for amounts paid for debts incurred before bankruptcy

 (1) If:

 (a) you pay an amount in the *current year for a debt that you incurred in an earlier income year; and

 (b) you have a *tax offset referred to in section 6550 for that earlier income year;

you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax offset.

 (2) The total of the following amounts cannot exceed the total of the expenditure that the Commissioner is satisfied was taken into account in calculating the amount of the *tax offset that you are unable to apply because of section 6650:

 (a) your deductions under subsection (1) for amounts paid in the *current year or an earlier income year for debts incurred in the income year for which you have the tax offset; and

 (b) the expenditure that the Commissioner is satisfied was taken into account in calculating any amounts of the tax offset that, apart from section 6550, would have been applied in reducing your *net exempt income for the current year or earlier income years.

Division 67Refundable tax offset rules

 

Guide to Division 67

6710  What this Division is about

If your total tax offsets exceed your basic income tax liability, and some of those offsets are subject to the refundable tax offset rules, you may get a refund instead of paying income tax (see section 6310). This Division tells you which tax offsets are subject to the refundable tax offset rules.

Table of sections

Operative provisions

6720 Which tax offsets this Division applies to

6723 Refundable tax offsets

6725 Refundable tax offsets—franked distributions

6730 Refundable tax offsets—R&D

Operative provisions

6720  Which tax offsets this Division applies to

  This Division only applies to a *tax offset if it is stated to be subject to the refundable tax offset rules.

6723  Refundable tax offsets

  The following *tax offsets are subject to the refundable tax offset rules:

 

Refundable tax offsets

Item

Subject matter

Tax offset

3

*principal beneficiary of a *special disability trust

the *tax offset available under subsection 95AB(5) of the Income Tax Assessment Act 1936

5

private health insurance

private health insurance tax offsets under Subdivision 61G, other than those arising under subsection 61205(2)

10

children

first child tax offsets under Subdivision 61I

13

seafarers

the *tax offset available under Subdivision 61N

14A

attribution managed investment trusts—foreign resident member

the *tax offset available under section 276110

15

noTFN contributions income

the *tax offset available under Subdivision 295J

20

films

the *tax offsets available under Division 376

23

National Rental Affordability Scheme

the *tax offsets available under Division 380

27

exploration development incentive

the *tax offset available under Subdivision 418B

30

life insurance company’s subsidiary joining consolidated group

the *tax offset available under subsection 713545(5)

Note 1: Subsection 61205(2) of this Act deals with tax offsets for trustees who are assessed and liable to pay tax under section 98 of the Income Tax Assessment Act 1936.

Note 2: For the tax offsets available under Division 207 and Subdivision 210H (franked distributions), see section 6725.

Note 3: For the tax offsets available under Division 355 (about R&D), see section 6730.

6725  Refundable tax offsets—franked distributions

 (1) *Tax offsets available under Division 207 (which sets out the effects of receiving a *franked distribution) or Subdivision 210H (which sets out the effects of receiving a *distribution *franked with a venture capital credit) are subject to the refundable tax offset rules, unless otherwise stated in this section.

 (1A) Where the trustee of a *noncomplying superannuation fund or a *noncomplying approved deposit fund is entitled to a *tax offset under Division 207 because a *franked distribution is made to, or *flows indirectly to, the trustee, the tax offset is not subject to the refundable tax offset rules.

 (1B) If:

 (a) the trustee of a trust to whom a *franked distribution *flows indirectly under subsection 20750(4) is entitled to a *tax offset under Division 207 for an income year because of the distribution; and

 (b) the trustee is liable to be assessed under section 98 or 99A of the Income Tax Assessment Act 1936 on a share of, or all or a part of, the trust’s *net income for that income year;

the tax offset is not subject to the refundable tax offset rules.

 (1C) Where a *corporate tax entity is entitled to a *tax offset under Division 207 because a *franked distribution is made to the entity, the tax offset is not subject to the refundable tax offset rules unless:

 (a) the entity is an *exempt institution that is eligible for a refund; or

 (b) the entity is a *life insurance company and the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:

 (i) starting at the beginning of the income year of the company in which the distribution is made; and

 (ii) ending when the distribution is made.

 (1D) Where a *corporate tax entity is entitled to a *tax offset under Division 207 because a *franked distribution *flows indirectly to the entity, the tax offset is not subject to the refundable tax offset rules unless:

 (a) the entity is an *exempt institution that is eligible for a refund; or

 (b) the entity is a *life insurance company and the company’s interest in the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:

 (i) starting at the beginning of the income year of the company in which the distribution is made; and

 (ii) ending when the distribution is made.

 (1DA) A *tax offset is not subject to the refundable tax offset rules if:

 (a) an entity is entitled to the tax offset under Division 207 because a *franked distribution is made, or *flows indirectly, to the entity; and

 (b) the entity is a foreign resident and carries on business in Australia at or through a permanent establishment of the entity in Australia, being a permanent establishment within the meaning of:

 (i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936) that relates to a foreign country and affects the entity; or

 (ii) subsection 6(1) of that Act, if there is no such agreement; and

 (c) the distribution is attributable to the permanent establishment.

 (1E) Where a *corporate tax entity is entitled to a *tax offset under Subdivision 210H because a *distribution *franked with a venture capital credit is made to the entity, the tax offset is not subject to the refundable tax offset rules unless:

 (a) the entity is a *life insurance company; and

 (b) the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:

 (i) starting at the beginning of the income year of the company in which the distribution is made; and

 (ii) ending when the distribution is made.

6730  Refundable tax offsets—R&D

 (1) A *tax offset to which an *R&D entity is entitled under section 355100 (about R&D) for an income year is subject to the refundable tax offset rules if all or part of the amount of the tax offset is worked out using the percentage in item 1 of the table in subsection 355100(1).

Note 1: Otherwise, the tax offset will be a nonrefundable tax offset (see item 35 of the table in subsection 6310(1)).

Note 2: This subsection can apply to an entitlement under any subsection of section 355100.

 (2) Without limiting its effect apart from this subsection, subsection (1) also has the effect it would have if:

 (a) subsection (3) had not been enacted; and

 (b) the reference in subsection (1) to an *R&D entity were, by express provision, confined to an R&D entity that:

 (i) is a *constitutional corporation; or

 (ii) has its registered office (within the meaning of the Corporations Act 2001) or principal place of business (within the meaning of that Act) located in a Territory.

 (3) Without limiting its effect apart from this subsection, subsection (1) also has the effect it would have if:

 (a) subsection (2) had not been enacted; and

 (b) this Act applied so that *tax offsets under section 355100 could only be worked out in respect of *R&D activities conducted or to be conducted:

 (i) solely in a Territory; or

 (ii) solely outside of Australia; or

 (iii) solely in a Territory and outside of Australia; or

 (iv) for the dominant purpose of supporting *core R&D activities conducted, or to be conducted, solely in a Territory.

Part 225Trading stock

Division 70Trading stock

Table of Subdivisions

 Guide to Division 70

70A What is trading stock

70B Acquiring trading stock

70C Accounting for trading stock you hold at the start or end of the income year

70D Assessable income arising from disposals of trading stock and certain other assets

70E Miscellaneous

Guide to Division 70

701  What this Division is about

This Division deals with amounts you can deduct, and amounts included in your assessable income, because of these situations:

 you acquire an item of trading stock;

 you carry on a business and hold trading stock at the start or the end of the income year;

 you dispose of an item of trading stock outside the ordinary course of business, or it ceases to be trading stock in certain other circumstances.

Table of sections

705 The 3 key features of tax accounting for trading stock

705  The 3 key features of tax accounting for trading stock

  The purpose of income tax accounting for trading stock is to produce an overall result that (apart from concessions) properly reflects your activities with your trading stock during the income year.

  There are 3 key features:

 (1) You bring your gross outgoings and earnings to account, not your net profits and losses on disposal of trading stock.

 (2) Those outgoings and earnings are on revenue account, not capital account. As a result:

 (a) the gross outgoings are usually deductible as general deductions under section 81 (when the trading stock becomes trading stock on hand); and

 (b) the gross earnings are usually assessable as ordinary income under section 65 (when the trading stock stops being trading stock on hand).

 (3) You must bring to account any difference between the value of your trading stock on hand at the start and at the end of the income year. This is done in such a way that, in effect:

 (a) you account for the value of your trading stock as assessable income; and

 (b) you carry that value over as a corresponding deduction for the next income year.

Note: You may not have to bring to account that difference if you are a small business entity: see Division 328.

Subdivision 70AWhat is trading stock

Table of sections

7010 Meaning of trading stock

7012 Registered emissions units

7010  Meaning of trading stock

 (1) Trading stock includes:

 (a) anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a *business; and

 (b) *live stock.

 (2) Trading stock does not include:

 (a) a *Division 230 financial arrangement; or

 (b) a *CGT asset covered by section 275105 that:

 (i) is owned by a *complying superannuation fund, a *complying approved deposit fund or a *pooled superannuation trust; or

 (ii) is a *complying superannuation asset of a *life insurance company.

Note 1: Shares in a PDF are not trading stock. See section 124ZO of the Income Tax Assessment Act 1936.

Note 2: If a company becomes a PDF, its shares are taken not to have been trading stock before it became a PDF. See section 124ZQ of the Income Tax Assessment Act 1936.

7012  Registered emissions units

  A *registered emissions unit is not *trading stock.

Subdivision 70BAcquiring trading stock

Table of sections

7015 In which income year do you deduct an outgoing for trading stock?

7020 Nonarm’s length transactions

7025 Cost of trading stock is not a capital outgoing

7030 Starting to hold as trading stock an item you already own

7015  In which income year do you deduct an outgoing for trading stock?

 (1) This section tells you in which income year to deduct under section 81 (about general deductions) an outgoing incurred in connection with acquiring an item of *trading stock. (The outgoing must be deductible under that section.)

 (2) If the item becomes part of your *trading stock on hand before or during the income year in which you incur the outgoing, deduct it in that income year.

 (3) Otherwise, deduct the outgoing in the first income year:

 (a) during which the item becomes part of your *trading stock on hand; or

 (b) for which an amount is included in your assessable income in connection with the disposal of that item.

Note You can deduct your capital costs of acquiring land carrying trees or of acquiring a right to fell trees, to the extent that the trees are felled for sale, or for use in manufacture, by you. (This is because the trees will then usually become your trading stock.) See section 70120.

7020  Nonarm’s length transactions

  If:

 (a) you incur an outgoing that is directly attributable to your buying or obtaining delivery of an item of your *trading stock; and

 (b) you and the seller of the item did not deal with each other at *arm’s length; and

 (c) the amount of the outgoing is greater than the *market value of what the outgoing is for;

the amount of the outgoing is instead taken to be that market value. This has effect for the purposes of applying this Act to you and also to the seller.

Note: This section also affects the value of the item of trading stock at the end of an income year if you value it at its cost under section 7045 (Value of trading stock at end of income year).

7025  Cost of trading stock is not a capital outgoing

  An outgoing you incur in connection with acquiring an item of *trading stock is not an outgoing of capital or of a capital nature.

Note: This means that paragraph 81(2)(a) does not prevent the outgoing from being a general deduction under section 81.

7030  Starting to hold as trading stock an item you already own

 (1) If you start holding as *trading stock an item you already own, but do not hold as trading stock, you are treated as if:.

 (a) just before it became trading stock, you had sold the item to someone else (at *arm’s length) for whichever of these amounts you elect:

 its cost (as worked out under subsection (3) or (4));

 its *market value just before it became trading stock; and

 (b) you had immediately bought it back for the same amount.

Example: You start holding a depreciating asset as part of your trading stock. You are treated as having sold it just before that time, and immediately bought it back, for its cost or market value, whichever you elect. (Subdivision 40D provides for the consequences of selling depreciating assets.)

 The same amount is normally a general deduction under section 81 as an outgoing in connection with acquiring trading stock. The amount is also taken into account in working out the item’s cost for the purposes of section 7045 (about valuing trading stock at the end of the income year).

Note: Depending on how you elect under paragraph (1)(a), the sale may or may not give rise to a capital gain or a capital loss for the purposes of Parts 31 and 33 (about CGT). It does not if you elect to be treated as having sold the item for what would have been its cost: see subsection 11825(2). However, it can if you elect market value.

When you must make the election

 (2) You must make the election by the time you lodge your *income tax return for the income year in which you start holding the item as *trading stock. (If you do not make the election by then because you do not realise until later that you started to hold the item as trading stock, you must make the election as soon as is reasonable after realising that.)

  However, the Commissioner can allow you to make it later (in either case).

How to work out the item’s cost

 (3) The item’s cost is what would have been its cost for the purposes of section 7045 (about valuing trading stock at the end of the income year) if it had been your *trading stock ever since you last acquired it. In working that out, disregard section 7055 (about acquiring live stock by natural increase).

 (4) However, if you last acquired the item for no consideration, its cost is worked out using this table:

 

Cost of item acquired for no consideration

Item

In this case:

The cost is:

1

you acquired the item during or after the 199899 income year, and the acquisition involved a *CGT event

the item’s *market value when you last acquired it

2

you acquired the item before or during the 199798 income year, and the acquisition involved a disposal of the item to you within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936

the item’s *market value when you last acquired it

3

your acquisition of the item involved the item:

(a) devolving to you as someone’s *legal personal representative; or

(b) *passing to you as a beneficiary in someone’s estate;

and, if a *CGT event had happened in relation to the item just before you started holding it as *trading stock, a *capital gain or *capital loss could have resulted that would have been taken into account in working out your *net capital gain or *net capital loss for the income year of the event

(a) if the person died during or after his or her 199899 income year—the dead person’s *cost base for the item just before his or her death; or

(b) if the person died before or during his or her 199798 income year—the dead person’s indexed cost base (within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936) for the item just before his or her death (but worked out disregarding former section 160ZG (which affects the indexed cost base for a nonlisted personal use asset) of that Act)

4

any other case where you last acquired the item for no consideration

a nil amount

Exceptions

 (5) Subsection (1) does not apply if you start holding any of the following as *trading stock because they are severed from land:

 (a) standing or growing crops;

 (b) cropstools;

 (c) trees planted and tended for sale.

(This does not prevent subsection (1) from applying to a severed item that you later start holding as trading stock.)

 (6) Subsection (1) does not apply if:

 (a) you start holding an item as *trading stock; and

 (b) immediately before you started holding the item as trading stock, you *held the item as a *registered emissions unit.

Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936:

 subsection 47A(10) (which treats certain benefits as dividends paid by a CFC)

 paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year).

Subdivision 70CAccounting for trading stock you hold at the start or end of the income year

Table of sections

General rules

7035 You include the value of your trading stock in working out your assessable income and deductions

7040 Value of trading stock at start of income year

7045 Value of trading stock at end of income year

Special valuation rules

7050 Valuation if trading stock obsolete etc.

7055 Working out the cost of natural increase of live stock

7060 Valuation of horse breeding stock

7065 Working out the horse opening value and the horse reduction amount

General rules

7035  You include the value of your trading stock in working out your assessable income and deductions

 (1) If you carry on a *business, you compare:

 (a) the *value of all your *trading stock on hand at the start of the income year; and

 (b) the *value of all your trading stock on hand at the end of the income year.

Note: You may not need to do this stocktaking if you are a small business entity: see Division 328.

 (2) Your assessable income includes any excess of the *value at the end of the income year over the value at the start of the income year.

 (3) On the other hand, you can deduct any excess of the *value at the start of the income year over the value at the end of the income year.

7040  Value of trading stock at start of income year

 (1) The value of an item of *trading stock on hand at the start of an income year is the same amount at which it was taken into account under this Division or Subdivision 328E (about trading stock for small business entities) at the end of the last income year.

 (2) The value of the item is a nil amount if the item was not taken into account under this Division or Subdivision 328E (about trading stock for small business entities) at the end of the last income year.

7045  Value of trading stock at end of income year

 (1) You must elect to value each item of *trading stock on hand at the end of an income year at:

 (a) its *cost; or

 (b) its market selling value; or

 (c) its replacement value.

Note: An item’s market selling value at a particular time may not be the same as its market value.

 (1A) In working out the *cost, market selling value or replacement value of an item of *trading stock (other than an item the *supply of which cannot be a *taxable supply) at the end of an income year, disregard an amount equal to the amount of the *input tax credit (if any) to which you would be entitled if:

 (a) you had *acquired the item at that time; and

 (b) the acquisition had been solely for a *creditable purpose; and

Note: Some assets, such as shares, cannot be the subject of a taxable supply.

 (2) The rest of this Subdivision deals with cases where the normal operation of this section is modified, or where a different valuation method may or must be used. The table sets out other cases where that happens because of provisions outside this Subdivision.

 

Rules about the value of trading stock

Item

For this situation:

See:

2

In working out the attributable income of a nonresident trust estate, trading stock is taken to be valued at cost.

Section 102AAY of the Income Tax Assessment Act 1936

3

In working out the attributable income of a controlled foreign corporation, the corporation must value at cost.

Section 397 of the Income Tax Assessment Act 1936

4

Some antiavoidance provisions reduce the amount that is taken to be the cost of an item of trading stock.

Subsections 52A(7), 82KH(1N), 82KL(6) and 100A(6B) of the Income Tax Assessment Act 1936

5

The value of the item at the end of an income year may be the same as at the start of the year for a small business entity

Subdivision 328E of this Act

Special valuation rules

7050  Valuation if trading stock obsolete etc.

  You may elect to value an item of your *trading stock below all the values in section 7045 if:

 (a) that is warranted because of obsolescence or any other special circumstances relating to that item; and

 (b) the value you elect is reasonable.

7055  Working out the cost of natural increase of live stock

 (1) The cost of an animal you hold as *live stock that you acquired by natural increase is whichever of these you elect:

 (a) the actual cost of the animal;

 (b) the cost prescribed by the regulations for each animal in the applicable class of live stock.

 (2) However, if you incur a service fee for insemination and, as a result, acquire a horse by natural increase, its cost is the greater of:

 (a) the amount worked out under subsection (1); and

 (b) the part of the service fee that is attributable to your acquiring the horse.

 (3) An election under this section must be made by the time you lodge your *income tax return for the income year in which you acquired the animal. However, the Commissioner can allow you to make it later.

7060  Valuation of horse breeding stock

 (1) For a horse at least 3 years old that you acquired under a contract and hold for breeding, you can elect a value other than the values in section 7045.

 (2) The value you can elect for the horse at the end of the income year is worked out using the table:

 

Value of horse breeding stock

If the horse is:

... you can value it at this amount:

female 12 years or over

$1

any other horse

the *horse opening value less the *horse reduction amount (see section 7065)

 (3) However, if the value worked out under subsection (2) would be less than $1, you must elect the value of $1.

 (4) A horse’s age is to be measured in whole years as at the end of the relevant income year. The age of a horse not born on 1 August is determined as if the horse had been born on the last 1 August before it was actually born.

7065  Working out the horse opening value and the horse reduction amount

 (1) The horse opening value is:

 (a) if the horse has been your *live stock ever since the start of the income year—its *value as *trading stock at the start of the income year; or

 (b) otherwise—the horse’s base amount (see subsection (3)).

 (2) The horse reduction amount is worked out as follows:

 (a) for female horses under 12 years of age:

 (b) for any male horse:

 (3) In this section:

base amount is the lesser of:

 (a) the horse’s *cost; and

 (b) the horse’s *adjustable value when it most recently became your *live stock.

breeding days is the number of whole days in the income year since you most recently began to hold the horse for breeding.

nominated percentage is any percentage, up to 25%, you nominate when you make the election in section 7060.

reduction factor is the greater of:

 (a) 3; and

 (b) the difference between 12 and the horse’s age when you most recently began to hold it for breeding.

Subdivision 70DAssessable income arising from disposals of trading stock and certain other assets

Guide to Subdivision 70D

7075  What this Subdivision is about

Your assessable income includes the market value of an item of trading stock if you dispose of it outside the ordinary course of business or it ceases to be trading stock in certain other circumstances.

This Subdivision treats certain other assets in the same way as trading stock.

Table of sections

7080 Why the rules in this Subdivision are necessary

Operative provisions

7085 Application of this Subdivision to certain other assets

7090 Assessable income on disposal of trading stock outside the ordinary course of business

7095 Purchase price is taken to be market value

70100 Notional disposal when you stop holding an item as trading stock

70105 Death of owner

70110 You stop holding an item as trading stock but still own it

70115 Compensation for lost trading stock

7080  Why the rules in this Subdivision are necessary

 (1) When you dispose of an item of your trading stock in the ordinary course of business, what you get for it is included in your assessable income (under section 65) as ordinary income.

Note: An incorporated body is treated as disposing of an item of its trading stock in the ordinary course of business if the body ceases to exist and disposes of the asset to a company that has not significantly different ownership: see Division 620.

 (2) If an item stops being your trading stock for certain other reasons, an amount is generally included in your assessable income to balance the reduction in trading stock on hand, which is a transaction on revenue account.

 (3) The other reasons for an item to stop being your trading stock are:

 (a) you dispose of it outside the ordinary course of business; or

 (b) interests in it change; or

 (c) you die; or

 (d) you stop holding it as trading stock.

Operative provisions

7085  Application of this Subdivision to certain other assets

  This Subdivision (except section 70115) applies to certain assets of a *business as if they were *trading stock on hand of the entity that carries on that business. The assets are:

 (a) standing or growing crops; and

 (b) cropstools; and

 (c) trees planted and tended for sale.

Note: Section 70115 assesses insurance or indemnity amounts for lost trading stock.

7090  Assessable income on disposal of trading stock outside the ordinary course of business

 (1) If you dispose of an item of your *trading stock outside the ordinary course of a *business:

 (a) that you are carrying on; and

 (b) of which the item is an asset;

your assessable income includes the *market value of the item on the day of the disposal.

 (1A) If the disposal is the giving of a gift of property by you for which a valuation under section 30212 is obtained, you may choose that the *market value is replaced with the value of the property as determined under the valuation. You can only make this choice if the valuation was made no more than 90 days before or after the disposal.

 (2) Any amount that you actually receive for the disposal is not included in your assessable income (nor is it *exempt income).

Note 1: In the case of an asset covered by section 7085 (which applies this Subdivision to certain other assets), the disposal will usually involve disposing of the land of which the asset forms part.

Note 2: For certain disposals of live stock by primary producers, special rules apply: see Subdivision 385E.

Note 3: If the disposal is by way of gift, you may be able to deduct the gift: see Division 30 (Gifts).

Note 4: If the disposal is of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70120.

Note 5: This section and section 7095 also apply to disposals of certain items on hand at the end of 199697 that are not trading stock but were trading stock as defined in the Income Tax Assessment Act 1936: see section 7010 of the Income Tax (Transitional Provisions) Act 1997.

7095  Purchase price is taken to be market value

  If an entity disposes of an item of the entity’s *trading stock outside the ordinary course of *business, the entity acquiring the item is treated as having bought it for the amount included in the disposing entity’s assessable income under section 7090.

70100  Notional disposal when you stop holding an item as trading stock

 (1) An item of *trading stock is treated as having been disposed of outside the ordinary course of *business if it stops being trading stock on hand of an entity (the transferor) and, immediately afterwards:

 (a) the transferor is not the item’s sole owner; but

 (b) an entity that owned the item (alone or with others) immediately beforehand still has an interest in the item.

Example: A grocer decides to take her daughters into partnership with her. Her trading stock becomes part of the partnership assets, owned by the partners equally. As a result, it becomes trading stock on hand of the partnership instead of the grocer. This section treats the grocer as having disposed of the trading stock to the partnership outside the ordinary course of her business.

Note: If the transferor is the item’s sole owner after it stops being trading stock on hand of the transferor, section 70110 applies instead of this section.

 (2) As a result, the transferor’s assessable income includes the *market value of the item on the day it stops being *trading stock on hand of the transferor.

 (3) The entity or entities (the transferee) that own the item immediately after it stops being *trading stock on hand of the transferor are treated as having bought the item for the same value on that day.

Election to treat item as disposed of at closing value

 (4) However, an election can be made to treat the item as having been disposed of for what would have been its *value as *trading stock of the transferor on hand at the end of an income year ending on that day.

 (5) If this election is made, this *value is included in the transferor’s assessable income for the income year that includes that day. The transferee is treated as having bought the item for the same value on that day.

 (6) This election can only be made if:

 (a) immediately after the item stops being *trading stock on hand of the transferor, it is an asset of a *business carried on by the transferee; and

 (b) immediately after the item stops being trading stock on hand of the transferor, the entities that owned it immediately beforehand have (between them) interests in the item whose total value is at least 25% of the item’s *market value on that day; and

 (c) the *value elected is less than that market value; and

 (d) the item is not a thing in action.

 (7) Also, the election can only be made before 1 September following the end of the *financial year in which the item stops being *trading stock on hand of the transferor. However, the Commissioner can allow the election to be made later.

 (8) An election must be in writing and signed by or on behalf of each of:

 (a) the entities that own the item immediately before it stops being *trading stock on hand of the transferor; and

 (b) the entities that own it immediately afterwards.

 (9) If a person whose signature is required for the election has died, the *legal personal representative of that person’s estate may sign instead.

When election has no effect

 (10) An election has no effect if:

 (a) the item stops being *trading stock on hand of the transferor outside the course of ordinary family or commercial dealing; and

 (b) the *consideration receivable by the transferor (or by any of the entities constituting the transferor) substantially exceeds what would reasonably be expected to be the consideration receivable by the entity concerned if the *market value of the item immediately before it stops being trading stock on hand of the transferor were the *value elected under subsection (4).

Note: Section 960255 may be relevant to determining family relationships for the purposes of paragraph (10)(a).

 (11) Consideration receivable by an entity means so much of the value of any benefit as it is reasonable to expect that the entity will obtain in connection with the item ceasing to be *trading stock on hand of the transferor.

70105  Death of owner

 (1) When you die, your assessable income up to the time of your death includes the *market value at that time of the *trading stock of your *business (if any).

Note: In the case of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70120.

 (2) The entity on which the *trading stock devolves is treated as having bought it for its *market value at that time.

 (3) However, your *legal personal representative can elect to have included in your assessable income (instead of the *market value) the amount that would have been the *value of the *trading stock at the end of an income year ending on the day of your death.

 (4) In the case of an asset covered by section 7085 (which applies this Subdivision to certain other assets), your *legal personal representative can elect to have a nil amount included in your assessable income (instead of the *market value).

 (5) Your *legal personal representative can make an election only if:

 (a) the *business is carried on after your death; and

 (b) the *trading stock continues to be held as trading stock of that business, or the asset continues to be held as an asset of that business, as appropriate.

 (6) If an election is made, the entity on which the *trading stock devolves is treated as having bought it for the amount referred to in subsection (3) or (4).

 (7) An election can only be made on or before the day when your *legal personal representative lodges your *income tax return for the period up to your death. However, the Commissioner can allow it to be made later.

70110  You stop holding an item as trading stock but still own it

 (1) If you stop holding an item as *trading stock, but still own it, you are treated as if:

 (a) just before it stopped being trading stock, you had sold it to someone else (at *arm’s length and in the ordinary course of business) for its *cost; and

 (b) you had immediately bought it back for the same amount.

Example 1: You are a sheep grazier and take a sheep from your stock to slaughter for personal consumption. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.

 Although you are also treated as having bought the sheep for the same amount, it would not be deductible because the sheep is for personal consumption.

Example 2: You stop holding an item as trading stock and begin to use it as a depreciating asset for the purpose of producing your assessable income. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.

 You are also treated as having bought the item for the same amount, which is relevant to working out the item’s cost for capital allowance purposes (see Subdivision 40C) and the item’s cost base for CGT purposes (see Division 110).

 (2) This section does not apply if:

 (a) you stop holding an item as *trading stock; and

 (b) immediately after you stopped holding the item as trading stock, you start to *hold the item as a *registered emissions unit.

Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936:

 subsection 47A(10) (which treats certain benefits as dividends paid by a CFC)

 paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year).

70115  Compensation for lost trading stock

  Your assessable income includes an amount that:

 (a) you receive by way of insurance or indemnity for a loss of *trading stock; and

 (b) is not assessable as *ordinary income under section 65.

Subdivision 70EMiscellaneous

Table of sections

70120 Deducting capital costs of acquiring trees

70120  Deducting capital costs of acquiring trees

 (1) This section gives you deductions for your capital costs of acquiring land carrying trees or of acquiring a right to fell trees.

Note: This section is included in this Division because:

 trees felled for sale, or for use in manufacture, by you will usually become your trading stock; and

 before they are felled, the trees are covered by sections 7090 and 70105 because of section 7085.

Land carrying trees

 (2) You can deduct the amount you paid to acquire land carrying trees if:

 (a) some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the *purpose of producing assessable income; or

 (b) some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of *royalty; or

 (c) the *market value of some or all of the trees is included in your assessable income for the income year by section 7090 (because you disposed of the trees outside the ordinary course of *business) or section 70105 (because of your death).

(It does not matter when you acquired the land.)

Note: The market value of trees is not included in your assessable income for the income year by section 70105 (because of your death) if your legal personal representative elects under subsection 70105(4) to have a nil amount included instead.

Right to fell trees

 (3) You can deduct the amount you paid to acquire a right to fell trees if:

 (a) some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the *purpose of producing assessable income; or

 (b) some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of *royalty.

(It does not matter when you acquired the right.)

How much you can deduct for costs of acquiring land or right

 (4) You can deduct for the income year so much of the amount you paid as is attributable to the trees covered by a paragraph of subsection (2) or (3).

 (5) If you can deduct an amount because of paragraph (2)(c), you can also deduct for the income year so much of any other capital expenditure you incurred as is attributable to acquiring the trees covered by that paragraph (except so far as you have deducted it, or can deduct it, for any income year under a provision of this Act outside this section).

No deduction for carbon sink forests

 (5A) You cannot deduct under this section so much of an amount you paid or incurred as is attributable to the establishment of trees for which any entity has deducted, or can deduct, an amount for any income year under Subdivision 40J.

Nonarm’s length transactions

 (6) If:

 (a) you can deduct an amount under this section for expenditure incurred in connection with a transaction; and

 (b) the parties to the transaction did not deal with each other at *arm’s length; and

 (c) the amount of the expenditure is greater than the *market value of what the expenditure is for;

the amount of the expenditure is instead taken to be that market value. This has effect for the purposes of working out what you can deduct under this section.

Part 240Rules affecting employees and other taxpayers receiving PAYG withholding payments

Division 80General rules

Table of Subdivisions

 Guide to Division 80

Guide to Division 80

801  What this Division is about

This Division sets out rules that apply throughout the Part. The rules are about holding an office, the termination of employment, the transfer of property and receiving and making payments.

Table of sections

Operative provisions

805 Holding of an office

8010 Application to the termination of employment

8015 Transfer of property

8020 Payments for your benefit or at your direction or request

Operative provisions

805  Holding of an office

  If a person holds (or has held) an office, this Part applies to the person in the same way as it would apply if the person were (or had been) employed.

8010  Application to the termination of employment

  For the purposes of this Part, treat the termination of employment as including:

 (a) retirement from employment; and

 (b) the cessation of employment because of death.

8015  Transfer of property

 (1) Any of the following payments covered by this Part (but no others covered by this Part) can be or include a transfer of property:

 (a) an *employment termination payment;

 (b) a *genuine redundancy payment;

 (c) an *early retirement scheme payment;

 (d) a payment covered by Subdivision 83D (Foreign termination payments);

 (e) a payment that would be an employment termination payment but for paragraph 82130(1)(b) (see Subdivision 83E).

Note: An unused annual leave payment or an unused long service leave payment cannot include a transfer of property.

 (2) The amount of the payment is or includes the *market value of the property.

 (3) The *market value is reduced by the value of any consideration given for the transfer of the property.

8020  Payments for your benefit or at your direction or request

 (1) This section applies for the purposes of:

 (a) determining whether Division 82 or 83 applies to a payment; and

 (b) determining whether a payment mentioned in Division 82 or 83 is made to you, or received by you.

 (2) A payment is treated as being made to you, or received by you, if it is made:

 (a) for your benefit; or

 (b) to another person or to an entity at your direction or request.

Division 82Employment termination payments

Table of Subdivisions

 Guide to Division 82

82A Employment termination payments: life benefits

82B Employment termination payments: death benefits

82C Key concepts

Guide to Division 82

821  What this Division is about

This Division tells you how employment termination payments are treated for the purpose of income tax.

Subdivision 82AEmployment termination payments: life benefits

Guide to Subdivision 82A

825  What this Subdivision is about

If you receive a life benefit termination payment, part of the payment may be tax free (the tax free component).

You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.

The extent of your entitlement to the offset depends on your age in the year you receive the offset, on the total amount of payments you receive in the same year, and on the total amount of payments you receive in consequence of the same employment termination.

Table of sections

Operative provisions

8210 Taxation of life benefit termination payments

Operative provisions

8210  Taxation of life benefit termination payments

Tax free component

 (1) The *tax free component of a *life benefit termination payment you receive is not assessable income and is not *exempt income.

Taxable component

 (2) The *taxable component of the payment is assessable income.

 (3) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed:

 (a) if you are your *preservation age or older on the last day of the income year in which you receive the payment—15%; or

 (b) otherwise—30%.

Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

 (4) The amount is so much of the *taxable component of the payment as does not exceed the smallest of the following:

 (a) the *ETP cap amount reduced (but not below zero) by:

 (i) if the payment is a payment of a kind referred to in subsection (6) (an excluded payment)—the amount worked out under this subsection for each *life benefit termination payment you have received earlier in the income year to the extent that it is an excluded payment; or

 (ii) if the payment is not an excluded payment—the amount worked out under this subsection for each life benefit termination payment you have received earlier in the income year;

 (b) the ETP cap amount reduced (but not below zero) by:

 (i) if the payment is an excluded payment—the amount worked out under this subsection for each life benefit termination payment you have received earlier in consequence of the same employment termination (whether in the income year or an earlier income year) to the extent that it is an excluded payment; or

 (ii) if the payment is not an excluded payment—the amount worked out under this subsection for each life benefit termination payment you have received earlier in consequence of the same employment termination (whether in the income year or an earlier income year);

 (c) if the payment is not an excluded payment—$180,000, reduced (but not below zero) by your taxable income for the income year in which the payment is made.

Note 1: For the ETP cap amount, see section 82160.

Note 2: If you have also received a death benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to a tax concession for the death benefit termination payment (under section 8265 or 8270).

Note 3: Certain other life benefit termination payments made before 1 July 2012 may be treated as earlier payments under paragraph (4)(b): see section 8210H of the Income Tax (Transitional Provisions) Act 1997.

 (5) In working out, for the purposes of paragraph (4)(c), your taxable income for the income year, disregard:

 (a) the taxable component of the payment; and

 (b) the taxable component of each *life benefit termination payment you receive later in the income year.

 (6) Paragraph (4)(c) does not apply in relation to *life benefit termination payments:

 (a) that are *genuine redundancy payments, or that would be genuine redundancy payments but for paragraph 83175(2)(a); or

 (b) that are *early retirement scheme payments; or

 (c) that include *invalidity segments, or what would be invalidity segments included in such payments but for paragraph 82150(1)(c); or

 (d) that:

 (i) are paid in connection with a genuine dispute; and

 (ii) are principally compensation for personal injury, unfair dismissal, harassment, discrimination or a matter prescribed by the regulations; and

 (iii) exceed the amount that could, at the time of the termination of your employment, reasonably be expected to be received by you in consequence of the voluntary termination of your employment.

 (7) If the payment is partly an excluded payment:

 (a) subsection (4) applies as if the payment were 2 payments as follows:

 (i) first, a payment consisting only of the part of the payment that is an excluded payment;

 (ii) second, another payment, made immediately after the first payment, consisting only of the part of the payment that is not an excluded payment; and

 (b) subsection (4) applies to the second payment as if a reference in subsection (5) to the taxable component of a payment were a reference to so much of the taxable component as relates to the part of the payment that is not an excluded payment.

 (8) Despite subsections (4) and (7), the amount mentioned in subsection (4) in relation to the payment must not exceed either of the following:

 (a) the *ETP cap amount reduced (but not below zero) by the amount worked out under subsection (4) for each *life benefit termination payment you have received earlier in the income year;

 (b) the ETP cap amount reduced (but not below zero) by the amount worked out under subsection (4) for each life benefit termination payment you have received earlier in consequence of the same employment termination (whether in the income year or an earlier income year).

Subdivision 82BEmployment termination payments: death benefits

Guide to Subdivision 82B

8260  What this Subdivision is about

If you receive a death benefit termination payment after the death of a person, part of the payment may be tax free (the tax free component).

You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.

The extent of your entitlement to the offset depends on whether or not you were a death benefits dependant of the deceased, and on the total amount of payments you receive in consequence of the same employment termination.

If a death benefit termination payment is payable to the trustee of the estate of the deceased for the benefit of another person, the payment is taxed in the hands of the trustee in the same way as it would be taxed if it had been paid directly to the other person.

Table of sections

Operative provisions

8265 Death benefits for dependants

8270 Death benefits for nondependants

8275 Death benefits paid to trustee of deceased estate

Operative provisions

8265  Death benefits for dependants

Tax free component

 (1) The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income.

Taxable component

 (2) If you receive a *death benefit termination payment after the death of a person of whom you are a *death benefits dependant:

 (a) the part of the *taxable component of the payment mentioned in subsection (3) is not assessable income and is not *exempt income; and

 (b) the remainder of the taxable component (if any) of the payment is assessable income.

Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

 (3) The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount.

Note: For the ETP cap amount, see section 82160.

 (4) The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (3) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

Note 1: See subsection 8275(2) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased.

Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax concession under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 8210).

8270  Death benefits for nondependants

Tax free component

 (1) The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are not a *death benefits dependant is not assessable income and is not *exempt income.

Taxable component

 (2) If you receive a *death benefit termination payment after the death of a person of whom you are not a *death benefits dependant, the *taxable component of the payment is assessable income.

 (3) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed 30%.

Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

 (4) The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount.

Note: For the ETP cap amount, see section 82160.

 (5) The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (4) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

Note 1: See subsection 8275(3) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased.

Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 8210).

8275  Death benefits paid to trustee of deceased estate

 (1) This section applies to you if:

 (a) you are the trustee of a deceased estate; and

 (b) a *death benefit termination payment is made to you in your capacity as trustee.

Note: See also subsection 101A(3) of the Income Tax Assessment Act 1936.

Dependants of deceased benefit from payment

 (2) To the extent that 1 or more beneficiaries of the estate who were *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment:

 (a) the payment is treated as if it had been made to you as a person who was a death benefits dependant of the deceased; and

 (b) the payment is taken to be income to which no beneficiary is presently entitled.

Note: Section 8265 deals with the taxation of employment termination payments made to persons who are death benefits dependants of deceased persons.

Nondependants of deceased benefit from payment

 (3) To the extent that 1 or more beneficiaries of the estate who were not *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment:

 (a) the payment is treated as if it had been made to you as a person who was not a death benefits dependant of the deceased; and

 (b) the payment is taken to be income to which no beneficiary is presently entitled.

Note: Section 8270 deals with the taxation of employment termination payments made to persons who are not death benefits dependants of deceased persons.

Subdivision 82CKey concepts

Guide to Subdivision 82C

82125  What this Subdivision is about

This Subdivision defines an employment termination payment as a payment made in consequence of the termination of a person’s employment that is received no later than 12 months after the termination (though the 12 month restriction is relaxed in some circumstances).

An employment termination payment can be a life benefit termination payment (received by the person whose employment is terminated) or a death benefit termination payment (received by another person after the death of a person whose employment is terminated).

Certain types of payments are declared not to be employment termination payments.

Various other terms used in describing the taxation treatment of employment termination payments are defined in the Subdivision.

Table of sections

Operative provisions

82130 What is an employment termination payment?

82135 Payments that are not employment termination payments

82140 Tax free component of an employment termination payment

82145 Taxable component of an employment termination payment

82150 What is an invalidity segment of an employment termination payment?

82155 What is a preJuly 83 segment of an employment termination payment?

82160 What is the ETP cap amount?

Operative provisions

82130  What is an employment termination payment?

 (1) A payment is an employment termination payment if:

 (a) it is received by you:

 (i) in consequence of the termination of your employment; or

 (ii) after another person’s death, in consequence of the termination of the other person’s employment; and

 (b) it is received no later than 12 months after that termination (but see subsection (4)); and

 (c) it is not a payment mentioned in section 82135.

Note 1: If a payment would be an employment termination payment but for paragraph (b), see subsection (4) and section 83295.

Note 2: The holding of an office is treated as employment for this Part: see section 805. Also, the termination of employment is treated as including the termination of employment by retirement or by death: see section 8010.

Types of employment termination payment

 (2) A life benefit termination payment is an *employment termination payment to which subparagraph (1)(a)(i) applies.

 (3) A death benefit termination payment is an *employment termination payment to which subparagraph (1)(a)(ii) applies.

Exemption from 12 month rule

 (4) Paragraph (1)(b) does not apply to you if:

 (a) you are covered by a determination under subsection (5) or (7); or

 (b) the payment is a *genuine redundancy payment or an *early retirement scheme payment.

Note: The part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83170 is not an employment termination payment: see section 82135.

 (5) The Commissioner may determine, in writing, that paragraph (1)(b) does not apply to you if the Commissioner considers the time between the employment termination and the payment to be reasonable, having regard to the following:

 (a) the circumstances of the employment termination, including any dispute in relation to the termination;

 (b) the circumstances of the payment;

 (c) the circumstances of the person making the payment;

 (d) any other relevant circumstances.

 (6) A determination under subsection (5) is not a legislative instrument.

 (7) The Commissioner may, by legislative instrument, determine that paragraph (1)(b) does not apply to either or both of the following, as specified in the determination:

 (a) a class of payments;

 (b) a class of recipients of payments.

 (8) A determination under subsection (7) may provide for paragraph (1)(b) not to apply in circumstances relating to any (or all) of the following, as specified in the determination:

 (a) a class of employment termination (including a class described by reference to disputes of a specified type);

 (b) a class of payments;

 (c) a class of persons making payments;

 (d) the period after the employment termination until payment is received;

 (e) any other relevant circumstances.

82135  Payments that are not employment termination payments

  The following payments you receive are not employment termination payments:

 (a) a *superannuation benefit (see Divisions 301 to 307);

 (b) a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

 (c) an *unused annual leave payment (see Subdivision 83A);

 (d) an *unused long service leave payment (see Subdivision 83B);

 (e) the part of a *genuine redundancy payment or an *early retirement scheme payment worked out under section 83170 (see Subdivision 83C);

 (f) a payment to which Subdivision 83D (Foreign termination payments) applies;

 (fa) a payment (or part of one) made by a company or trust as mentioned in subsection 152310(2);

 (g) a payment that is an advance or a loan to you on terms and conditions that would apply if you and the payer were dealing at *arm’s length;

 (h) a payment that is deemed to be a *dividend under this Act;

 (i) a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to *derive income from personal exertion (within the meaning of the definition of income derived from personal exertion in subsection 6(1) of the Income Tax Assessment Act 1936);

 (j) a capital payment for, or in respect of, a legally enforceable contract in restraint of trade by you so far as the payment is reasonable having regard to the nature and extent of the restraint;

 (k) a payment:

 (i) received by you, or to which you are entitled, as the result of the commutation of a pension payable from a *constitutionally protected fund; and

 (ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 37 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997);

 (l) a payment:

 (i) received by you, or to which you are entitled, as the result of the commutation of a pension payable by a superannuation provider (within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997); and

 (ii) wholly applied in paying any superannuation contributions surcharge (as defined in section 43 of that Act);

 (m) an amount included in your assessable income under Division 83A of this Act (which deals with employee share schemes).

Note: For paragraph (e)—the remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in the paragraph) is an employment termination payment if section 82130 applies to that part.

82140  Tax free component of an employment termination payment

  The tax free component of an *employment termination payment is so much of the payment as consists of the following:

 (a) the *invalidity segment of the payment;

 (b) the *preJuly 83 segment of the payment.

82145  Taxable component of an employment termination payment

  The taxable component of an *employment termination payment is the amount of the payment less the *tax free component of the payment (see section 82140).

82150  What is an invalidity segment of an employment termination payment?

 (1) An *employment termination payment includes an invalidity segment if:

 (a) the payment was made to a person because he or she stops being *gainfully employed; and

 (b) the person stopped being gainfully employed because he or she suffered from illhealth (whether physical or mental); and

 (c) the gainful employment stopped before the person’s *last retirement day; and

 (d) 2 legally qualified medical practitioners have certified that, because of the illhealth, it is unlikely that the person can ever be gainfully employed in capacity for which he or she is reasonably qualified because of education, experience or training.

 (2) Work out the amount of the invalidity segment by applying the following formula:

where:

days to retirement is the number of days from the day on which the person’s employment was terminated to the *last retirement day.

employment days is the number of days of employment to which the payment relates.

82155  What is a preJuly 83 segment of an employment termination payment?

 (1) An *employment termination payment includes a preJuly 83 segment if any of the employment to which the payment relates occurred before 1 July 1983.

 (2) Work out the amount of the preJuly 83 segment as follows:

Step 1. Subtract the *invalidity segment (if any) from the *employment termination payment.

Step 2. Multiply the amount at step 1 by the fraction:

 

82160  What is the ETP cap amount?

  The ETP cap amount for the 20072008 income year is $140,000. This amount is indexed annually.

Note 1: Subdivision 960M shows how to index amounts. However, annual indexation does not necessarily increase the ETP cap amount: see section 960285.

Note 2: The ETP cap amount may be reduced for the purpose of working out tax offsets for individual employment termination payments.

Division 83Other payments on termination of employment

Table of Subdivisions

 Guide to Division 83

83A Unused annual leave payments

83B Unused long service leave payments

83C Genuine redundancy payments and early retirement scheme payments

83D Foreign termination payments

83E Other payments

Guide to Division 83

831  What this Division is about

This Division sets out the taxation treatment for a variety of payments, other than employment termination payments, that are made in consequence of the termination of employment.

Subdivision 83AUnused annual leave payments

Guide to Subdivision 83A

835  What this Subdivision is about

You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused annual leave.

Table of sections

Operative provisions

8310 Unused annual leave payment is assessable

8315 Entitlement to tax offset

Operative provisions

8310  Unused annual leave payment is assessable

Application—annual leave

 (1) This section applies to leave (annual leave) of the following types (whether it is made available as an entitlement or as a privilege):

 (a) leave ordinarily known as annual leave, including recreational leave and annual holidays;

 (b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available.

Unused annual leave payments

 (2) Your assessable income includes an *unused annual leave payment that you receive.

 (3) A payment that you receive in consequence of the termination of your employment is an unused annual leave payment if:

 (a) it is for annual leave you have not used; or

 (b) it is a bonus or other additional payment for annual leave you have not used; or

 (c) it is for annual leave, or is a bonus or other additional payment for annual leave, to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination.

8315  Entitlement to tax offset

  You are entitled to a *tax offset to ensure that the rate of tax on an *unused annual leave payment does not exceed 30%, to the extent that:

 (a) the payment was made in connection with a payment that includes, or consists of, any of the following:

 (i) a *genuine redundancy payment;

 (ii) an *early retirement scheme payment;

 (iii) the *invalidity segment of an *employment termination payment or *superannuation benefit; or

 (b) the payment was made in respect of employment before 18 August 1993.

Subdivision 83BUnused long service leave payments

Guide to Subdivision 83B

8365  What this Subdivision is about

You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused long service leave.

Table of sections

General

8370 Application—long service leave

8375 Meaning of unused long service leave payment

8380 Taxation of unused long service leave payments

8385 Entitlement to tax offset

8390 Meaning of pre16/8/78 period, pre18/8/93 period, post17/8/93 period and long service leave employment period

Employment wholly fulltime or wholly parttime

8395 How to work out amount of payment attributable to each period

83100 How to work out unused days of long service leave for each period

83105 How to work out long service leave accrued in each period

Employment partly fulltime and partly parttime

83110 Leave accrued in pre16/8/78, pre18/8/93 and post17/8/93 periods—employment fulltime and parttime

Long service leave taken at less than full pay

83115 Working out used days of long service leave if leave taken at less than full pay

General

8370  Application—long service leave

  This Subdivision applies to leave (long service leave) of the following types (whether it is made available as an entitlement or as a privilege), other than annual leave to which section 8310 applies:

 (a) leave ordinarily known as long service leave, including long leave, furlough and extended leave;

 (b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available;

 (c) if your employer has entered into a *scheme or *arrangement for leave and, because of the existence and nature of the scheme or arrangement, the employer does not have to comply with the requirements of a law of the Commonwealth, or of a State or Territory, relating to leave mentioned in paragraph (a) or (b)—leave made available under the scheme or arrangement.

8375  Meaning of unused long service leave payment

  A payment that you receive in consequence of the termination of your employment is an unused long service leave payment if:

 (a) it is for long service leave you have not used; or

 (b) it is for long service leave to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination.

8380  Taxation of unused long service leave payments

Assessable and taxfree parts of unused long service leave payments

 (1) If you receive an *unused long service leave payment, your assessable income includes the part of the payment shown in this table:

 

*Unused long service leave payments

Item

To the extent the payment is attributable to the …

Your assessable income includes this part of it …

1

*pre16/8/78 period

5%

2

*pre18/8/93 period

100%

3

*post17/8/93 period

100%

 (2) The remainder of that part (if any) of an *unused long service leave payment that is attributable to the *pre16/8/78 period is not assessable income and is not *exempt income.

Note 1: If your employment was wholly fulltime or wholly parttime during a period, see sections 8395, 83100 and 83105 to work out the amount of an unused long service leave payment that is attributable to the period.

Note 2: If your employment was partly fulltime and partly parttime during a period, see section 83110 to work out the amount of an unused long service leave payment that is attributable to the period.

8385  Entitlement to tax offset

 (1) You are entitled to a *tax offset on an *unused long service leave payment that ensures that the rate of income tax on the amount of the payment mentioned in subsection (2) does not exceed 30%.

 (2) The amount is the part of the *unused long service leave payment included in your assessable income under subsection 8380(1):

 (a) to the extent that it is attributable to the *pre18/8/93 period; and

 (b) to the extent that it is attributable to the *post17/8/93 period, if the payment was made in connection with a payment that includes, or consists of, any of the following:

 (i) a *genuine redundancy payment; or

 (ii) an *early retirement scheme payment; or

 (iii) an *invalidity segment of an *employment termination payment or a *superannuation benefit.

8390  Meaning of pre16/8/78 period, pre18/8/93 period, post17/8/93 period and long service leave employment period

 (1) The pre16/8/78 period consists of each day (if any) in your *long service leave employment period that occurred before 16 August 1978.

 (2) The pre18/8/93 period consists of each day (if any) in your *long service leave employment period to which the payment relates that occurred after 15 August 1978 and before 18 August 1993.

 (3) The post17/8/93 period consists of each day (if any) in your *long service leave employment period to which the payment relates that occurred after 17 August 1993.

 (4) Your long service leave employment period, for a period of long service leave, is:

 (a) the period of employment to which the long service leave relates; or

 (b) if your entitlement to long service leave changes so that it accrues over a shorter period—the period that would apply under paragraph (a) assuming the change had not happened.

Employment wholly fulltime or wholly parttime

8395  How to work out amount of payment attributable to each period

 (1) Work out how much of an *unused long service leave payment is attributable to a period as follows:

 (a) for the *pre18/8/93 period or to the *post17/8/93 period—use the formula in subsection (2);

 (b) for the *pre16/8/78 period—subtract the sum of the amounts (if any) worked out for paragraph (a) for the other 2 periods from the total amount of the payment.

 (2) For the *pre18/8/93 period or the *post17/8/93 period, the formula is:

where:

total unused long service leave days means the total number of unused days of long service leave in the *long service leave employment period for the payment.

unused long service leave days in the relevant period means the number of unused days of long service leave in the *pre18/8/93 period or the *post17/8/93 period (as applicable), worked out under section 83100.

Note 1: For the meaning of unused days of long service leave, see section 83100.

Note 2: Section 83110 explains how to work out the period of unused long service leave if your employment was partly fulltime and partly parttime during the period.

83100  How to work out unused days of long service leave for each period

 (1) The number of unused days of long service leave for each of the *pre16/8/78 period, the *pre18/8/93 period and the *post17/8/93 period is the number of days of long service leave that accrued to you during that period less the number of days of long service leave that you used in the period.

Exception if days used exceed days accrued in the pre18/8/93 period and the post17/8/93 period

 (2) To the extent that the number of days of long service leave that you used during the *pre18/8/93 period or the *post17/8/93 period exceeds the number of days of long service leave that accrued to you during the period, apply the excess days as shown in this table:

 

How to apply excess days

Item

If there are excess days in this period:

Apply the excess days as follows:

If, after you apply the excess days as shown in column 2, excess days remain, apply the remaining days as follows:

1

*pre18/8/93 period

Subtract the excess days from the unused days in the *post17/8/93 period

Subtract the excess days from the unused days in the *pre16/8/78 period

2

*post17/8/93 period

Subtract the excess days from the unused days in the *pre18/8/93 period

Subtract the excess days from the unused days in the *pre16/8/78 period

 (3) The number of unused days of long service leave in each period is the number of days after applying the table.

Note: Section 83115 explains how to work out the number of days of long service leave you are taken to have used if you took long service leave at less than the full pay rate.

83105  How to work out long service leave accrued in each period

 (1) Work out the number of days of long service leave that accrued to you during each part of your *long service leave employment period as follows:

 (a) for the *pre18/8/93 period or the *post17/8/93 period—use the formula in subsection (2);

 (b) for the *pre16/8/78 period—subtract the sum of the number of days (if any) worked out under paragraph (a) for the other 2 periods from the total number of days of long service leave accrued to you during the long service leave employment period.

 (2) For the *pre18/8/93 period or the *post17/8/93 period, the formula is:

where:

relevant period means the *pre18/8/93 period or the *post 17/8/93 period (as applicable).

How to treat fraction of day

 (3) If long service leave accrued to you during the *pre18/8/93 period and the *post17/8/93 period but not during the *pre16/8/78 period, and the number of days worked out under subsection (2) for the post17/8/93 period includes a fraction, treat the fraction as having accrued during the pre18/8/93 period.

 (4) If long service leave accrued to you during all 3 periods and the number of days worked out under subsection (2) for the *post17/8/93 period or the *pre18/8/93 period includes a fraction, treat the fraction as having accrued during the *pre16/8/78 period.

Employment partly fulltime and partly parttime

83110  Leave accrued in pre16/8/78, pre18/8/93 and post17/8/93 periods—employment fulltime and parttime

 (1) This section applies if the *long service leave employment period for an *unused long service leave payment includes:

 (a) 1 or more periods when you were employed on a fulltime basis; and

 (b) 1 or more periods when you were employed on a parttime basis.

 (2) Work out how much of the payment is attributable to the period or periods when you were employed on a fulltime basis (the fulltime payment) and how much to the period or periods when you were employed on a parttime basis (the parttime payment).

 (3) The amount of the payment that is attributable to each of the *pre16/8/78 period, the *pre18/8/93 period and the *post17/8/93 period is the sum of the amounts worked out in accordance with sections 8395, 83100 and 83105 that would be attributable to those periods if the fulltime payment and the parttime payment were each *unused long service leave payments.

Long service leave taken at less than full pay

83115  Working out used days of long service leave if leave taken at less than full pay

  If you used days of long service leave at a rate of pay that is less than the rate to which you are entitled, the number of days of long service leave you are taken to have used (disregarding fractions of days) is as follows:

Example: If you took 100 actual days of long service leave at a rate of pay of $30 per hour, while the rate of pay to which you were entitled when taking leave is $40 per hour, you are taken to have used 75 days of long service leave, worked out as follows:

Subdivision 83CGenuine redundancy payments and early retirement scheme payments

Guide to Subdivision 83C

83165  What this Subdivision is about

This Subdivision defines what are genuine redundancy payments and early retirement scheme payments.

If you receive a genuine redundancy payment or an early retirement scheme payment, you do not have to pay income tax on the payment so far as it does not exceed a certain amount worked out under this Subdivision.

A part of a genuine redundancy payment or an early retirement scheme payment that is not tax free under this Subdivision will normally be an employment termination payment.

Table of sections

Operative provisions

83170 Taxfree treatment of genuine redundancy payments and early retirement scheme payments

83175 What is a genuine redundancy payment?

83180 What is an early retirement scheme payment?

Operative provisions

83170  Taxfree treatment of genuine redundancy payments and early retirement scheme payments

 (1) This section applies if you receive a *genuine redundancy payment or an *early retirement scheme payment.

Note: A payment cannot be both a genuine redundancy payment and an early retirement scheme payment, because of the nature of each of these types of payment: see sections 83175 and 83180.

 (2) So much of the relevant payment as does not exceed the amount worked out under subsection (3) is not assessable income and is not *exempt income.

 (3) Work out the amount using the formula:

where:

base amount means:

 (a) for the income year 20062007—$6,783; and

 (b) for a later income year—the amount mentioned in paragraph (a) indexed annually.

Note: Subdivision 960M shows you how to index the base amount.

service amount means:

 (a) for the income year 20062007—$3,392; and

 (b) for a later income year—the amount mentioned in paragraph (a) indexed annually.

Note: Subdivision 960M shows you how to index the service amount.

years of service means the number of whole years in the period, or sum of periods, of employment to which the payment relates.

Note: The remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in subsection (3)) is an employment termination payment if section 82130 applies to that part.

83175  What is a genuine redundancy payment?

 (1) A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee’s position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal.

 (2) A genuine redundancy payment must satisfy the following conditions:

 (a) the employee is dismissed before the earlier of the following:

 (i) the day he or she turned 65;

 (ii) if the employee’s employment would have terminated when he or she reached a particular age or completed a particular period of service—the day he or she would reach the age or complete the period of service (as the case may be);

 (b) if the dismissal was not at *arm’s length—the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm’s length;

 (c) at the time of the dismissal, there was no *arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the dismissal.

 (3) However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of *superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time.

Payments not covered

 (4) A payment is not a genuine redundancy payment if it is a payment mentioned in section 82135 (apart from paragraph 82135(e)).

Note: Paragraph 82135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83170 is not an employment termination payment.

83180  What is an early retirement scheme payment?

 (1) An early retirement scheme payment is so much of a payment received by an employee because the employee retires under an *early retirement scheme as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the retirement.

 (2) An early retirement scheme payment must satisfy the following conditions:

 (a) the employee retires before the earlier of the following:

 (i) the day he or she turned 65;

 (ii) if the employee’s employment would have terminated when he or she reached a particular age or completed a particular period of service—the day he or she would reach the age or complete the period of service (as the case may be);

 (b) if the retirement is not at *arm’s length—the payment does not exceed the amount that could reasonably be expected to be made if the retirement were at arm’s length;

 (c) at the time of the retirement, there was no *arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the retirement.

 (3) A scheme is an early retirement scheme if:

 (a) all the employer’s employees who comprise such a class of employees as the Commissioner approves may participate in the scheme; and

 (b) the employer’s purpose in implementing the scheme is to rationalise or reorganise the employer’s operations by making any change to the employer’s operations, or the nature of the work force, that the Commissioner approves; and

 (c) before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.

 (4) A scheme is also an early retirement scheme if:

 (a) paragraph (3)(a) or (b) does not apply; and

 (b) the Commissioner is satisfied that special circumstances exist in relation to the scheme that make it reasonable to approve the scheme; and

 (c) before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.

 (5) However, an early retirement scheme payment does not include any part of the payment that was paid to the employee in lieu of *superannuation benefits to which the employee may have become entitled at the time the payment was made or at a later time.

Payments not covered

 (6) A payment is not an early retirement scheme payment if it is a payment mentioned in section 82135 (apart from paragraph 82135(e)).

Note: Paragraph 82135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83170 is not an employment termination payment.

Subdivision 83DForeign termination payments

Guide to Subdivision 83D

83230  What this Subdivision is about

This Subdivision deals with termination payments that arise out of foreign employment.

These payments are not employment termination payments, and are tax free (except for amounts worked out under this Subdivision).

Table of sections

Operative provisions

83235 Termination payments tax free—foreign resident period

83240 Termination payments tax free—Australian resident period

Operative provisions

83235  Termination payments tax free—foreign resident period

  A payment received by you is not assessable income and is not *exempt income if:

 (a) it was received in consequence of the termination of your employment in a foreign country; and

 (b) it is not a *superannuation benefit; and

 (c) it is not a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

 (d) it relates only to a period of employment when you were not an Australian resident.

83240  Termination payments tax free—Australian resident period

 (1) A payment received by you is not assessable income and is not *exempt income if:

 (a) it was received in consequence of:

 (i) the termination of your employment in a foreign country; or

 (ii) the termination of your engagement on qualifying service on an approved project (within the meaning of section 23AF of the Income Tax Assessment Act 1936), in relation to a foreign country; and

 (b) it relates only to the period of that employment or engagement; and

 (c) it is not a *superannuation benefit; and

 (d) it is not a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

 (e) you were an Australian resident during the period of the employment or engagement; and

 (f) the payment is not exempt from income tax under the law of the foreign country; and

 (g) for a period of employment—your foreign earnings from the employment are exempt from income tax under section 23AG of the Income Tax Assessment Act 1936; and

 (h) for a period of engagement—your *eligible foreign remuneration from the service is exempt from income tax under section 23AF of that Act.

 (2) For the purposes of subparagraph (1)(a)(ii), treat the termination of engagement on qualifying service on an approved project as including:

 (a) retirement from the engagement; and

 (b) cessation of the engagement because of the person’s death.

Note: The termination of a person’s employment is treated in the same way: see section 8010.

Subdivision 83EOther payments

Guide to Subdivision 83E

83290  What this Subdivision is about

If a payment you receive in consequence of the termination of your employment is made more than 12 months after the termination of your employment, it does not qualify as an employment termination payment, subject to certain exceptions (see section 82130).

The payment is treated as assessable income and no tax concession is allowed under Division 82.

Table of sections

Operative provisions

83295 Termination payments made more than 12 months after termination etc.

Operative provisions

83295  Termination payments made more than 12 months after termination etc.

  A payment received by you that would be an *employment termination payment but for paragraph 82130(1)(b) is assessable income.

Division 83AEmployee share schemes

Table of Subdivisions

 Guide to Division 83A

83AA Objects of Division and key concepts

83AB Immediate inclusion of discount in assessable income

83AC Deferred inclusion of gain in assessable income

83AD Deduction for employer

83AE Miscellaneous

Guide to Division 83A

83A1  What this Division is about

Your assessable income includes discounts on shares, rights and stapled securities you (or your associate) acquire under an employee share scheme.

You may be entitled:

 (a) to have the amount included in your assessable income reduced; or

 (b) to have the income year in which it is included deferred.

Subdivision 83AAObjects of Division and key concepts

Table of sections

83A5 Objects of Division

83A10 Meaning of ESS interest and employee share scheme

83A5  Objects of Division

  The objects of this Division are:

 (a) to ensure that benefits provided to employees under *employee share schemes are subject to income tax at the employees’ marginal rates under *income tax law (instead of being subject to *fringe benefits tax law); and

 (b) to increase the extent to which the interests of employees are aligned with those of their employers, by providing a tax concession to encourage lower and middle income earners to acquire *shares under such schemes; and

 (c) to increase the number of new entrepreneurial companies in Australia by assisting them to attract and retain employees by providing those employees with a tax concession for acquiring shares under such schemes.

83A10  Meaning of ESS interest and employee share scheme

 (1) An ESS interest, in a company, is a beneficial interest in:

 (a) a *share in the company; or

 (b) a right to acquire a beneficial interest in a share in the company.

 (2) An employee share scheme is a *scheme under which *ESS interests in a company are provided to employees, or *associates of employees, (including past or prospective employees) of:

 (a) the company; or

 (b) *subsidiaries of the company;

in relation to the employees’ employment.

Note: See section 83A325 for relationships similar to employment.

Subdivision 83ABImmediate inclusion of discount in assessable income

Guide to Subdivision 83AB

83A15  What this Subdivision is about

Generally, a discount you receive on shares, rights or stapled securities you acquire under an employee share scheme is included in your assessable income when you acquire the beneficial interest in those shares, rights or securities.

You may be entitled to reduce the amount included in your assessable income if you meet one of 2 sets of conditions.

If you are a foreign resident, only the part of the discount that relates to your employment in Australia is included in your assessable income.

Table of sections

Operative provisions

83A20 Application of Subdivision

83A25 Discount to be included in assessable income

83A30 Amount for which discounted ESS interest acquired

83A33 Reducing amounts included in assessable income—start ups

83A35 Reducing amounts included in assessable income—other cases

83A45 Further conditions for reducing amounts included in assessable income

Operative provisions

83A20  Application of Subdivision

 (1) This Subdivision applies to an *ESS interest if you acquire the interest under an *employee share scheme at a discount.

Note 1: This Subdivision does not apply if Subdivision 83AC applies: see section 83A105.

Note 2: If an associate of yours acquires an interest in relation to your employment, this Division applies as if you, rather than your associate, acquired the interest: see section 83A305.

 (2) However, this Subdivision does not apply if the *ESS interest is a beneficial interest in a *share that you acquire as a result of exercising a right, if you acquired a beneficial interest in the right under an *employee share scheme.

83A25  Discount to be included in assessable income

 (1) Your assessable income for the income year in which you acquire the *ESS interest includes the discount given in relation to the interest.

Note: Regulations made for section 83A315 may be relevant to working out whether you acquire the ESS interest at a discount.

 (2) Treat an amount included in your assessable income under subsection (1) as being from a source other than an *Australian source to the extent that it relates to your employment outside Australia.

Note: For the CGT treatment of employee share schemes, see Subdivision 130D.

83A30  Amount for which discounted ESS interest acquired

 (1) For the purposes of this Act (other than this Division), the *ESS interest (and the *share or right of which it forms part) is taken to have been acquired for its *market value (rather than for its discounted value).

Note: Regulations made for the purposes of section 83A315 may substitute a different amount for the market value of the ESS interest.

 (2) Subsection (1) does not apply to an *ESS interest that is a beneficial interest in a right (or to the right of which it forms part), if section 83A33 (about start ups) reduces the amount to be included in your assessable income in relation to the interest.

83A33  Reducing amounts included in assessable income—start ups

 (1) Reduce the total amount included in your assessable income under subsection 83A25(1) for an income year by the total of the amounts included in your assessable income under that subsection, for the income year, for *ESS interests to which all of the following provisions apply:

 (a) subsections (2) to (6) of this section;

 (b) section 83A45 (about further conditions);

 (c) for ESS interests that are beneficial interests in *shares—subsection 83A105(2) (about broad availability of schemes).

No equity interests listed on a stock exchange

 (2) This subsection applies to an *ESS interest in a company (the first company) if no *equity interests in any of the following companies are listed for quotation in the official list of any *approved stock exchange at the end of the first company’s most recent income year before you acquired the interest:

 (a) the first company;

 (b) any *subsidiary of the first company at the end of that income year;

 (c) any holding company (within the meaning of the Corporations Act 2001) of the first company at the end of that income year;

 (d) any subsidiary of a holding company (within the meaning of that Act) of the first company at the end of that income year.

Note: For identifying any holding company, see also subsection (7).

Incorporated for less than 10 years

 (3) This subsection applies to an *ESS interest in a company if:

 (a) the company (the first company); and

 (b) each of the other companies referred to in subsection (2);

was incorporated by or under an *Australian law or *foreign law less than 10 years before the end of the first company’s most recent income year before you acquired the interest.

Company has aggregated turnover not exceeding $50 million

 (4) This subsection applies to an *ESS interest in a company if the company has an *aggregated turnover not exceeding $50 million for the company’s most recent income year before the income year in which you acquire the ESS interest.

Note: For working out aggregated turnover, see also subsection (7).

Conditions relating to market value

 (5) This subsection applies to an *ESS interest in a company if:

 (a) in the case of an ESS interest that is a beneficial interest in a *share—the discount on the ESS interest is no more than 15% of its *market value when you acquire it; or

 (b) in the case of an ESS interest that is a beneficial interest in a right—the amount that must be paid to exercise the right is greater than or equal to the market value of an ordinary share in the company when you acquire the ESS interest.

Employer to be an Australian resident company

 (6) This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, your employer is an Australian resident.

Disregard certain investments

 (7) For the purposes of subsections (2) and (4), disregard:

 (a) *eligible venture capital investments by a *VCLP, *ESVCLP or *AFOF; and

 (b) investments by an *exempt entity that is a *deductible gift recipient;

when identifying any holding company (within the meaning of the Corporations Act 2001) or working out *aggregated turnover.

83A35  Reducing amounts included in assessable income—other cases

Reduction and income test

 (1) Reduce the total amount included in your assessable income under subsection 83A25(1) for an income year by the total of the amounts included in your assessable income under that subsection, for the income year, for *ESS interests to which all of the following provisions apply:

 (a) subsections (6) and (7) of this section;

 (b) section 83A45 (about further conditions).

 (2) However:

 (a) do not reduce the total amount by more than $1,000; and

 (b) only make the reduction if the sum of the following does not exceed $180,000:

 (i) your taxable income for the income year (including any amount that would be included in your taxable income if you disregarded this section);

 (ii) your *reportable fringe benefits total for the income year;

 (iii) your *reportable superannuation contributions (if any) for the income year;

 (iv) your *total net investment loss for the income year; and

 (c) subsection (1) does not apply if section 83A33 (about start ups) reduces the amount to be included in your assessable income for the income year for the *ESS interests.

Scheme must be nondiscriminatory

 (6) This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, both:

 (a) the employee share scheme; and

 (b) any scheme for the provision of financial assistance in respect of acquisitions of ESS interests under the employee share scheme;

are operated on a nondiscriminatory basis in relation to at least 75% of the permanent employees of your employer who have completed at least 3 years of service (whether continuous or noncontinuous) with your employer and who are Australian residents.

No risk of losing interest or share under the conditions of the scheme

 (7) This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest:

 (a) if the ESS interest is a beneficial interest in a *share—there is no real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it); or

 (b) if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a *share:

 (i) there is no real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it, exercising the right or letting the right lapse); and

 (ii) there is no real risk that, under the conditions of the scheme, if you exercise the right, you will forfeit or lose the beneficial interest in the share (other than by disposing of it).

83A45  Further conditions for reducing amounts included in assessable income

Employment

 (1) This subsection applies to an *ESS interest in a company if, when you acquire the interest, you are employed by:

 (a) the company; or

 (b) a *subsidiary of the company.

Employee share scheme relates only to ordinary shares

 (2) This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, all the ESS interests available for acquisition under the scheme relate to ordinary *shares.

Integrity rule about share trading and investment companies.

 (3) This subsection applies to an *ESS interest in a company unless, when you acquire the interest:

 (a) the predominant business of the company (whether or not stated in its constituent documents) is the acquisition, sale or holding of *shares, securities or other investments (whether directly or indirectly through one or more companies, partnerships or trusts); and

 (b) you are employed by the company; and

 (c) you are also employed by any other company that is:

 (i) a *subsidiary of the first company; or

 (ii) a holding company (within the meaning of the Corporations Act 2001) of the first company; or

 (iii) a subsidiary of a holding company (within the meaning of the Corporations Act 2001) of the first company.

Minimum holding period

 (4) This subsection applies to an *ESS interest you acquire under an *employee share scheme if, at all times during the interest’s *minimum holding period, the scheme is operated so that every acquirer of an ESS interest (the scheme interest) under the scheme is not permitted to dispose of:

 (a) the scheme interest; or

 (b) a beneficial interest in a *share acquired as a result of the scheme interest;

during the scheme interest’s minimum holding period.

Note: This subsection is taken to apply in the case of a takeover or restructure: see subsection 83A130(3).

 (5) An *ESS interest’s minimum holding period is the period starting when the interest is acquired under the *employee share scheme and ending at the earlier of:

 (a) 3 years later, or such earlier time as the Commissioner allows if the Commissioner is satisfied that:

 (i) the operators of the scheme intended for subsection (4) to apply to the interest during the 3 years after that acquisition of the interest; and

 (ii) at the earlier time that the Commissioner allows, all *membership interests in the relevant company were disposed of under a particular *scheme; and

 (b) when the acquirer of the interest ceases being employed by the relevant employer.

10% limit on shareholding and voting power

 (6) This subsection applies to an *ESS interest in a company if, immediately after you acquire the interest:

 (a) you do not hold a beneficial interest in more than 10% of the *shares in the company; and

 (b) you are not in a position to cast, or to control the casting of, more than 10% of the maximum number of votes that might be cast at a general meeting of the company.

 (7) For the purposes of subsection (6), you are taken to:

 (a) hold a beneficial interest in any *shares in the company that you can acquire under an *ESS interest that is a beneficial interest in a right to acquire a beneficial interest in such shares; and

 (b) be in a position to cast votes as a result of holding that interest in those shares.

Subdivision 83ACDeferred inclusion of gain in assessable income

Guide to Subdivision 83AC

83A100  What this Subdivision is about

If there is a real risk you might forfeit the share, right or stapled security you acquired under an employee share scheme, you don’t include the discount in your assessable income when you acquired it. Instead, in the first income year you are able to dispose of the share, right or security, your assessable income will include any gain you have made to that time. If you cease employment earlier, or if 15 years pass, the gain is included in that income year instead.

This deferred taxing point can also apply to:

 (a) a share or stapled security you acquire under salary sacrifice arrangements, if you get no more than $5,000 worth of shares under those arrangements; or

 (b) a right, if the scheme restricted you immediately disposing of the right, and stated that this Subdivision applies.

Table of sections

Main provisions

83A105 Application of Subdivision

83A110 Amount to be included in assessable income

83A115 ESS deferred taxing point—shares

83A120 ESS deferred taxing point—rights to acquire shares

83A125 Tax treatment of ESS interests held after ESS deferred taxing points

Takeovers and restructures

83A130 Takeovers and restructures

Main provisions

83A105  Application of Subdivision

Scope of Subdivision

 (1) This Subdivision applies, and Subdivision 83AB does not apply, to an *ESS interest in a company if:

 (a) Subdivision 83AB would, apart from this section, apply to the interest (see section 83A20); and

 (aa) after applying section 83A315, there is still a discount given in relation to the interest; and

 (ab) section 83A33 (about start ups) does not reduce the amount to be included in your assessable income in relation to the interest; and

 (b) subsections 83A45(1), (2), (3) and (6) apply to the interest; and

 (c) if the interest is a beneficial interest in a *share:

 (i) subsection (2) of this section applies to the interest; and

 (ii) subsection (3) or (4) applies to the interest; and

 (d) if the interest is a beneficial interest in a right to acquire a beneficial interest in a share—subsection (3) or (6) applies to the interest.

Note: Subsections 83A45(1), (2), (3) and (6) contain conditions relating to the following:

(a) your employment;

(b) the types of shares available under the employee share scheme;

(c) share trading and investment companies;

(d) your shareholding and voting power in the company.

Broad availability of schemes

 (2) This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, at least 75% of the permanent employees of your employer who have completed at least 3 years of service (whether continuous or noncontinuous) with your employer and who are Australian residents are, or at some earlier time had been, entitled to acquire:

 (a) ESS interests under the scheme; or

 (b) ESS interests in:

 (i) your employer; or

 (ii) a holding company (within the meaning of the Corporations Act 2001) of your employer;

  under another employee share scheme.

Real risk of losing interest or share under the conditions of the scheme

 (3) This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest:

 (a) if the ESS interest is a beneficial interest in a *share—there is a real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it); or

 (b) if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a share:

 (i) there is a real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it, exercising the right or letting the right lapse); or

 (ii) there is a real risk that, under the conditions of the scheme, if you exercise the right, you will forfeit or lose the beneficial interest in the share (other than by disposing of it).

Salary sacrifice arrangement

 (4) This subsection applies to an *ESS interest you acquire under an *employee share scheme during an income year at a discount if:

 (a) the interest is provided:

 (i) because you agreed to acquire the interest in return for a reduction in your salary or wages that would not have happened apart from the agreement; or

 (ii) as part of your remuneration package, in circumstances where it is reasonable to conclude that your salary or wages would be greater if the interest was not made part of that package; and

 (b) at the time you acquire the interest:

 (i) the discount equals the *market value of the ESS interest; and

 (ii) all of the ESS interests available for acquisition under the scheme are ESS interests to which subsection (3) applies, beneficial interests in *shares, or both; and

 (iii) the governing rules of the scheme expressly state that this Subdivision applies to the scheme (subject to the requirements of this Act); and

 (c) the total *market value of the *ESS interests in your employer and any holding company (within the meaning of the Corporations Act 2001) of your employer:

 (i) that you acquire during the year under any employee share scheme or schemes; and

 (ii) to which both this Subdivision and this subsection apply;

  does not exceed $5,000.

 (5) For the purposes of paragraph (4)(c), work out the *market value of each *ESS interest as at the time you acquire it.

Note: Regulations made for the purposes of section 83A315 may substitute a different amount for the market value of the ESS interest.

Scheme’s rules state that this Subdivision applies

 (6) This subsection applies to an *ESS interest you acquire under an *employee share scheme during an income year at a discount if:

 (a) the interest is a beneficial interest in a right; and

 (b) at the time you acquired the interest:

 (i) the scheme genuinely restricted you immediately disposing of the right; and

 (ii) the governing rules of the scheme expressly stated that this Subdivision applies to the scheme (subject to the requirements of this Act).

83A110  Amount to be included in assessable income

 (1) Your assessable income for the income year in which the *ESS deferred taxing point for the *ESS interest occurs includes the *market value of the interest at the ESS deferred taxing point, reduced by the *cost base of the interest.

Note: Regulations made for the purposes of section 83A315 may substitute a different amount for the market value of the ESS interest.

 (2) Treat an amount included in your assessable income under subsection (1) as being from a source other than an *Australian source to the extent that it relates to your employment outside Australia.

Note: For the CGT treatment of employee share schemes, see Subdivision 130D.

83A115  ESS deferred taxing point—shares

Scope

 (1) This section applies if the *ESS interest is a beneficial interest in a *share.

Meaning of ESS deferred taxing point

 (2) The ESS deferred taxing point for the *ESS interest is the earliest of the times mentioned in subsections (4) to (6).

 (3) However, the ESS deferred taxing point for the *ESS interest is instead the time you dispose of the interest, if that time occurs within 30 days after the time worked out under subsection (2).

No restrictions on disposing of share

 (4) The first possible taxing point is the earliest time when:

 (a) there is no real risk that, under the conditions of the *employee share scheme, you will forfeit or lose the *ESS interest (other than by disposing of it); and

 (b) if, at the time you acquired the interest, the scheme genuinely restricted you immediately disposing of the interest—the scheme no longer so restricts you.

Cessation of employment

 (5) The 2nd possible taxing point is the time when the employment in respect of which you acquired the interest ends.

Maximum time period for deferral

 (6) The 3rd possible taxing point is the end of the 15 year period starting when you acquired the interest.

83A120  ESS deferred taxing point—rights to acquire shares

Scope

 (1) This section applies if the *ESS interest is a beneficial interest in a right to acquire a beneficial interest in a *share.

Meaning of ESS deferred taxing point

 (2) The ESS deferred taxing point for the *ESS interest is the earliest of the times mentioned in subsections (4) to (7).

 (3) However, the ESS deferred taxing point for the *ESS interest is:

 (a) the time you dispose of the ESS interest (other than by exercising the right); or

 (b) if you exercise the right—the time you dispose of the beneficial interest in the *share;

if that time occurs within 30 days after the time worked out under subsection (2).

No restrictions on disposing of right

 (4) The first possible taxing point is the earliest time when:

 (a) you have not exercised the right; and

 (b) there is no real risk that, under the conditions of the *employee share scheme, you will forfeit or lose the *ESS interest (other than by disposing of it, exercising the right or letting the right lapse); and

 (c) if, at the time you acquired the ESS interest, the scheme genuinely restricted you immediately disposing of the ESS interest—the scheme no longer so restricts you.

Cessation of employment

 (5) The 2nd possible taxing point is the time when the employment in respect of which you acquired the interest ends.

Maximum time period for deferral

 (6) The 3rd possible taxing point is the end of the 15 year period starting when you acquired the interest.

No restrictions on disposing of a share after exercising the right

 (7) The 4th possible taxing point is the earliest time when:

 (a) you exercise the right; and

 (c) there is no real risk that, under the conditions of the scheme, after exercising the right, you will forfeit or lose the beneficial interest in the *share (other than by disposing of it); and

 (d) if, at the time you acquired the ESS interest, the scheme genuinely restricted you immediately disposing of the beneficial interest in the share if you exercised the right—the scheme no longer so restricts you.

83A125  Tax treatment of ESS interests held after ESS deferred taxing points

  For the purposes of this Act (other than this Division), the *ESS interest (and the *share or right of which it forms part) is taken to have been acquired immediately after the *ESS deferred taxing point for the interest for its *market value, unless the ESS deferred taxing point occurs at the time the interest is disposed of.

Note: Regulations made for the purposes of section 83A315 may substitute a different amount for the market value of the ESS interest.

Takeovers and restructures

83A130  Takeovers and restructures

Object and scope

 (1) The object of this section is to allow this Division to continue to apply if:

 (a) at least one of the following applies:

 (i) an *arrangement (the takeover) is entered into that is intended to result in a company (the old company) becoming a *100% subsidiary of another company;

 (ii) *ESS interests in a company (the old company) acquired under *employee share schemes can reasonably be regarded as having been replaced, wholly or partly, by ESS interests in one or more other companies as a result of a change (the restructure) in the ownership (including the structure of the ownership) of the old company or a *demerger subsidiary of the old company; and

 (b) just before the takeover or restructure, you held ESS interests (the old interests) in the old company that you acquired under an employee share scheme.

Treat new interests as continuations of old interests

 (2) For the purposes of this Division, treat any *ESS interests (the new interests) in a company (the new company) that you acquire in connection with the takeover or restructure as a continuation of the old interests, to the extent that:

 (a) as a result of the arrangement or change, you stop holding the old interests; and

 (b) the new interests can reasonably be regarded as matching any of the old interests.

Note: In determining to what extent something can reasonably be regarded as matching any of the old interests, one of the factors to consider is the respective market values of that thing and of the old interests.

 (3) Subsection 83A45(4) (about the minimum holding period) is taken to apply to the *ESS interests.

 (4) Subsections (2) and (3) only apply if the new interests relate to ordinary *shares.

Old interest not matched by new interests

 (5) For the purposes of this Division, treat yourself as having disposed of the old interests to the extent that, in connection with the takeover or restructure, you acquire anything that:

 (a) can reasonably be regarded as matching any of the old interests; but

 (b) is not treated by subsection (2) as a continuation of those interests.

Continuation of your employment

 (6) For the purposes of this Division, treat your employment by:

 (a) the new company; or

 (b) a *subsidiary of the new company; or

 (c) a holding company (within the meaning of the Corporations Act 2001) of the new company; or

 (d) a subsidiary of a holding company (within the meaning of the Corporations Act 2001) of the new company;

as a continuation of the employment in respect of which you acquired the old interests.

Apportionment of cost base of old interests

 (7) Treat yourself as having given, as consideration for the assets mentioned in subsection (8), the amount worked out by apportioning among those assets, according to their respective *market values immediately after the takeover or restructure, the total of:

 (a) the *cost bases of the old interests when you stop holding them; and

 (b) the cost bases of the assets mentioned in paragraph (8)(b) immediately after the takeover or restructure (ignoring the effect of this subsection).

 (8) The assets are:

 (a) the things that:

 (i) you acquired in connection with the takeover or restructure; and

 (ii) can reasonably be regarded as matching the old interests;

  (including all of the new interests); and

 (b) in a case covered by subparagraph (1)(a)(ii)—any *ESS interests in the old company that:

 (i) you held just before, and continue to hold just after, the restructure; and

 (ii) that can reasonably be regarded as matching the old interests.

Exceptions

 (9) This section only applies if:

 (a) at or about the time you acquire the new interests, you are employed as mentioned in subsection (6); and

 (b) at the time you acquire the new interests:

 (i) you do not hold a beneficial interest in more than 10% of the *shares in the new company; and

 (ii) you are not in a position to cast, or to control the casting of, more than 10% of the maximum number of votes that might be cast at a general meeting of the new company.

 (10) For the purposes of paragraph (9)(b), you are taken to:

 (a) hold a beneficial interest in any *shares in the new company that you can acquire under an *ESS interest that is a beneficial interest in a right to acquire a beneficial interest in such shares; and

 (b) be in a position to cast votes as a result of holding that interest in those shares.

Subdivision 83ADDeduction for employer

Guide to Subdivision 83AD

83A200  What this Subdivision is about

You can deduct an amount for shares, rights or stapled securities you provide to your employees under an employee share scheme if they are eligible for a reduction in their assessable income under section 83A35. The amount you can deduct is equal to that reduction.

You must defer any deduction you are entitled to for amounts you provide to finance your employees acquiring interests in shares, rights or stapled securities under an employee share scheme until the employees have actually acquired those interests.

Table of sections

Operative provisions

83A205 Deduction for employer

83A210 Timing of general deductions

Operative provisions

83A205  Deduction for employer

 (1) You can deduct an amount for an income year if:

 (a) during the year you provided one or more *ESS interests to an individual under an *employee share scheme; and

 (b) you did so as:

 (i) the employer of the individual; or

 (ii) a holding company (within the meaning of the Corporations Act 2001) of the employer of the individual; and

 (c) section 83A35 applies to reduce the amount included in the individual’s assessable income under subsection 83A25(1) in relation to some or all of the interests.

 (2) Disregard paragraph 83A35(2)(b) (income test) for the purposes of paragraph (1)(c) of this section.

 (3) The amount of the deduction is the amount of the reduction mentioned in paragraph (1)(c).

Deduction to be apportioned if interest provided by multiple entities

 (4) The amount of the deduction worked out under subsection (3) must be apportioned between 2 or more entities on a reasonable basis if the entities jointly provide an *ESS interest for which an amount can be deducted under subsection (1).

83A210  Timing of general deductions

  If:

 (a) at a particular time, you provide another entity with money or other property:

 (i) under an *arrangement; and

 (ii) for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an *ESS interest under an *employee share scheme in relation to the ultimate beneficiary’s employment (including past or prospective employment); and

 (b) that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the *ESS interest;

then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time.

Subdivision 83AEMiscellaneous

Table of sections

83A305 Acquisition by associates

83A310 Forfeiture etc. of ESS interest

83A315 Market value of ESS interest

83A320 Interests in a trust

83A325 Application of Division to relationships similar to employment

83A330 Application of Division to ceasing employment

83A335 Application of Division to stapled securities

83A340 Application of Division to indeterminate rights

83A305  Acquisition by associates

 (1) If an *associate (other than an *employee share trust) of an individual acquires an *ESS interest in relation to the individual’s employment (including past or prospective employment), then, for the purposes of this Division:

 (a) treat the interest as having being acquired by the individual (instead of the associate); and

 (b) treat any circumstance, right or obligation existing or not existing in relation to the interest in relation to the associate as existing or not existing in relation to the individual; and

 (c) treat anything done or not done by or in relation to the associate in relation to the interest as being done or not done by or in relation to the individual.

Example 1: The following are attributed to the employee, rather than to the associate:

(a) the associate’s voting rights;

(b) the associate’s ability or inability to dispose of the ESS interest;

(c) whether there is a real risk that the associate may lose the ESS interest;

(d) the associate’s cost base for the ESS interest.

Example 2: If the associate disposes of the ESS interest, the employee is taken to have disposed of the ESS interest instead.

 (2) For the purposes of subsections 83A45(6) and (7), subsection (1) of this section also applies if the *associate acquired the *ESS interest otherwise than in relation to the individual’s employment.

83A310  Forfeiture etc. of ESS interest

 (1) This Division (apart from this Subdivision) is taken never to have applied in relation to an *ESS interest acquired by an individual under an *employee share scheme if:

 (a) disregarding this section, an amount is included in the individual’s assessable income under this Division in relation to the interest; and

 (b) either:

 (i) the individual forfeits the interest; or

 (ii) in the case of an ESS interest that is a beneficial interest in a right—the individual forfeits or loses the interest (without having disposed of the interest or exercised the right); and

 (c) the forfeiture or loss is not the result of:

 (i) a choice made by the individual (other than a choice to which subsection (2) applies); or

 (ii) a condition of the scheme that has the direct effect of protecting (wholly or partly) the individual against a fall in the *market value of the interest.

 (2) This subsection applies to the following choices by the individual:

 (a) a choice to cease particular employment;

 (b) in the case of an *ESS interest that is a beneficial interest in a right:

 (i) a choice not to exercise the right before it lapsed; or

 (ii) a choice to allow the right to be cancelled.

83A315  Market value of ESS interest

 (1) Whenever this Division (other than section 83A20) uses the *market value of an *ESS interest, instead use the amount specified in the regulations for the purposes of this section in relation to the interest, if the regulations specify such an amount.

 (2) To avoid doubt, apply the rule in subsection (1) to the *market value component of any calculation for the purposes of this Division that involves market value.

Example: If the regulations specify an amount in relation to an ESS interest, use that amount instead of the market value of the interest in working out:

(a) whether there is a discount given in relation to interest; and

(b) if so—the amount of the discount.

83A320  Interests in a trust

 (1) This section applies if, at a time:

 (a) you hold an interest in a trust whose assets include *shares; and

 (b) that interest corresponds to a particular number of the shares (even if the interest does not correspond to particular shares).

 (2) For the purposes of this Division, treat yourself as holding at that time a beneficial interest in each of a number of the *shares included in the assets of the trust equal to the number mentioned in paragraph (1)(b).

 (3) If there are 2 or more classes of *shares included in the assets of the trust, this section operates separately in relation to each class as if the shares in that class were all the shares included in the assets of the trust.

 (4) This section applies to rights to acquire beneficial interests in *shares in the same way it applies to shares.

Note: For the CGT treatment of employee share schemes, see Subdivision 130D.

83A325  Application of Division to relationships similar to employment

  This Division applies to an individual covered by column 1 of an item in the table as if:

 (a) he or she were employed by the entity referred to in column 2 of that item; and

 (b) the thing referred to column 3 of that item constituted that employment.

 

Application of Division to relationships similar to employment

Item

Column 1

This Division applies to an individual who:

Column 2

as if he or she were employed by:

Column 3

and this constituted that employment:

1

receives, or is entitled to receive, *work and income support withholding payments (otherwise than as an employee)

the entity that pays or provides the work and income support withholding payments (or is liable to do so)

the relationship because of which the entity pays or provides the work and income support withholding payments to the individual (or is liable to do so).

2

is engaged in service in a foreign country as the holder of an office

the entity by whom the individual is so engaged

the holding of the office.

3

provides services to an entity (other than services covered by a previous item in this table and services provided as an employee)

the entity

the *arrangement between the individual and the entity under which those services are provided.

83A330  Application of Division to ceasing employment

  For the purposes of this Division, you are treated as ceasing employment when you are no longer employed by any of the following:

 (a) your employer in that employment;

 (b) a holding company (within the meaning of the Corporations Act 2001) of your employer;

 (c) a *subsidiary of your employer;

 (d) a *subsidiary of a holding company (within the meaning of the Corporations Act 2001) of your employer.

83A335  Application of Division to stapled securities

 (1) This Division applies in relation to a stapled security in the same way as it applies in relation to a *share in a company, if at least one of the *ownership interests that are stapled together to form the stapled security is a share in the company.

Note: This means the Division also applies to rights to acquire such a stapled security in the same way it applies to rights to acquire a share.

 (2) This Division applies in relation to a stapled security in the same way as it applies in relation to an ordinary *share in a company, if at least one of the *ownership interests that are stapled together to form the stapled security is an ordinary share in the company.

 (3) For the purposes of this Division, in relation to a stapled security or right to acquire a beneficial interest in a stapled security, a company is taken to include (as part of the company) each *stapled entity for the stapled security, if at least one of the *ownership interests that are stapled together to form the stapled security is a *share in the company.

83A340  Application of Division to indeterminate rights

 (1) This section applies if:

 (a) you acquire a beneficial interest in a right; and

 (b) the right later becomes a right to acquire a beneficial interest in a *share.

Example 1: You acquire a right to acquire, at a future time:

(a) shares with a specified total value, rather than a specified number of shares; or

(b) an indeterminate number of shares.

Example 2: You acquire a right under which the provider must provide you with either ESS interests or cash, whichever the provider chooses.

 (2) This Division applies as if the right had always been a right to acquire the beneficial interest in the *share.

Part 242Personal services income

Division 84Introduction

 

Guide to Part 242

841  What this Part is about

This Part is about 2 issues relating to personal services income.

Division 85 limits the entitlements of individuals to deductions relating to their personal services income.

Division 86 sets out the tax consequences of individuals’ personal services income being diverted to other entities (often called alienation of the income).

These Divisions do not affect individuals or other entities that conduct personal services businesses. Division 87 defines personal services businesses.

Note: This Part may not apply until the 200203 income year to participants in the prescribed payments system on 13 April 2000: see item 26 of Schedule 1 to the New Business Tax System (Alienation of Personal Services Income) Act 2000.

Table of sections

845 Meaning of personal services income

8410 This Part does not imply that individuals are employees

Operative provisions

845  Meaning of personal services income

 (1) Your *ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).

Example 1: NewIT Pty. Ltd. provides computer programming services, but Ron does all the work involved in providing those services. Ron uses the clients’ equipment and software to do the work. NewIT’s ordinary income from providing the services is Ron’s personal services income because it is a reward for his personal efforts or skills.

Example 2: Trux Pty. Ltd. owns one semitrailer, and Tom is the only person who drives it. Trux’s ordinary income from transporting goods is not Tom’s personal services income because it is produced mainly by use of the semitrailer, and not mainly as a reward for Tom’s personal efforts or skills.

Example 3: Jim works as an accountant for a large accounting firm that employs many accountants. None of the firm’s ordinary income or statutory income is Jim’s personal services income because it is produced mainly by the firm’s business structure, and not mainly as a reward for Jim’s personal efforts or skills.

 (2) Only individuals can have personal services income.

 (3) This section applies whether the income is for doing work or is for producing a result.

 (4) The fact that the income is payable under a contract does not stop the income being mainly a reward for your personal efforts or skills.

8410  This Part does not imply that individuals are employees

  The application of this Part to an individual does not imply, for the purposes of any *Australian law or any instrument made under an Australian law, that the individual is an employee.

Division 85Deductions relating to personal services income

 

Guide to Division 85

851  What this Division is about

This Division sets out amounts, relating to personal services income, that an individual cannot deduct. In particular, deductions that are unavailable to an employee are similarly unavailable to an individual who has personal services income and who is not an employee.

However, this Division does not apply if the individual is conducting a personal services business or receives the income as an employee or office holder.

Table of sections

855 Object of this Division

8510 Deductions for nonemployees relating to personal services income

8515 Deductions for rent, mortgage interest, rates and land tax

8520 Deductions for payments to associates etc.

8525 Deductions for superannuation for associates

8530 Exception: personal services businesses

8535 Exception: employees, office holders and religious practitioners

8540 Application of Subdivision 900B to individuals who are not employees

Operative provisions

855  Object of this Division

  The object of this Division is to ensure that individuals who are not conducting *personal services businesses cannot deduct certain amounts (such as amounts that employees cannot deduct).

Note: This Division also affects the extent to which a personal services entity is entitled to deductions relating to gaining or producing an individual’s personal services income: see section 8660.

8510  Deductions for nonemployees relating to personal services income

 (1) You cannot deduct under this Act an amount to the extent that it relates to gaining or producing that part of your *ordinary income or *statutory income that is your *personal services income if:

 (a) the income is not payable to you as an employee; and

 (b) you would not be able to deduct the amount under this Act if the income were payable to you as an employee.

Example: Ruth is an architect who works as an independent contractor for one firm. She is not conducting a personal services business. On most days she travels from her home to the business premises of the firm, where she does her work. She also has a home office, where she does some of her work.

 This section confirms that Ruth cannot deduct her expenses of travelling between her home and the firm’s premises because she could not deduct them if she were an employee.

 (2) Subsection (1) does not stop you deducting an amount to the extent that it relates to:

 (a) gaining work; or

Examples: Advertising, tendering and quoting for work.

 (b) insuring against loss of your income or your income earning capacity; or

Examples: Sickness, accident and disability insurance.

 (c) insuring against liability arising from your acts or omissions in the course of earning income; or

Examples: Public liability insurance and professional indemnity insurance.

 (d) engaging an entity that is not your *associate to perform work; or

 (e) engaging your *associate to perform work that forms part of the principal work for which you gain or produce your *personal services income; or

 (f) contributing to a fund in order to obtain *superannuation benefits for yourself or for your *SIS dependants in the event of your death; or

Note: For deductions for superannuation contributions: see Subdivision 290C.

 (g) meeting your obligations under a *workers’ compensation law to pay premiums, contributions or similar payments or to make payments to an employee in respect of *compensable workrelated trauma; or

 (h) meeting your obligations, or exercising your rights, under the *GST law.

8515  Deductions for rent, mortgage interest, rates and land tax

  You cannot deduct under this Act an amount of rent, mortgage interest, rates or land tax:

 (a) for some or all of your residence; or

 (b) for some or all of your *associate’s residence;

to the extent that the amount relates to gaining or producing your *personal services income.

8520  Deductions for payments to associates etc.

 (1) You cannot deduct under this Act:

 (a) any payment you make to your *associate; or

 (b) any amount you incur arising from an obligation you have to your associate;

to the extent that the payment or amount relates to gaining or producing your *personal services income.

 (2) Subsection (1) does not stop you deducting a payment or amount to the extent that it relates to engaging your *associate to perform work that forms part of the principal work for which you gain or produce your *personal services income.

 (3) An amount or payment that you cannot deduct because of this section is neither assessable income nor *exempt income of your *associate.

8525  Deductions for superannuation for associates

 (1) You cannot deduct under this Act a contribution you make to a fund or an *RSA to provide for *superannuation benefits payable for your *associate, to the extent that the associate’s work for you relates to gaining or producing your *personal services income.

 (2) Subsection (1) does not stop you deducting a contribution to the extent that your *associate’s performance of work forms part of the principal work for which you gain or produce your *personal services income.

 (3) However, if subsection (2) applies, your deduction cannot exceed the amount you would have to contribute, for the benefit of the *associate, to a *complying superannuation fund or an *RSA in order to ensure that you did not have any *individual superannuation guarantee shortfalls in respect of the associate for any of the *quarters in the income year.

 (4) To work out the amount you would have to contribute for the purposes of subsection (3), the *associate’s salary or wages, for the purposes of the Superannuation Guarantee (Administration) Act 1992, are taken to be the amount that neither section 8510 nor 8520 prevent you deducting for salary or wages you paid to the associate.

Note: See paragraph 8510(2)(e) for deductions relating to employment of associates.

8530  Exception: personal services businesses

  This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to income from you conducting a *personal services business.

8535  Exception: employees, office holders and religious practitioners

 (1) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to *personal services income that you receive as:

 (a) an employee; or

 (b) an individual referred to in paragraph 1245(1)(a), (b), (c), (d) or (e) (about payments to office holders) in Schedule 1 to the Taxation Administration Act 1953.

 (2) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to a payment referred to in section 1247 in Schedule 1 to the Taxation Administration Act 1953 (payments to *religious practitioners).

8540  Application of Subdivision 900B to individuals who are not employees

  This Division does not have the effect of applying Subdivision 900B (about substantiating work expenses) to an individual who is not an employee.

Division 86Alienation of personal services income

Table of Subdivisions

Guide to Division 86

86A General

86B Entitlement to deductions

Guide to Division 86

861  What this Division is about

Income from the rendering of your personal services is treated as your assessable income if it is the income of another entity and is not promptly paid to you as salary.

However, this does not apply if the other entity is conducting a personal services business.

There are limits to the other entity’s entitlement to deductions to offset against the amount treated as your income.

865  A simple description of what this Division does

 (1) This diagram shows an example of a simple arrangement for the alienation of personal services income.

Note 1: Solid lines indicate actual payments between the parties. Dotted lines indicate other interactions between the parties.

Note 2: This Division also applies to different and more complex arrangements.

 (2) This Division has the effect of attributing the personal services entity’s income from the personal services to the individual who performed them (unless the income is promptly paid to the individual as salary). Certain deduction entitlements of the personal services entity can reduce the amount of the attribution.

Subdivision 86AGeneral

Table of sections

8610 Object of this Division

8615 Effect of obtaining personal services income through a personal services entity

8620 Offsetting the personal services entity’s deductions against personal services income

8625 Apportionment of entity maintenance deductions among several individuals

8627 Deduction for net personal services income loss

8630 Assessable income etc. of the personal services entity

8635 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes

8640 Salary payments shortly after an income year

8610  Object of this Division

  The object of this Division is to ensure that individuals cannot reduce or defer their income tax (and other liabilities) by alienating their *personal services income through companies, partnerships or trusts that are not conducting *personal services businesses.

Note: The general antiavoidance provisions of Part IVA of the Income Tax Assessment Act 1936 may still apply to cases of alienation of personal services income that fall outside this Division.

8615  Effect of obtaining personal services income through a personal services entity

Amounts included in your assessable income

 (1) Your assessable income includes an amount of *ordinary income or *statutory income of a *personal services entity that is your *personal services income.

Example: Continuing example 1 in section 845: Assume that NewIT only provides services to one client. Ron’s assessable income includes ordinary income of NewIT from providing the computer programming services, because the income is Ron’s personal services income.

Note: The amount included in your assessable income can be reduced by certain deductions to which the personal services entity is entitled: see section 8620.

 (2) A personal services entity is a company, partnership or trust whose *ordinary income or *statutory income includes the *personal services income of one or more individuals.

Exception: personal services businesses

 (3) This section does not apply if that amount is income from the *personal services entity conducting a *personal services business.

Note: Even if the entity is conducting a personal services business, it is possible that some of its income is not income from conducting that business.

Exception: amounts promptly paid to you as salary or wages

 (4) This section does not apply to the extent that:

 (a) the *personal services entity pays that amount to you, as an employee, as salary or wages; and

 (b) the payment is made before the end of the 14th day after the *PAYG payment period during which the amount became *ordinary income or *statutory income of the entity.

Note: The entity is obliged to withhold amounts from salary or wages paid before the end of that day: see section 1235 in Schedule 1 to the Taxation Administration Act 1953.

Exception: exempt income etc.

 (5) This section only applies to the extent that that amount would be assessable income of the personal services entity if this Division did not apply.

Example: If the entity’s income includes an amount that is your personal services income for a service on which GST is payable, the amount included in your assessable income will not include the GST, because the GST is neither assessable income nor exempt income of the entity: see section 175.

8620  Offsetting the personal services entity’s deductions against personal services income

 (1) The amount of your *personal services income included in your assessable income under section 8615 may be reduced (but not below nil) by the amount of certain deductions to which the *personal services entity is entitled.

Note 1: Subdivision 86B limits a personal services entity’s entitlement to deductions.

Note 2: If the amount of the deductions exceeds the amount of the personal services income, a deduction for the excess is available to you under section 8627. The personal services entity cannot deduct the amount of the excess: see section 8687.

 (2) Use this method statement to work out whether, and by how much, the amount is reduced:

Method statement

Step 1. Work out, for the income year, the amount of any deductions (other than *entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the *personal services entity is entitled that are deductions relating to your *personal services income.

Step 2. Work out, for the income year, the amount of any *entity maintenance deductions to which the *personal services entity is entitled.

Step 3. Work out the *personal services entity’s assessable income for that income year, disregarding any income it receives that is your *personal services income or the personal services income of anyone else.

Step 4. Subtract the amount under step 3 from the amount under step 2.

 Note 1: Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not personal services income.

 Note 2: If the personal services entity receives another individual’s personal services income, see section 8625.

Step 5. If the amount under step 4 is greater than zero, the amount of the reduction under subsection (1) is the sum of the amounts under steps 1 and 4.

Step 6. If the amount under step 4 is not greater than zero, the amount of the reduction under subsection (1) is the amount under step 1.

Example 1: Continuing example 1 in section 845: Assume these additional facts:

 $120,000 of NewIT’s income is Ron’s personal services income;

 NewIT has deductions (including superannuation contributions) of $50,000 relating to Ron’s personal services income (step 1);

 NewIT has entity maintenance deductions of $8,000 (step 2);

 NewIT has investments that produce income. NewIT’s assessable income, disregarding Ron’s or anyone else’s personal services income, is $20,000 (step 3).

 Because the step 4 amount is less than zero ($12,000), step 5 does not apply and, under step 6, the amount of the reduction is $50,000. Therefore the amount included in Ron’s assessable income is:

Example 2: Assume, as an alternative set of facts, that NewIT’s assessable income under step 3 was only $2,000.

 The step 4 amount would have been $6,000, and, under step 5, the amount of the reduction would have been $56,000 (adding the amounts under steps 1 and 4). The amount included in Ron’s assessable income would then have been:

Note: The personal services entity’s deductions that do not relate to your personal services income and that are not entity maintenance deductions cannot reduce the amount included in your assessable income under section 8615.

8625  Apportionment of entity maintenance deductions among several individuals

  If, in the income year:

 (a) the amount worked out under step 4 of the method statement in section 8620 is greater than zero; and

Note: This happens if the entity has entity maintenance deductions that form some or all of the reduction under section 8620.

 (b) the *ordinary income or *statutory income of the *personal services entity includes another individual’s *personal services income (as well as your personal services income); and

 (c) the other individual’s personal services income is included in the other individual’s assessable income under section 8615;

the amount worked out under step 4 is taken to be:

where:

original step 4 amount is the amount that would be the amount worked out under step 4 if this section did not apply.

total personal services income is the sum of all the amounts of personal services income (whether your personal services income or someone else’s) that are included in the personal services entity’s ordinary income or statutory income for the income year.

your personal services income is the sum of all the amounts of your personal services income that are included in the personal services entity’s ordinary income or statutory income for the income year.

Example: Continuing example 2 in section 8620: Assume that Robyn, another computer consultant, joined NewIT, and NewIT’s ordinary income from providing the services also includes Robyn’s personal services income of $168,000.

 Because NewIT now receives the personal services income of someone else, Ron’s step 4 amount is reduced as follows:

 Under step 5 of the method statement in section 8620, the amount of the reduction under that section is therefore $52,500, and the amount included in Ron’s assessable income is $67,500.

8627  Deduction for net personal services income loss

  If your personal services deduction amount exceeds your unreduced personal services income, then you can deduct the excess amount. For this purpose:

 (a) your personal services deduction amount is the amount of deductions relating to your *personal services income worked out under step 1 of the method statement in section 8620, increased by the amount (if greater than zero) worked out under step 4 of the method statement; and

 (b) your unreduced personal services income is the personal services income that would have been included in your assessable income for the income year if there had not been any reduction under section 8620.

8630  Assessable income etc. of the personal services entity

  *Ordinary income or *statutory income of the *personal services entity is neither assessable income nor *exempt income of the entity, to the extent that it is *personal services income included in your assessable income under section 8615.

Note: Subsection 11820(4) prevents this income being treated as a capital gain.

8635  Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes

 (1) To the extent that a payment by the *personal services entity, or by your *associate, is a payment to you or any of your associates of:

 (a) *personal services income included in your assessable income under section 8615; or

 (b) any other amount that is attributable to that income;

the payment:

 (c) is neither assessable income nor *exempt income of the entity receiving it; and

Note: Subsection 11820(4) prevents this income being treated as a capital gain.

 (d) is not an amount that the entity making it can deduct.

Note: Section 11865 prevents this amount being treated as a capital loss.

Example: Continuing example 2 in section 8620: Assume that NewIT had paid Jill, Ron’s wife, an amount for work that is not the principal work of NewIT. The payment is made from money already included in Ron’s assessable income under section 8615.

 The amount is neither assessable income nor exempt income of Jill, and NewIT cannot deduct the amount.

 (2) To the extent that you are entitled, or any of your *associates are entitled, to a share of the net income of the *personal services entity, or of any of your associates, and that income is:

 (a) *personal services income included in your assessable income under section 8615; or

 (b) any other amount that is attributable to that income;

that share is neither assessable income nor *exempt income of the entity receiving it or entitled to receive it.

8640  Salary payments shortly after an income year

 (1) If:

 (a) before the end of 14 July in a particular income year, you receive, as salary or wages, *personal services income of yours from the *personal services entity; and

 (b) failure to make the payment before the end of 14 July would have resulted in an amount of income being included in your assessable income under section 8615 for the preceding income year;

you are taken to have received the payment on 30 June of that preceding income year.

Example: Continuing example 2 in section 8620: Assume that NewIT is a small withholder for PAYG withholding purposes, and its PAYG payment period covering April 2001 to June 2001 is the quarter ending on 30 June 2001. NewIT’s income for that period (after taking into account any reductions under sections 8620 and 8625) includes $20,000 that is Ron’s personal services income, and NewIT pays this to Ron on 12 July 2001.

 The $20,000 that Ron receives is assessable income for the income year ended on 30 June 2001.

 (2) However, this section does not affect the time at which the *personal services entity is treated as having paid the salary or wages.

Note 1: Therefore neither the timing of the entity’s deduction for the payment, nor the timing of the obligation to withhold amounts under section 1235 in Schedule 1 to the Taxation Administration Act 1953, is affected.

Note 2: However, these payments are treated as relating to the preceding income year for the purposes of the rules relating to payment summaries, PAYG credits and PAYG withholding noncompliance tax (see Subdivisions 16C, 18A and 18D in Schedule 1 to the Taxation Administration Act 1953).

Subdivision 86BEntitlement to deductions

Table of sections

8660 General rule for deduction entitlements of personal services entities

8665 Entity maintenance deductions

8670 Car expenses

8675 Superannuation

8680 Salary or wages promptly paid

8685 Deduction entitlements of personal services entities for amounts included in an individual’s assessable income

8687 Personal services entity cannot deduct net personal services income loss

8690 Application of Divisions 28 and 900 to personal services entities

8660  General rule for deduction entitlements of personal services entities

  A *personal services entity cannot deduct under this Act an amount to the extent that it relates to gaining or producing an individual’s *personal services income, unless:

 (a) the individual could have deducted the amount under this Act if the circumstances giving rise to the entity’s entitlement to deduct the amount had applied instead to the individual; or

Note: In particular, Division 85 specifies limits on an individual’s entitlements to deductions relating to the individual’s personal services income.

 (b) the entity receives the individual’s *personal services income in the course of conducting a *personal services business.

8665  Entity maintenance deductions

 (1) Section 8660 does not stop a *personal services entity deducting an amount to the extent that it is an *entity maintenance deduction.

Note: See section 8625 for how entity maintenance deductions are offset against a personal services entity’s income.

 (2) Each of these is an entity maintenance deduction:

 (a) any fee or charge payable by the entity for opening, operating or closing an account with an *ADI;

 (b) any deduction under section 255 (about taxrelated expenses);

 (c) any loss or outgoing incurred in relation to preparation or lodgment of any document the entity is required to lodge under the Corporations Act 2001;

 (d) any fee or charge payable by the entity to an *Australian government agency for any licence, permission, approval, authorisation, registration or certification (however described) that is granted or given under an *Australian law.

 (3) However, paragraph (2)(c) does not include any payment that the entity makes to an *associate.

8670  Car expenses

Cars used solely for business

 (1) Section 8660 does not stop a *personal services entity deducting a *car expense for a *car of which there is no *private use.

Other cars

 (2) Section 8660 does not stop a *personal services entity deducting:

 (a) a *car expense; or

 (b) an amount of tax payable under the Fringe Benefits Tax Assessment Act 1986 for a *car fringe benefit;

for a *