Income Tax Assessment Act 1997

Chapter 2—Liability rules of general application

Part 2‑25—Trading stock

Division 70—Trading stock

Table of Subdivisions

Guide to Division 70

70‑A What is trading stock

70‑B Acquiring trading stock

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

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

70‑E Miscellaneous

Guide to Division 70

70‑1 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

70‑5 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 8‑1 (when the trading stock becomes trading stock on hand); and

(b) the gross earnings are usually assessable as ordinary income under section 6‑5 (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 70‑A—What is trading stock

Table of sections

70‑10 Meaning of trading stock

70‑12 Registered emissions units

70‑10 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 275‑105 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.

70‑12 Registered emissions units

A *registered emissions unit is not *trading stock.

Subdivision 70‑B—Acquiring trading stock

Table of sections

70‑15 In which income year do you deduct an outgoing for trading stock?

70‑20 Non‑arm’s length transactions

70‑25 Cost of trading stock is not a capital outgoing

70‑30 Starting to hold as trading stock an item you already own

70‑15 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 8‑1 (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 70‑120.

70‑20 Non‑arm’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

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 70‑45 (Value of trading stock at end of income year).

70‑25 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 8‑1(2)(a) does not prevent the outgoing from being a general deduction under section 8‑1.

70‑30 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 40‑D provides for the consequences of selling depreciating assets.)

The same amount is normally a general deduction under section 8‑1 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 70‑45 (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 3‑1 and 3‑3 (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 118‑25(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 70‑45 (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 70‑55 (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 1998‑99 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 1997‑98 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 1998‑99 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 1997‑98 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 non‑listed 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) crop‑stools;

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

Table of sections

General rules

70‑35 You include the value of your trading stock in working out your assessable income and deductions

70‑40 Value of trading stock at start of income year

70‑45 Value of trading stock at end of income year

Special valuation rules

70‑50 Valuation if trading stock obsolete etc.

70‑55 Working out the cost of natural increase of live stock

70‑60 Valuation of horse breeding stock

70‑65 Working out the horse opening value and the horse reduction amount

General rules

70‑35 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.

70‑40 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 328‑E (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 328‑E (about trading stock for small business entities) at the end of the last income year.

70‑45 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

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 non‑resident 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 anti‑avoidance 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 328‑E of this Act
6	The hybrid mismatch rules disallow an amount of a deduction for an outgoing incurred in connection with acquiring an item of *trading stock	Section 832‑60 of this Act

Special valuation rules

70‑50 Valuation if trading stock obsolete etc.

You may elect to value an item of your *trading stock below all the values in section 70‑45 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.

70‑55 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.

70‑60 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 70‑45.

(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 70‑65)

(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.

70‑65 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 70‑60.

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

Guide to Subdivision 70‑D

70‑75 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

70‑80 Why the rules in this Subdivision are necessary

Operative provisions

70‑85 Application of this Subdivision to certain other assets

70‑90 Assessable income on disposal of trading stock outside the ordinary course of business

70‑95 Purchase price is taken to be market value

70‑100 Notional disposal when you stop holding an item as trading stock

70‑105 Death of owner

70‑110 You stop holding an item as trading stock but still own it

70‑115 Compensation for lost trading stock

70‑80 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 6‑5) 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

(d) you stop holding it as trading stock.

Operative provisions

70‑85 Application of this Subdivision to certain other assets

This Subdivision (except section 70‑115) 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) crop‑stools; and

Note: Section 70‑115 assesses insurance or indemnity amounts for lost trading stock.

70‑90 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 30‑212 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 70‑85 (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 385‑E.

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 70‑120.

Note 5: This section and section 70‑95 also apply to disposals of certain items on hand at the end of 1996‑97 that are not trading stock but were trading stock as defined in the Income Tax Assessment Act 1936: see section 70‑10 of the Income Tax (Transitional Provisions) Act 1997.

70‑95 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 70‑90.

70‑100 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 70‑110 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

(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 960‑255 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.

70‑105 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 70‑120.

(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 70‑85 (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.

70‑110 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 40‑C) 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).

70‑115 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 6‑5.

Subdivision 70‑E—Miscellaneous

Table of sections

70‑120 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 70‑90 and 70‑105 because of section 70‑85.

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 70‑90 (because you disposed of the trees outside the ordinary course of *business) or section 70‑105 (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 70‑105 (because of your death) if your legal personal representative elects under subsection 70‑105(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 40‑J.

Non‑arm’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

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 2‑40—Rules affecting employees and other taxpayers receiving PAYG withholding payments

Division 80—General rules

Table of Subdivisions

Guide to Division 80

80‑1 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

80‑5 Holding of an office

80‑10 Application to the termination of employment

80‑15 Transfer of property

80‑20 Payments for your benefit or at your direction or request

Operative provisions

80‑5 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.

80‑10 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.

80‑15 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;

(d) a payment covered by Subdivision 83‑D (Foreign termination payments);

(e) a payment that would be an employment termination payment but for paragraph 82‑130(1)(b) (see Subdivision 83‑E).

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.

80‑20 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 82—Employment termination payments

Table of Subdivisions

Guide to Division 82

82‑A Employment termination payments: life benefits

82‑B Employment termination payments: death benefits

82‑C Key concepts

Guide to Division 82

82‑1 What this Division is about

This Division tells you how employment termination payments are treated for the purpose of income tax.

Subdivision 82‑A—Employment termination payments: life benefits

Guide to Subdivision 82‑A

82‑5 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

82‑10 Taxation of life benefit termination payments

Operative provisions

82‑10 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 82‑160.

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 82‑65 or 82‑70).

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 82‑10H 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 83‑175(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 82‑150(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 82‑B—Employment termination payments: death benefits

Guide to Subdivision 82‑B

82‑60 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

82‑65 Death benefits for dependants

82‑70 Death benefits for non‑dependants

82‑75 Death benefits paid to trustee of deceased estate

Operative provisions

82‑65 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 82‑160.

(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 82‑75(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 82‑10).

82‑70 Death benefits for non‑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 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 82‑160.

(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 82‑75(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 82‑10).

82‑75 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 82‑65 deals with the taxation of employment termination payments made to persons who are death benefits dependants of deceased persons.

Non‑dependants 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 82‑70 deals with the taxation of employment termination payments made to persons who are not death benefits dependants of deceased persons.

Subdivision 82‑C—Key concepts

Guide to Subdivision 82‑C

82‑125 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

82‑130 What is an employment termination payment?

82‑135 Payments that are not employment termination payments

82‑140 Tax free component of an employment termination payment

82‑145 Taxable component of an employment termination payment

82‑150 What is an invalidity segment of an employment termination payment?

82‑155 What is a pre‑July 83 segment of an employment termination payment?

82‑160 What is the ETP cap amount?

Operative provisions

82‑130 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

Note 1: If a payment would be an employment termination payment but for paragraph (b), see subsection (4) and section 83‑295.

Note 2: The holding of an office is treated as employment for this Part: see section 80‑5. Also, the termination of employment is treated as including the termination of employment by retirement or by death: see section 80‑10.

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 83‑170 is not an employment termination payment: see section 82‑135.

(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;

(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;

(d) the period after the employment termination until payment is received;

(e) any other relevant circumstances.

82‑135 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

(d) an *unused long service leave payment (see Subdivision 83‑B);

(e) the part of a *genuine redundancy payment or an *early retirement scheme payment worked out under section 83‑170 (see Subdivision 83‑C);

(f) a payment to which Subdivision 83‑D (Foreign termination payments) applies;

(fa) a payment (or part of one) made by a company or trust as mentioned in subsection 152‑310(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 82‑130 applies to that part.

82‑140 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 *pre‑July 83 segment of the payment.

82‑145 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 82‑140).

82‑150 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 ill‑health (whether physical or mental); and

(d) 2 legally qualified medical practitioners have certified that, because of the ill‑health, 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.

82‑155 What is a pre‑July 83 segment of an employment termination payment?

(1) An *employment termination payment includes a pre‑July 83 segment if any of the employment to which the payment relates occurred before 1 July 1983.

(2) Work out the amount of the pre‑July 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:

82‑160 What is the ETP cap amount?

The ETP cap amount for the 2007‑2008 income year is $140,000. This amount is indexed annually.

Note 1: Subdivision 960‑M shows how to index amounts. However, annual indexation does not necessarily increase the ETP cap amount: see section 960‑285.

Note 2: The ETP cap amount may be reduced for the purpose of working out tax offsets for individual employment termination payments.

Division 83—Other payments on termination of employment

Table of Subdivisions

Guide to Division 83

83‑A Unused annual leave payments

83‑B Unused long service leave payments

83‑C Genuine redundancy payments and early retirement scheme payments

83‑D Foreign termination payments

83‑E Other payments

Guide to Division 83

83‑1 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 83‑A—Unused annual leave payments

Guide to Subdivision 83‑A

83‑5 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

83‑10 Unused annual leave payment is assessable

83‑15 Entitlement to tax offset

Operative provisions

83‑10 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.

83‑15 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 83‑B—Unused long service leave payments

Guide to Subdivision 83‑B

83‑65 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

83‑70 Application—long service leave

83‑75 Meaning of unused long service leave payment

83‑80 Taxation of unused long service leave payments

83‑85 Entitlement to tax offset

83‑90 Meaning of pre‑16/8/78 period, pre‑18/8/93 period, post‑17/8/93 period and long service leave employment period

Employment wholly full‑time or wholly part‑time

83‑95 How to work out amount of payment attributable to each period

83‑100 How to work out unused days of long service leave for each period

83‑105 How to work out long service leave accrued in each period

Employment partly full‑time and partly part‑time

83‑110 Leave accrued in pre‑16/8/78, pre‑18/8/93 and post‑17/8/93 periods—employment full‑time and part‑time

Long service leave taken at less than full pay

83‑115 Working out used days of long service leave if leave taken at less than full pay

General

83‑70 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 83‑10 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.

83‑75 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.

83‑80 Taxation of unused long service leave payments

Assessable and tax‑free 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	*pre‑16/8/78 period	5%
2	*pre‑18/8/93 period	100%
3	*post‑17/8/93 period	100%

(2) The remainder of that part (if any) of an *unused long service leave payment that is attributable to the *pre‑16/8/78 period is not assessable income and is not *exempt income.

Note 1: If your employment was wholly full‑time or wholly part‑time during a period, see sections 83‑95, 83‑100 and 83‑105 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 full‑time and partly part‑time during a period, see section 83‑110 to work out the amount of an unused long service leave payment that is attributable to the period.

83‑85 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 83‑80(1):

(a) to the extent that it is attributable to the *pre‑18/8/93 period; and

(b) to the extent that it is attributable to the *post‑17/8/93 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.

83‑90 Meaning of pre‑16/8/78 period, pre‑18/8/93 period, post‑17/8/93 period and long service leave employment period

(1) The pre‑16/8/78 period consists of each day (if any) in your *long service leave employment period that occurred before 16 August 1978.

(2) The pre‑18/8/93 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 post‑17/8/93 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 full‑time or wholly part‑time

83‑95 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 *pre‑18/8/93 period or to the *post‑17/8/93 period—use the formula in subsection (2);

(b) for the *pre‑16/8/78 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 *pre‑18/8/93 period or the *post‑17/8/93 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 *pre‑18/8/93 period or the *post‑17/8/93 period (as applicable), worked out under section 83‑100.

Note 1: For the meaning of unused days of long service leave, see section 83‑100.

Note 2: Section 83‑110 explains how to work out the period of unused long service leave if your employment was partly full‑time and partly part‑time during the period.

83‑100 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 *pre‑16/8/78 period, the *pre‑18/8/93 period and the *post‑17/8/93 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 pre‑18/8/93 period and the post‑17/8/93 period

(2) To the extent that the number of days of long service leave that you used during the *pre‑18/8/93 period or the *post‑17/8/93 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	*pre‑18/8/93 period	Subtract the excess days from the unused days in the *post‑17/8/93 period	Subtract the excess days from the unused days in the *pre‑16/8/78 period
2	*post‑17/8/93 period	Subtract the excess days from the unused days in the *pre‑18/8/93 period	Subtract the excess days from the unused days in the *pre‑16/8/78 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 83‑115 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.

83‑105 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 *pre‑18/8/93 period or the *post‑17/8/93 period—use the formula in subsection (2);

(b) for the *pre‑16/8/78 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 *pre‑18/8/93 period or the *post‑17/8/93 period, the formula is:

where:

relevant period means the *pre‑18/8/93 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 *pre‑18/8/93 period and the *post‑17/8/93 period but not during the *pre‑16/8/78 period, and the number of days worked out under subsection (2) for the post‑17/8/93 period includes a fraction, treat the fraction as having accrued during the pre‑18/8/93 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 *post‑17/8/93 period or the *pre‑18/8/93 period includes a fraction, treat the fraction as having accrued during the *pre‑16/8/78 period.

Employment partly full‑time and partly part‑time

83‑110 Leave accrued in pre‑16/8/78, pre‑18/8/93 and post‑17/8/93 periods—employment full‑time and part‑time

(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 full‑time basis; and

(b) 1 or more periods when you were employed on a part‑time basis.

(2) Work out how much of the payment is attributable to the period or periods when you were employed on a full‑time basis (the full‑time payment) and how much to the period or periods when you were employed on a part‑time basis (the part‑time payment).

(3) The amount of the payment that is attributable to each of the *pre‑16/8/78 period, the *pre‑18/8/93 period and the *post‑17/8/93 period is the sum of the amounts worked out in accordance with sections 83‑95, 83‑100 and 83‑105 that would be attributable to those periods if the full‑time payment and the part‑time payment were each *unused long service leave payments.

Long service leave taken at less than full pay

83‑115 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 83‑C—Genuine redundancy payments and early retirement scheme payments

Guide to Subdivision 83‑C

83‑165 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

83‑170 Tax‑free treatment of genuine redundancy payments and early retirement scheme payments

83‑175 What is a genuine redundancy payment?

83‑180 What is an early retirement scheme payment?

Operative provisions

83‑170 Tax‑free 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 83‑175 and 83‑180.

(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 2006‑2007—$6,783; and

(b) for a later income year—the amount mentioned in paragraph (a) indexed annually.

Note: Subdivision 960‑M shows you how to index the base amount.

service amount means:

(a) for the income year 2006‑2007—$3,392; and

(b) for a later income year—the amount mentioned in paragraph (a) indexed annually.

Note: Subdivision 960‑M 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 82‑130 applies to that part.

83‑175 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 82‑135 (apart from paragraph 82‑135(e)).

Note: Paragraph 82‑135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83‑170 is not an employment termination payment.

83‑180 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;

(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 re‑organise 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 82‑135 (apart from paragraph 82‑135(e)).

Note: Paragraph 82‑135(e) provides that the part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83‑170 is not an employment termination payment.

Subdivision 83‑D—Foreign termination payments

Guide to Subdivision 83‑D

83‑230 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

83‑235 Termination payments tax free—foreign resident period

83‑240 Termination payments tax free—Australian resident period

Operative provisions

83‑235 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

(d) it relates only to a period of employment when you were not an Australian resident.

83‑240 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

(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 80‑10.

Subdivision 83‑E—Other payments

Guide to Subdivision 83‑E

83‑290 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 82‑130).

The payment is treated as assessable income and no tax concession is allowed under Division 82.

Table of sections

Operative provisions

83‑295 Termination payments made more than 12 months after termination etc.

Operative provisions

83‑295 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 82‑130(1)(b) is assessable income.

Division 83A—Employee share schemes

Table of Subdivisions

Guide to Division 83A

83A‑A Objects of Division and key concepts

83A‑B Immediate inclusion of discount in assessable income

83A‑C Deferred inclusion of gain in assessable income

83A‑D Deduction for employer

83A‑E Miscellaneous

Guide to Division 83A

83A‑1 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 83A‑A—Objects of Division and key concepts

Table of sections

83A‑5 Objects of Division

83A‑10 Meaning of ESS interest and employee share scheme

83A‑5 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.

83A‑10 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 83A‑325 for relationships similar to employment.

Subdivision 83A‑B—Immediate inclusion of discount in assessable income

Guide to Subdivision 83A‑B

83A‑15 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

83A‑20 Application of Subdivision

83A‑25 Discount to be included in assessable income

83A‑30 Amount for which discounted ESS interest acquired

83A‑33 Reducing amounts included in assessable income—start ups

83A‑35 Reducing amounts included in assessable income—other cases

83A‑45 Further conditions for reducing amounts included in assessable income

Operative provisions

83A‑20 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 83A‑C applies: see section 83A‑105.

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 83A‑305.

(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.

83A‑25 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 83A‑315 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 130‑D.

83A‑30 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 83A‑315 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 83A‑33 (about start ups) reduces the amount to be included in your assessable income in relation to the interest.

83A‑33 Reducing amounts included in assessable income—start ups

(1) Reduce the total amount included in your assessable income under subsection 83A‑25(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 83A‑45 (about further conditions);

(c) for ESS interests that are beneficial interests in *shares—subsection 83A‑105(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.

83A‑35 Reducing amounts included in assessable income—other cases

Reduction and income test

(a) subsections (6) and (7) of this section;

(b) section 83A‑45 (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, but not including your *assessable FHSS released amount for the income year);

(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 83A‑33 (about start ups) reduces the amount to be included in your assessable income for the income year for the *ESS interests.

Scheme must be non‑discriminatory

(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 non‑discriminatory 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 non‑continuous) 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).

83A‑45 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

(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 83A‑130(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 83A‑C—Deferred inclusion of gain in assessable income

Guide to Subdivision 83A‑C

83A‑100 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

83A‑105 Application of Subdivision

83A‑110 Amount to be included in assessable income

83A‑115 ESS deferred taxing point—shares

83A‑120 ESS deferred taxing point—rights to acquire shares

83A‑125 Tax treatment of ESS interests held after ESS deferred taxing points

Takeovers and restructures

83A‑130 Takeovers and restructures

Main provisions

83A‑105 Application of Subdivision

Scope of Subdivision

(1) This Subdivision applies, and Subdivision 83A‑B does not apply, to an *ESS interest in a company if:

(a) Subdivision 83A‑B would, apart from this section, apply to the interest (see section 83A‑20); and

(aa) after applying section 83A‑315, there is still a discount given in relation to the interest; and

(ab) section 83A‑33 (about start ups) does not reduce the amount to be included in your assessable income in relation to the interest; and

(b) subsections 83A‑45(1), (2), (3) and (6) apply to the interest; and

(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 83A‑45(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;

(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 non‑continuous) 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 83A‑315 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).

83A‑110 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 83A‑315 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 130‑D.

83A‑115 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.

83A‑120 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.

83A‑125 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 83A‑315 may substitute a different amount for the market value of the ESS interest.

Takeovers and restructures

83A‑130 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 83A‑45(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

(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 83A‑D—Deduction for employer

Guide to Subdivision 83A‑D

83A‑200 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 83A‑35. 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

83A‑205 Deduction for employer

83A‑210 Timing of general deductions

Operative provisions

83A‑205 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 83A‑35 applies to reduce the amount included in the individual’s assessable income under subsection 83A‑25(1) in relation to some or all of the interests.

(2) Disregard paragraph 83A‑35(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).

83A‑210 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 83A‑E—Miscellaneous

Table of sections

83A‑305 Acquisition by associates

83A‑310 Forfeiture etc. of ESS interest

83A‑315 Market value of ESS interest

83A‑320 Interests in a trust

83A‑325 Application of Division to relationships similar to employment

83A‑330 Application of Division to ceasing employment

83A‑335 Application of Division to stapled securities

83A‑340 Application of Division to indeterminate rights

83A‑305 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;

(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 83A‑45(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.

83A‑310 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

(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.

83A‑315 Market value of ESS interest

(1) Whenever this Division (other than section 83A‑20) 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.

83A‑320 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 130‑D.

83A‑325 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.

83A‑330 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;

(d) a *subsidiary of a holding company (within the meaning of the Corporations Act 2001) of your employer.

83A‑335 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.

83A‑340 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 2‑42—Personal services income

Division 84—Introduction

Guide to Part 2‑42

84‑1 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 2002‑03 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

84‑5 Meaning of personal services income

84‑10 This Part does not imply that individuals are employees

Operative provisions

84‑5 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 semi‑trailer, 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 semi‑trailer, 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.

84‑10 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 85—Deductions relating to personal services income

Guide to Division 85

85‑1 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

85‑5 Object of this Division

85‑10 Deductions for non‑employees relating to personal services income

85‑15 Deductions for rent, mortgage interest, rates and land tax

85‑20 Deductions for payments to associates etc.

85‑25 Deductions for superannuation for associates

85‑30 Exception: personal services businesses

85‑35 Exception: employees, office holders and religious practitioners

85‑40 Application of Subdivision 900‑B to individuals who are not employees

Operative provisions

85‑5 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 86‑60.

85‑10 Deductions for non‑employees 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.

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 290‑C.

(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 work‑related trauma; or

(h) meeting your obligations, or exercising your rights, under the *GST law.

85‑15 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.

85‑20 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.

85‑25 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 85‑10 nor 85‑20 prevent you deducting for salary or wages you paid to the associate.

Note: See paragraph 85‑10(2)(e) for deductions relating to employment of associates.

85‑30 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.

85‑35 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 12‑45(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 12‑47 in Schedule 1 to the Taxation Administration Act 1953 (payments to *religious practitioners).

85‑40 Application of Subdivision 900‑B to individuals who are not employees

This Division does not have the effect of applying Subdivision 900‑B (about substantiating work expenses) to an individual who is not an employee.

Division 86—Alienation of personal services income

Table of Subdivisions

Guide to Division 86

86‑A General

86‑B Entitlement to deductions

Guide to Division 86

86‑1 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.

86‑5 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 86‑A—General

Table of sections

86‑10 Object of this Division

86‑15 Effect of obtaining personal services income through a personal services entity

86‑20 Offsetting the personal services entity’s deductions against personal services income

86‑25 Apportionment of entity maintenance deductions among several individuals

86‑27 Deduction for net personal services income loss

86‑30 Assessable income etc. of the personal services entity

86‑35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes

86‑40 Salary payments shortly after an income year

86‑10 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 anti‑avoidance 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.

86‑15 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 84‑5: 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 86‑20.

(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 12‑35 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 17‑5.

86‑20 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 86‑15 may be reduced (but not below nil) by the amount of certain deductions to which the *personal services entity is entitled.

Note 1: Subdivision 86‑B 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 86‑27. The personal services entity cannot deduct the amount of the excess: see section 86‑87.

(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 86‑25.

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 84‑5: 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 86‑15.

86‑25 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 86‑20 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 86‑20.

(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 86‑15;

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 86‑20: 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 86‑20, the amount of the reduction under that section is therefore $52,500, and the amount included in Ron’s assessable income is $67,500.

86‑27 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 86‑20, 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 86‑20.

86‑30 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 86‑15.

Note: Subsection 118‑20(4) prevents this income being treated as a capital gain.

86‑35 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 86‑15; or

(b) any other amount that is attributable to that income;

the payment:

Note: Subsection 118‑20(4) prevents this income being treated as a capital gain.

(d) is not an amount that the entity making it can deduct.

Note: Section 118‑65 prevents this amount being treated as a capital loss.

Example: Continuing example 2 in section 86‑20: 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 86‑15.

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 86‑15; 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.

86‑40 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 86‑15 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 86‑20: 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 86‑20 and 86‑25) 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 12‑35 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 non‑compliance tax (see Subdivisions 16‑C, 18‑A and 18‑D in Schedule 1 to the Taxation Administration Act 1953).

Subdivision 86‑B—Entitlement to deductions

Table of sections

86‑60 General rule for deduction entitlements of personal services entities

86‑65 Entity maintenance deductions

86‑70 Car expenses

86‑75 Superannuation

86‑80 Salary or wages promptly paid

86‑85 Deduction entitlements of personal services entities for amounts included in an individual’s assessable income

86‑87 Personal services entity cannot deduct net personal services income loss

86‑90 Application of Divisions 28 and 900 to personal services entities

86‑60 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.

86‑65 Entity maintenance deductions

(1) Section 86‑60 does not stop a *personal services entity deducting an amount to the extent that it is an *entity maintenance deduction.

Note: See section 86‑25 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 25‑5 (about tax‑related 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.

86‑70 Car expenses

Cars used solely for business

(1) Section 86‑60 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 86‑60 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 *car of which there is *private use. However, there cannot be, at the same time, more than one car for which such deductions can arise in relation to gaining or producing the same individual’s *personal services income.

(3) If there is more than one *car to which subsection (2) could apply at the same time, the entity must choose the car to which subsection (2) applies at that time. The choice remains in effect until the entity ceases to *hold that car.

Example: Continuing example 2 in section 86‑20: Assume that NewIT provides 3 cars to Ron. Car 1 is used solely for business purposes and cars 2 and 3 are used for private purposes.

NewIT can deduct all the car expenses it incurs for car 1. It can also deduct all the car expenses it incurs for its choice of either car 2 or car 3, as well as the fringe benefits tax it pays for that car. However, it cannot deduct any car expenses or fringe benefits tax for the car that it does not choose.

Note: If car expenses for a car are not deductible because of section 86‑60, the car benefit being provided is an exempt benefit for the purposes of fringe benefits tax: see subsection 8(4) of the Fringe Benefits Tax Assessment Act 1986.

86‑75 Superannuation

(1) Section 86‑60 does not stop a *personal services entity deducting a contribution the entity makes to a fund or an *RSA for the purpose of making provision for *superannuation benefits payable for an individual whose *personal services income is included in the entity’s *ordinary income or *statutory income.

For deductions for superannuation contributions: see Subdivision AA of Division 3 of Part III of the Income Tax Assessment Act 1936.

(2) However, if:

(a) the individual performs less than 20% (by *market value) of the entity’s principal work; and

(b) the individual is an *associate of another individual whose *personal services income is included in the entity’s *ordinary income or *statutory income;

the entity’s deduction cannot exceed the amount it would have to contribute, for the benefit of the individual, to a *complying superannuation fund or an *RSA in order to ensure that it did not have any *individual superannuation guarantee shortfalls in respect of the individual for any of the *quarters in the income year.

(3) To work out the amount the entity would have to contribute for the purposes of subsection (2), the individual’s salary or wages, for the purposes of the Superannuation Guarantee (Administration) Act 1992, are taken to be the amount that section 86‑60 does not prevent the entity deducting for salary or wages it paid to the individual.

Note: Section 86‑60 will apply the limitations under sections 85‑10 and 85‑20 on an individual’s entitlement to deductions (but see paragraph 85‑10(2)(e) on employment of associates).

86‑80 Salary or wages promptly paid

Section 86‑60 does not stop a *personal services entity deducting an amount for salary or wages it pays to the individual referred to in that section 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.

86‑85 Deduction entitlements of personal services entities for amounts included in an individual’s assessable income

The fact that a *personal services entity:

(a) incurs an amount in gaining or producing an individual’s assessable income; or

(b) uses a *depreciating asset, or has it installed ready for use, for the *purpose of producing assessable income of an individual;

does not stop the entity deducting the loss or outgoing, or deducting an amount for the decline in value of the asset, under this Act if:

(c) the entity incurs the amount in gaining or producing, or uses or installs the depreciating asset for the purpose of producing, its *ordinary income or *statutory income; and

(d) the income is included in the individual’s assessable income under section 86‑15.

86‑87 Personal services entity cannot deduct net personal services income loss

The total amount of the deductions to which a *personal services entity is entitled for an income year is reduced by the amount of any deduction that an individual, whose *personal services income is ordinary or statutory income of the entity for that income year, is entitled to under section 86‑27.

86‑90 Application of Divisions 28 and 900 to personal services entities

This Division does not have the effect of applying Division 28 (about car expenses) or Division 900 (about substantiation rules) to a *personal services entity.

Note: Divisions 28 and 900 can still apply to a personal services entity that is a partnership: see subsections 28‑10(2) and 900‑5(2).

Division 87—Personal services businesses

Table of Subdivisions

Guide to Division 87

87‑A General

87‑B Personal services business determinations

Guide to Division 87

87‑1 What this Division is about

Divisions 85 and 86 do not apply to personal services income that is income from conducting a personal services business.

It is not intended that the Divisions apply to independent contractors.

A personal services business exists if there is a personal services business determination or if one or more of 4 tests for what is a personal services business are met.

Regardless of how much of your personal services income is paid from one source, you can self‑assess against the results test to determine whether you are an independent contractor. The results test is based on the traditional tests for determining independent contractors and it is intended that it apply accordingly.

However, you cannot “self‑assess” whether you meet any of the other 3 tests if 80% or more of your personal services income is from one source. In these cases, you need a personal services business determination in order to be treated as conducting a personal services business.

87‑5 Diagram showing the operation of this Division

This diagram shows how this Division operates to ascertain whether personal services income is income from conducting a personal services business.

Subdivision 87‑A—General

Table of sections

87‑10 Object of this Division

87‑15 What is a personal services business?

87‑18 The results test for a personal services business

87‑20 The unrelated clients test for a personal services business

87‑25 The employment test for a personal services business

87‑30 The business premises test for a personal services business

87‑35 Personal services income from Australian government agencies

87‑40 Application of this Division to certain agents

87‑10 Object of this Division

The object of this Division is to define *personal services businesses in a way that ensures that it covers genuine businesses but not situations that are merely arrangements for dealing with the *personal services income of individuals.

87‑15 What is a personal services business?

(1) An individual or *personal services entity conducts a personal services business if:

(a) for an individual—a *personal services business determination is in force relating to the individual’s *personal services income; or

(b) for a personal services entity—a personal services business determination is in force relating to an individual whose personal services income is included in the entity’s *ordinary income or *statutory income; or

(c) in any case—the individual or entity meets at least one of the 4 *personal services business tests in the income year for which the question whether the individual or entity is conducting a personal services business is in issue.

Note 1: For personal services business determinations, see Subdivision 87‑B.

Note 2: Under subsection (3), the personal services business tests, apart from the results test under section 87‑18, do not apply if 80% or more of your personal services income is from one source (but they can still be used in deciding whether to make a personal services business determination).

(2) The 4 personal services business tests are:

(a) the results test under section 87‑18; and

(b) the unrelated clients test under section 87‑20; and

(d) the business premises test under section 87‑30.

(3) However, if 80% or more of an individual’s *personal services income (not including income referred to in subsection (4)) during an income year is income from the same entity (or one entity and its *associates), and:

(a) the individual’s personal services income is not included in a *personal services entity’s *ordinary income or *statutory income during an income year, and the individual does not meet the results test under section 87‑18 in that income year; or

(b) the individual’s personal services income is included in a personal services entity’s ordinary income or statutory income during an income year, and the entity does not, in relation to the individual, meet the results test under section 87‑18 in that income year;

the individual’s personal services income is not taken to be from conducting a *personal services business unless:

(c) when the personal services income is gained or produced, a *personal services business determination is in force relating to the individual’s personal services income; and

(d) if the determination was made on the application of a personal services entity—the individual’s personal services income is income from the entity conducting the personal services business.

Note: Sections 87‑35 and 87‑40 affect the operation of subsection (3) in relation to Australian government agencies and certain agents.

(4) Subsection (3) does not apply to income:

(a) that the individual receives as an employee; or

(b) that the individual receives as an individual referred to in paragraph 12‑45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953; or

(c) to the extent that it is a payment referred to in section 12‑47 (payments to *religious practitioners) in that Schedule.

87‑18 The results test for a personal services business

(1) An individual meets the results test in an income year if, in relation to at least 75% of the individual’s *personal services income (not including income referred to in subsection (2)) during the income year:

(a) the income is for producing a result; and

(b) the individual is required to supply the *plant and equipment, or tools of trade, needed to perform the work from which the individual produces the result; and

(2) Paragraph (1)(a) does not apply to income:

(a) that the individual receives as an employee; or

(b) that the individual receives as an individual referred to in paragraph 12‑45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953; or

(c) to the extent that it is a payment referred to in section 12‑47 (payments to *religious practitioners) in that Schedule.

(3) A *personal services entity meets the results test in an income year if, in relation to at least 75% of the *personal services income of one or more individuals that is included in the personal services entity’s *ordinary income or *statutory income during the income year:

(a) the income is for producing a result; and

(b) the personal services entity is required to supply the *plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and

(4) For the purposes of paragraph (1)(a), (b) or (c) or (3)(a), (b) or (c), regard is to be had to whether it is the custom or practice, when work of the kind in question is performed by an entity other than an employee:

(a) for the *personal services income from the work to be for producing a result; and

(b) for the entity to be required to supply the *plant and equipment, or tools of trade, needed to perform the work; and

as the case requires.

(1) An individual or a *personal services entity meets the unrelated clients test in an income year if:

(a) during the year, the individual or personal services entity gains or produces income from providing services to 2 or more entities that are not *associates of each other, and are not associates of the individual or of the personal services entity; and

(b) the services are provided as a direct result of the individual or personal services entity making offers or invitations (for example, by advertising), to the public at large or to a section of the public, to provide the services.

Note: Sections 87‑35 and 87‑40 affect the operation of paragraph (1)(a) in relation to Australian government agencies and certain agents.

(2) The individual or *personal services entity is not treated, for the purposes of paragraph (1)(b), as having made offers or invitations to provide services merely by being available to provide the services through an entity that conducts a *business of arranging for persons to provide services directly for clients of the entity.

87‑25 The employment test for a personal services business

(1) An individual meets the employment test in an income year if:

(a) the individual engages one or more entities (other than *associates of the individual that are not individuals) to perform work; and

(b) that entity performs, or those entities together perform, at least 20% (by *market value) of the individual’s principal work for that year.

(2) A *personal services entity meets the employment test in an income year if:

(a) the entity engages one or more other entities to perform work, other than:

(i) individuals whose *personal services income is included in the entity’s *ordinary income or *statutory income; or

(ii) *associates of the entity that are not individuals; and

(b) that other entity performs, or those other entities together perform, at least 20% (by *market value) of the entity’s principal work for that year.

(2A) If the *personal services entity is a partnership, work that a partner performs is taken, for the purposes of subsection (2), to be work that the personal services entity engages another entity to perform.

(3) An individual or a *personal services entity also meets the employment test in an income year if, for at least half the income year, the individual or entity has one or more apprentices.

87‑30 The business premises test for a personal services business

(1) An individual or a *personal services entity meets the business premises test in an income year if, at all times during the income year, the individual or entity maintains and uses business premises:

(a) at which the individual or entity mainly conducts activities from which *personal services income is gained or produced; and

(b) of which the individual or entity has exclusive use; and

(c) that are physically separate from any premises that the individual or entity, or any *associate of the individual or entity, uses for private purposes; and

(d) that are physically separate from the premises of the entity to which the individual or entity provides services and from the premises of any associate of the entity to which the individual or entity provides services.

(2) The individual or entity need not maintain and use the same business premises throughout the income year.

87‑35 Personal services income from Australian government agencies

(1) *Australian government agencies are not treated as *associates of each other for the purposes of subsection 87‑15(3) and paragraph 87‑20(1)(a).

Example: You receive 60% of your personal services income from a Department of a State government and 40% of your personal services income from a corporation in which that State has a majority shareholding.

You are not treated as if 80% or more of your personal services income is income from the same entity and that entity’s associates, and therefore you will not need a personal services business determination to satisfy subsection 87‑15(3).

In addition, you satisfy the first limb (but not necessarily the second limb) of the unrelated clients test in subsection 87‑20(1), because you receive your personal services income from 2 entities that are not treated as associates of each other.

(2) Each Agency within the meaning of the Public Service Act 1999:

(a) is treated as a separate entity; and

(b) is not treated as an *associate of any other such Agency, or of any *Australian government agency;

for the purposes of subsection 87‑15(3) and paragraph 87‑20(1)(a).

Example: You receive 70% of your personal services income from the Commonwealth Department of Treasury and 30% of your personal services income from the Australian Taxation Office (neither body has a legal identity separate from the Commonwealth Government).

You are not treated as if 80% or more of your personal services income is income from the same entity, or from the same entity and that entity’s associates, and therefore you will not need a personal services business determination to satisfy subsection 87‑15(3).

In addition, you satisfy the first limb (but not necessarily the second limb) of the unrelated clients test in subsection 87‑20(1), because you receive your personal services income from 2 bodies that are treated as separate entities and that are not treated as associates of each other.

(3) Each part of the government of a State or Territory, and each part of an authority of the State or Territory, that has, under a law of the State or Territory, a status corresponding to an Agency within the meaning of the Public Service Act 1999:

(a) is treated as a separate entity; and

(b) is not treated as an *associate of any other part of such a government or authority, or of any *Australian government agency;

for the purposes of subsection 87‑15(3) and paragraph 87‑20(1)(a).

87‑40 Application of this Division to certain agents

Object of this section

(1) The object of this section is to modify the operation of this Division for *agents who bear entrepreneurial risk in the way they provide services.

Agent rules do not apply

(1A) The rules in section 960‑105 (Certain entities treated as agents) do not apply to this section.

Agents covered by this section

(2) Subsection 87‑15(3) and section 87‑20 apply, in the manner specified in this section, to an individual or *personal services entity if:

(a) the individual or personal services entity is an *agent of another entity (the principal) but not the principal’s employee; and

(b) the agent receives income from the principal that is for services that the agent provides to other entities (customers) on the principal’s behalf; and

(c) at least 75% of that income is commissions, or fees, based on the agent’s performance in providing services to the customers on the principal’s behalf; and

(d) the agent actively seeks other entities to whom the agent could provide services on the principal’s behalf; and

(e) the agent does not provide any services to the customers, on the principal’s behalf, using premises:

(i) that the principal or an *associate of the principal owns; or

(ii) in which the principal or an associate of the principal has a leasehold interest;

unless the agent uses the premises under an arrangement entered into at *arm’s length.

Whether personal services income is from one source

(3) If the *agent is an individual, in applying subsection 87‑15(3) to the *personal services income of the agent during an income year, any part of the agent’s personal services income from the principal that:

(a) the agent gains or produces during the income year; and

(b) is for services that the agent provided to a customer on the principal’s behalf in the income year or an earlier income year;

is treated as if it were personal services income from the customer, and not personal services income from the principal.

(4) If the *agent is a *personal services entity, in applying subsection 87‑15(3) to an individual’s *personal services income that is included in the entity’s *ordinary income or *statutory income during an income year, any part of the individual’s personal services income from the principal that:

(a) the agent gains or produces during the income year; and

(b) is for services that the individual or the agent provided to a customer on the principal’s behalf in the income year or an earlier income year;

is treated as if it were personal services income from the customer, and not personal services income from the principal.

The unrelated clients test for a personal services business

(5) In determining whether, during an income year, the *agent meets the unrelated clients test under section 87‑20, any services the agent provided in the income year or an earlier income year:

(a) for which the agent gains or produces, during the income year, personal services income from the principal; and

(b) that were provided to a customer on the principal’s behalf;

are treated for the purposes of paragraph 87‑20(1)(a) as if the agent, and not the principal, provided them to the customer.

Subdivision 87‑B—Personal services business determinations

Table of sections

87‑60 Personal services business determinations for individuals

87‑65 Personal services business determinations for personal services entities

87‑70 Applying etc. for personal services business determinations

87‑75 When personal services business determinations have effect

87‑80 Revoking personal services business determinations

87‑85 Review of decisions

87‑60 Personal services business determinations for individuals

Making etc. personal services business determinations

(1) The Commissioner may, by giving written notice to an individual:

(a) make a personal services business determination relating to the individual; or

(b) vary such a determination.

(2) The Commissioner may, in the notice, specify:

(a) the day on which the determination or variation takes effect, or took effect;

(b) the period for which the determination has effect;

Matters about which the Commissioner must be satisfied

(3) The Commissioner must not make the determination unless satisfied that, in the income year during which the determination first has effect, or is taken to have first had effect, the conditions in one or more of subsections (3A), (3B), (5) and (6) are met.

First alternative—results, employment or business premises test met or reasonably expected to be met

(3A) The conditions in this subsection are that:

(a) the individual could reasonably be expected to meet, or met, the results test under section 87‑18, the employment test under section 87‑25, the business premises test under section 87‑30 or more than one of those tests; and

(b) the individual’s *personal services income could reasonably be expected to be, or was, from the individual conducting activities that met one or more of those tests.

Second alternative—unusual circumstances prevented the results, employment or business premises test from being met

(3B) The conditions in this subsection are that:

(a) but for unusual circumstances applying to the individual in that year, the individual could reasonably have been expected to meet, or would have met, the results test under section 87‑18, the employment test under section 87‑25, the business premises test under section 87‑30 or more than one of those tests; and

(b) the individual’s *personal services income could reasonably be expected to be, or was, from the individual conducting activities that met one or more of those tests.

(4) For the purposes of paragraph (3B)(a) but without limiting the scope of that paragraph, unusual circumstances include providing services to an insufficient number of entities to meet the unrelated clients test under section 87‑20 if:

(a) the individual starts a *business during the income year, and can reasonably be expected to meet the test in subsequent income years; or

(b) the individual provides services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years.

Third alternative—unrelated clients test was met but 80% or more of income from same source because of unusual circumstances

(5) The conditions in this subsection are that:

(a) the individual could reasonably be expected to meet, or met, the unrelated clients test under section 87‑20; and

(b) because of unusual circumstances applying to the individual in the income year, 80% or more of the individual’s *personal services income (not including income mentioned in subsection 87‑15(4)) could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates); and

(c) the individual’s personal services income could reasonably be expected to be, or was, from the individual conducting activities that met the unrelated clients test under section 87‑20.

Fourth alternative—unrelated clients test not met because of unusual circumstances

(6) The conditions in this subsection are that:

(a) but for unusual circumstances applying to the individual in that year, the individual could reasonably have been expected to meet, or would have met, the unrelated clients test under section 87‑20; and

(b) if 80% or more of the individual’s *personal services income (not including income mentioned in subsection 87‑15(4)) could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates)—that is the case only because of unusual circumstances applying to the individual in the income year; and

(c) the individual’s personal services income could reasonably be expected to be, or was, from the individual conducting activities that met the unrelated clients test under section 87‑20.

87‑65 Personal services business determinations for personal services entities

Making etc. personal services business determinations

(1) The Commissioner may, by giving written notice to a *personal services entity whose *ordinary income or *statutory income includes some or all of an individual’s *personal services income:

(a) make a personal services business determination relating to the individual’s personal services income included in the entity’s ordinary income or statutory income; or

(b) vary such a determination.

(2) The Commissioner may, in the notice, specify:

(a) the day on which the determination or variation takes effect, or took effect;

(b) the period for which the determination has effect;

Matters about which the Commissioner must be satisfied

First alternative——results, employment or business premises test met or reasonably expected to be met

(3A) The conditions in this subsection are that:

(a) the entity could reasonably be expected to meet, or met, the results test under section 87‑18, the employment test under section 87‑25, the business premises test under section 87‑30 or more than one of those tests; and

(b) the individual’s *personal services income included in the entity’s *ordinary income or *statutory income could reasonably be expected to be, or was, from the entity conducting activities that met one or more of those tests.

Second alternative—unusual circumstances prevented the results, employment or business premises test from being met

(3B) The conditions in this subsection are that:

(a) but for unusual circumstances applying to the entity in that year, the entity could reasonably have been expected to meet, or would have met, the results test under section 87‑18, the employment test under section 87‑25, the business premises test under section 87‑30 or more than one of those tests; and

(a) the*personal services entity starts a *business during the income year, and can reasonably be expected to meet that test in subsequent income years; or

(b) the personal services entity provides services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years.

Third alternative—unrelated clients test was met but 80% or more of income from same source because of unusual circumstances

(5) The conditions in this subsection are that:

(a) the entity could reasonably be expected to meet, or met, the unrelated clients test under section 87‑20; and

(b) because of unusual circumstances applying to the entity in the income year, 80% or more of the individual’s *personal services income (not including income mentioned in subsection 87‑15(4)) included in the entity’s *ordinary income or *statutory income could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates); and

(c) the individual’s personal services income included in the entity’s ordinary income or statutory income could reasonably be expected to be, or was, from the entity conducting activities that met the unrelated clients test under section 87‑20.

Fourth alternative—unrelated clients test not met because of unusual circumstances

(6) The conditions in this subsection are that:

(a) but for unusual circumstances applying to the entity in that year, the entity could reasonably have been expected to meet, or would have met, the unrelated clients test under section 87‑20; and

(b) if 80% or more of the individual’s *personal services income (not including income mentioned in subsection 87‑15(4)) included in the entity’s *ordinary income or *statutory income could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates)—that is the case only because of unusual circumstances applying to the entity in the income year; and

87‑70 Applying etc. for personal services business determinations

(1) An individual or a *personal services entity may apply to the Commissioner, in the *approved form:

(a) for a *personal services business determination; or

(b) for a variation of a personal services business determination.

(2) The Commissioner may request the applicant to give the Commissioner specified information, or a specified document, that the Commissioner needs to decide the application.

(3) If the Commissioner has not decided the application within 60 days after it is made, the applicant may, at any time, give the Commissioner written notice that the applicant wishes to treat the application as having been refused.

(4) If the applicant gives notice under subsection (3), the Commissioner is taken, for the purposes of section 87‑85, to have refused the application on the day on which the notice is given.

(5) For the purposes of measuring the 60 days mentioned in subsection (3), disregard each period (if any):

(a) starting on the day when the Commissioner requests the applicant under subsection (2) to give the Commissioner specified information or a specified document; and

(b) ending at the end of the day the applicant gives the Commissioner the specified information or document.

87‑75 When personal services business determinations have effect

(1) The determination, or a variation of the determination, has effect, or is taken to have had effect, on and from:

(a) the day specified in the notice as the day on which the determination or variation takes effect, or took effect; or

(b) if a day is not specified—the day on which the notice is given.

(2) The determination ceases to have effect at the end of the earliest day on which one or more of these occurs:

(a) one or more conditions to which the determination is subject are not met;

(b) the Commissioner revokes the determination;

87‑80 Revoking personal services business determinations

The Commissioner must, by giving written notice to the individual or *personal services entity on whose application a *personal services business determination was made, revoke the determination if the Commissioner is no longer satisfied that there are grounds on which the determination could be made.

87‑85 Review of decisions

A person who is dissatisfied with;

(a) a decision of the Commissioner to make, vary or revoke a *personal services business determination; or

(b) the Commissioner’s refusal of an application for a personal services business determination or for a variation of a personal services business determination;

may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953.

Chapter 3—Specialist liability rules

Part 3‑1—Capital gains and losses: general topics

Division 100—A Guide to capital gains and losses

General overview

100‑1 What this Division is about

This Division is a simplified outline of the capital gains and capital losses provisions, commonly referred to as capital gains tax (CGT). It will help you to understand your current liabilities, and to factor CGT into your on‑going financial affairs.

Table of sections

100‑5 Effect of this Division

100‑10 Fundamentals of CGT

100‑15 Overview of Steps 1 and 2

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

100‑20 What events attract CGT?

100‑25 What are CGT assets?

100‑30 Does an exception or exemption apply?

100‑33 Can there be a roll‑over?

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

100‑35 What is a capital gain or loss?

100‑40 What factors come into calculating a capital gain or loss?

100‑45 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

100‑50 How to work out your net capital gain or loss

100‑55 How do you comply with CGT?

Keeping records for CGT purposes

100‑60 Why keep records?

100‑65 What records?

100‑70 How long you need to keep records

100‑5 Effect of this Division

This Division is a *Guide.

Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950‑150.

100‑10 Fundamentals of CGT

(1) CGT affects your income tax liability because your assessable income includes your net capital gain for the income year. Your net capital gain is the total of your capital gains for the income year, reduced by certain capital losses you have made.

See later in this Guide (section 100‑50) for more detail.

(2) When you prepare your income tax return, you need to check whether you have made any capital gains for the income year.

You also need to check whether you have made any capital losses. You cannot deduct a capital loss from your assessable income, but it will reduce your capital gain in the current income year or later income years.

(3) You will also need to consider the impact of CGT when doing your financial planning. In particular, you will need adequate record‑keeping to deal most effectively with any immediate or future CGT liability.

To give you a sense of the range of things affected by CGT, if you are involved with any of the following, you may have a CGT liability now or at some time in the future:

leases	marriage or relationship breakdown
inheritance	working from home
subdividing land	shares
goodwill	a civil court case
contracts	trusts
options	bankruptcy
a company liquidation	incorporating a company
leaving Australia

100‑15 Overview of Steps 1 and 2

Note: Capital proceeds and cost base are not relevant for some CGT events, for example CGT event K7 or any of the CGT events created by Subdivision 104‑L.

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

100‑20 What events attract CGT?

(1) You can make a capital gain or loss only if a CGT event happens.

(2) There are a wide range of CGT events. Some happen often and affect many different taxpayers. Others are rare and affect only a few.

Some examples of CGT events
Situation	Event	Which CGT event?
You own shares you acquired on or after 20 September 1985	You sell them	CGT event A1
You sell a business	You agree with the purchaser not to operate a similar business in the same area	CGT event D1
You are a lessor	You receive a payment for changing the lease	CGT event F5
You own shares in a company	The company makes a payment (not a dividend) to you as a shareholder	CGT event G1

A summary of all the CGT events is in section 104‑5.

Identifying the time of a CGT event

(3) The specific time when a CGT event happens is important for various reasons: in particular, for working out whether a capital gain or loss from the event affects your income tax for the current or another income year.

If a CGT event involves a contract, the time of the event will often be when the contract is made, not when it is completed.

The time of each CGT event is explained early in
the relevant section in Division 104.

100‑25 What are CGT assets?

(1) Most CGT events involve a CGT asset. (For many, there is an exception if the CGT asset was acquired before 20 September 1985.) However, many CGT events are concerned directly with capital receipts and do not involve a CGT asset.

See the summary of the CGT events in section 104‑5.

(2) Some CGT assets are reasonably well‑known:

• land and buildings, for example, a weekender;

• shares;

• units in a unit trust;

• collectables which cost over $500, for example, jewellery or an artwork;

• personal use assets which cost over $10,000, for example, a boat.

(3) Other CGT assets are not so well‑known. For example:

• your home;

• contractual rights;

• goodwill;

• foreign currency.

For a full explanation of what things are CGT assets: see Division 108.

100‑30 Does an exception or exemption apply?

(1) Once you identify a CGT event which applies to you, you need to know if there is an exception or exemption that would reduce the capital gain or loss or allow you to disregard it.

(2) There are 4 categories of exemptions:

1. exempt assets: for example, cars;

2. exempt or loss‑denying transactions: for example, compensation for personal injury or your tenancy comes to an end;

3. anti‑overlap provisions (that reduce your capital gain by the amount that is otherwise assessable);

4. small business relief.

Note: Most of the exceptions are in Division 104. You will find most of the possible exemptions in Division 118. The small business relief provisions are in Division 152.

Some exemptions are limited

(3) Take the family home for example. Generally, you are exempt from CGT when you make a capital gain on disposing of your main residence.

But this can change depending on how you came to own the house and what you have done with it. For example, if you rent it out, you may be liable to CGT when you sell it.

For the limits on the general exemption of your main residence:
see Subdivision 118‑B.

100‑33 Can there be a roll‑over?

(1) Roll‑overs allow you to defer or disregard a capital gain or loss from a CGT event. They apply in specific situations. Some require a choice (for example, where an asset is compulsorily acquired: see Subdivision 124‑B) and some are automatic (for example, where an asset is transferred because of marriage or relationship breakdown: see Subdivision 126‑A).

(2) There are 2 types of roll‑over:

1. a replacement‑asset roll‑over allows you to defer a capital gain or loss from one CGT event until a later CGT event happens where a CGT asset is replaced with another one;

2. a same‑asset roll‑over allows you to disregard a capital gain or loss from a CGT event where the same CGT asset is involved.

Note: The replacement‑asset roll‑overs are listed in section 112‑115, and the same‑asset roll‑overs are listed in section 112‑150.

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

100‑35 What is a capital gain or loss?

For most CGT events:

• You make a capital gain if you receive (or are entitled to receive) capital amounts from the CGT event which exceed your total costs associated with that event.

• You make a capital loss if your total costs associated with the CGT event exceed the capital amounts you receive (or are entitled to receive) from the event.

100‑40 What factors come into calculating a capital gain or loss?

Capital proceeds

(1) For most CGT events, the capital amounts you receive (or are entitled to receive) from the event are called the capital proceeds.

To work out the capital proceeds: see Division 116.

Cost base and reduced cost base

(2) For most CGT events, your total costs associated with the event are worked out in 2 different ways:

• For the purpose of working out a capital gain, those costs are called the cost base of the CGT asset.

• For the purpose of working out a capital loss, those costs are called the reduced cost base of the asset.

One of the main differences is that the costs may be indexed for inflation occurring before 1 October 1999 in working out a capital gain for a CGT asset acquired at or before 11.45 am on 21 September 1999 (which reduces the size of the gain), but not in working out a capital loss.

To work out the cost base and reduced cost base: see Division 110.

100‑45 How to calculate the capital gain or loss for most CGT events

1. Work out your capital proceeds from the CGT event.

2. Work out the cost base for the CGT asset.

3. Subtract the cost base from the capital proceeds.

4. If the proceeds exceed the cost base, the difference is your capital gain.

5. If not, work out the reduced cost base for the asset.

6. If the reduced cost base exceeds the capital proceeds, the difference is your capital loss.

7. If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss.

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

100‑50 How to work out your net capital gain or loss

1. Reduce your capital gains for the income year, in the order you choose, by your capital losses for the income year. (If the capital losses for the income year exceed the capital gains, the difference is your net capital loss. You cannot deduct a net capital loss from your assessable income.)

2. Reduce any remaining capital gains, in the order you choose, by any unapplied net capital losses for previous income years.

3. Reduce any remaining discount capital gains by the discount percentage.

To find out what is a discount capital gain and the discount percentage:
see Division 115.

4. If you carry on a small business, apply the small business concessions in further reduction of your capital gains (whether or not the gains are discount capital gains).

For the small business concessions:
see Division 152.

5. Add up:

(a) any remaining capital gains that are not discount capital gains; and

(b) any remaining discount capital gains.

The total is your net capital gain.

For the rules on working out your net capital gain or loss:
see Division 102.

100‑55 How do you comply with CGT?

Declare any net capital gain as assessable income in your income tax return.

Defer any net capital loss to the next income year for which you have capital gains that exceed the capital losses for that income year.

Keeping records for CGT purposes

100‑60 Why keep records?

1. To ensure you do not disadvantage yourself.

2. To comply as easily as possible.

3. To plan for your CGT position in future income years.

4. The law requires you to: see Division 121.

100‑65 What records?

Keeping full records will make it easier for you to comply. For example, keep records of:

• receipts of purchase or transfer;

• interest on money you borrowed;

• costs of agents, accountants, legal, advertising etc.;

• insurance costs and land rates or taxes;

• any market valuations;

• costs of maintenance, repairs or modifications;

• brokerage on shares;

• legal costs.

100‑70 How long you need to keep records

The law requires you to keep records for 5 years after a CGT event has happened.

Division 102—Assessable income includes net capital gain

Guide to Division 102

102‑1 What this Division is about

This Division tells you how to work out if you have made a net capital gain or a net capital loss for the income year. A net capital gain is included in your assessable income. However, you cannot deduct a net capital loss. (Amounts otherwise included in your assessable income do not form part of a net capital gain.)

102‑3 Concessions in working out your net capital gain

(1) Concessional rules apply to working out the net capital gain of some entities (see subsection (2)) if:

(a) they have a capital gain (a discount capital gain) from a CGT asset acquired at least 12 months before the CGT event that caused the capital gain; and

(b) they have not chosen to include indexation in the cost base of the asset for working out the capital gain (if relevant).

Note 1: Division 115 explains what is a discount capital gain.

Note 2: Under Division 110, the entity can choose to include indexation in the cost base of a CGT asset acquired at or before 11.45 am on 21 September 1999.

(2) Only these entities get the concession:

(a) individuals;

(b) complying superannuation entities;

(d) life insurance companies, in relation to discount capital gains for CGT events in respect of CGT assets that are complying superannuation assets.

Note: Shareholders in a listed investment company can also receive a concession equivalent to a discount capital gain: see Subdivision 115‑D.

(3) The concession is that the net capital gain includes only part of the amount of the discount capital gain left after applying capital losses and net capital losses from earlier income years.

See subsection 102‑5(1).

Table of sections

Operative provisions

102‑5 Assessable income includes net capital gain

102‑10 How to work out your net capital loss

102‑15 How to apply net capital losses

102‑20 Ways you can make a capital gain or a capital loss

102‑22 Amounts of capital gains and losses

102‑23 CGT event still happens even if gain or loss disregarded

102‑25 Order of application of CGT events

102‑30 Exceptions and modifications

Operative provisions

102‑5 Assessable income includes net capital gain

(1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way:

Working out your net capital gain

Step 1. Reduce the *capital gains you made during the income year by the *capital losses (if any) you made during the income year.

Note 1: You choose the order in which you reduce your capital gains. You have a net capital loss for the income year if your capital losses exceed your capital gains: see section 102‑10.

Note 2: Some provisions of this Act (such as Divisions 104 and 118) permit or require you to disregard certain capital gains or losses when working out your net capital gain. Subdivision 152‑B permits you, in some circumstances, to disregard a capital gain on an asset you held for at least 15 years.

Step 2. Apply any previously unapplied *net capital losses from earlier income years to reduce the amounts (if any) remaining after the reduction of *capital gains under step 1 (including any capital gains not reduced under that step because the *capital losses were less than the total of your capital gains).

Note 1: Section 102‑15 explains how to apply net capital losses.

Note 2: You choose the order in which you reduce the amounts.

Step 3. Reduce by the *discount percentage each amount of a *discount capital gain remaining after step 2 (if any).

Note: Only some entities can have discount capital gains, and only if they have capital gains from CGT assets acquired at least a year before making the gains. See Division 115.

Step 4. If any of your *capital gains (whether or not they are *discount capital gains) qualify for any of the small business concessions in Subdivisions 152‑C, 152‑D and 152‑E, apply those concessions to each capital gain as provided for in those Subdivisions.

Note 1: The basic conditions for getting these concessions are in Subdivision 152‑A.

Note 2: Subdivision 152‑C does not apply to CGT events J2, J5 and J6. In addition, Subdivision 152‑E does not apply to CGT events J5 and J6.

Step 5. Add up the amounts of *capital gains (if any) remaining after step 4. The sum is your net capital gain for the income year.

Note: For exceptions and modifications to these rules: see section 102‑30.

(2) However, if during the income year:

(a) you became bankrupt; or

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

any *net capital loss you made for an earlier income year must be disregarded in working out whether you made a *net capital gain for the income year or a later one.

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

(a) the annulment happens under section 74 of the Bankruptcy Act 1966; 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.

102‑10 How to work out your net capital loss

(1) You work out if you have a net capital loss for the income year in this way:

Working out your net capital loss

Step 1. Add up the *capital losses you made during the income year. Also add up the *capital gains you made.

Step 2. Subtract your *capital gains from your *capital losses.

Step 3. If the Step 2 amount is more than zero, it is your net capital loss for the income year.

Note: For exceptions and modifications to these rules: see section 102‑30.

(2) You cannot deduct from your assessable income a *net capital loss for any income year.

102‑15 How to apply net capital losses

In working out if you have a *net capital gain, your *net capital losses are applied in the order in which you made them.

Note 1: A net capital loss can be applied only to the extent that it has not already been utilised: see subsection 960‑20(1).

Note 2: For applying a net capital loss for the 1997‑98 income year or an earlier income year, see section 102‑15 of the Income Tax (Transitional Provisions) Act 1997.

102‑20 Ways you can make a capital gain or a capital loss

You can make a *capital gain or *capital loss if and only if a *CGT event happens. The gain or loss is made at the time of the event.

Note 1: The full list of CGT events is in section 104‑5.

Note 2: The gain or loss may be affected by an exemption, or may be able to be rolled‑over. For exemptions generally, see Division 118. For roll‑overs, see Divisions 122, 123, 124 and 126.

Note 3: You may make a capital gain or capital loss as a result of a CGT event happening to another entity: see subsections 115‑215(3), 170‑275(1) and 170‑280(3).

Note 4: You cannot make a capital loss from a CGT event that happens to your original interests during a trust restructuring period if you choose a roll‑over under Subdivision 124‑N.

Note 5: The capital loss may be affected if the CGT asset was owned by a member of a demerger group just before a demerger: see section 125‑170.

Note 6: Under subsection 230‑310(4) gains and losses are taken to arise from a CGT event in particular circumstances.

Note 7: This section does not apply in relation to the capital gain mentioned in paragraph 294‑120(5)(b) of the Income Tax (Transitional Provisions) Act 1997.

102‑22 Amounts of capital gains and losses

Most *CGT events provide for calculating a *capital gain or *capital loss by comparing 2 different amounts. The amount of the gain or loss is the difference between those amounts.

102‑23 CGT event still happens even if gain or loss disregarded

A *CGT event still happens even if:

(a) it does not result in a *capital gain or *capital loss; or

(b) a capital gain or capital loss from the event is disregarded.

Example: Lindy sells a car. Section 118‑5 says that any capital gain or loss from a CGT event happening to a car is disregarded. However, the sale is still an example of CGT event A1.

102‑25 Order of application of CGT events

(1) Work out if a *CGT event (except *CGT events D1 and H2) happens to your situation. If more than one event can happen, the one you use is the one that is the most specific to your situation.

(2) However, there are 3 exceptions: one for *CGT event J2, one for CGT event K5 and one for CGT event K12.

(2A) If the circumstances that gave rise to *CGT event J2 constitute another CGT event, CGT event J2 applies in addition to the other event.

Example: CGT event J2 happens because a replacement asset for a small business roll‑over under Subdivision 152‑E becomes your trading stock (in circumstances where CGT event K4 happens). Both CGT events apply.

(2B) *CGT event K5 happens if CGT event A1, C2 or E8 happens. CGT event K5 applies in addition to the other event.

(2C) If:

(a) *CGT events happen for which you make *capital gains or *capital losses; and

(b) the capital gains or losses are taken into account in working out a *foreign hybrid net capital loss amount; and

CGT event K12 applies in addition to the other CGT events.

(3) If no *CGT event (except *CGT events D1 and H2) happens:

(a) work out if CGT event D1 happens and use that event if it does; and

(b) if it does not, work out if CGT event H2 happens and use that event if it does.

Note: The full list of CGT events is in section 104‑5.

102‑30 Exceptions and modifications

Provisions of this Act are in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

Special rules affecting capital gains and capital losses
Item	For this kind of entity:	There are these special rules:	See:
1	All entities	You can subtract capital losses from collectables only from your capital gains from collectables.	section 108‑10
2	All entities	Disregard capital losses you make from personal use assets.	section 108‑20
2AA	Beneficiary of trust that makes a capital gain taken into account in working out the net income of the trust	The beneficiary is treated as having an extra capital gain corresponding to the beneficiary’s share of the capital gain (taking into account adjustments in respect of the CGT discount and small business concessions).	Subdivision 115‑C
3	All entities	If any of your commercial debts have been forgiven in the income year, your net capital losses (including net capital losses from collectables) may be reduced.	sections 245‑130 and 245‑135
4	A company	If it has a change of ownership or control during the income year, and has not satisfied the business continuity test, it works out its net capital gain and net capital loss in a special way.	Subdivision 165‑CB
5	A company	It cannot apply a net capital loss unless: • the same people owned the company during the loss year, the income year and any intervening year; and • no person controlled the company’s voting power at any time during the income year who did not also control it during the whole of the loss year and any intervening year; or the company has satisfied the business continuity test.	Subdivision 165‑CA
6	A company	If one or more of these things happen: • a capital gain or loss is injected into it; • a tax benefit is obtained from its available net capital losses or current year capital losses; • a tax benefit is obtained because of its available capital gains; the Commissioner can disallow its net capital losses or current year capital losses, and it may have to work out its net capital loss in a special way.	Division 175
7	A company	A company can transfer a surplus amount of its net capital loss to another company so that the other company can apply the amount in the income year of the transfer. (Both companies must be members of the same wholly‑owned group.)	Subdivision 170‑B
7A	The head company of a consolidated group or a MEC group	The head company of a consolidated group or a MEC group must apply the capital loss from CGT event L1 over at least 5 income years	section 104‑500
8	A PDF	If it is a PDF at the end of an income year for which it has a net capital loss, it can apply the loss in a later income year only if it is a PDF throughout the last day of the later income year.	section 195‑25
9	A PDF	If it becomes a PDF during an income year, it works out its net capital gain and net capital loss for the income year in a special way.	section 195‑35
10	Body that has ceased to be an STB	Net capital losses made before cessation disregarded. Special rules apply in cessation year where net capital gain before cessation and net capital loss after cessation.	section 24AX
10A	All entities	Division 316 contains special rules affecting capital gains and capital losses connected with demutualisation of friendly society health or life insurers.	Division 316
11	A life insurance company	Division 320 contains special rules that apply to capital gains and capital losses	Division 320
12	A company	The capital gain or capital loss a company makes from a CGT event that happened to a share in a company that is a foreign resident may be reduced.	Subdivision 768‑G
13	A PDF	Sections 102‑5 and 102‑10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income.	Subdivision C of Division 10E of Part III
14	A CFC	In calculating the CFC’s attributable income, pre‑1 July 1990 capital losses are disregarded.	section 409

Division 103—General rules

Guide to Division 103

103‑1 What this Division is about

This Division sets out some general rules that apply to the provisions dealing with capital gains and capital losses.

Table of sections

Operative provisions

103‑5 Giving property as part of a transaction

103‑10 Entitlement to receive money or property

103‑15 Requirement to pay money or give property

103‑25 Choices

103‑30 Reduction of cost base etc. by net input tax credits

Operative provisions

103‑5 Giving property as part of a transaction

There are a number of provisions in this Part and Part 3‑3 that say that a payment, cost or expenditure can include giving property.

To the extent that such a provision does say that a payment, cost or expenditure can include giving property, use the *market value of the property in working out the amount of the payment, cost or expenditure.

103‑10 Entitlement to receive money or property

(1) This Part and Part 3‑3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct.

(2) Those Parts apply to you as if you are entitled to receive money or other property:

(a) if you are entitled to have it so applied; or

(b) if:

(i) you will not receive it until a later time; or

(ii) the money is payable by instalments.

103‑15 Requirement to pay money or give property

This Part and Part 3‑3 apply to you as if you are required to pay money or give other property even if:

(a) you do not have to pay or give it until a later time; or

(b) the money is payable by instalments.

103‑25 Choices

(1) A choice you can make under this Part or Part 3‑3 must be made:

(a) by the day you lodge your *income tax return for the income year in which the relevant *CGT event happened; or

(b) within a further time allowed by the Commissioner.

(2) The way you (and any other entity making the choice) prepare your *income tax returns is sufficient evidence of the making of the choice.

(3) However, there are some exceptions:

(aa) subsection 115‑230(3) (relating to assessment of *capital gains of resident testamentary trusts) requires a trustee to make a choice by the time specified in subsection 115‑230(5); and

(b) subsections 152‑315(4) and (5) (relating to the small business retirement exemption) require a choice to be made in writing.

Note: This section is modified in calculating the attributable income of a CFC: see section 421 of the Income Tax Assessment Act 1936.

103‑30 Reduction of cost base etc. by net input tax credits

Reduce the *cost base and *reduced cost base of a *CGT asset, and any other amount that could be involved in the calculation of an entity’s *capital gain or *capital loss, by the amount of any *net input tax credit of the entity in relation to that amount.

Example: The other amount could be expenditure in the case of some CGT events (see, for example, CGT event D1).

Note: Subsection 116‑20(5) deals with the effect of net GST on supplies for the purposes of capital proceeds.

Division 104—CGT events

Table of Subdivisions

Guide to Division 104

104‑A Disposals

104‑B Use and enjoyment before title passes

104‑C End of a CGT asset

104‑D Bringing into existence a CGT asset

104‑E Trusts

104‑F Leases

104‑G Shares

104‑H Special capital receipts

104‑I Australian residency ends

104‑J CGT events relating to roll‑overs

104‑K Other CGT events

104‑L Consolidated groups and MEC groups

Guide to Division 104

104‑1 What this Division is about

This Division sets out all the CGT events for which you can make a capital gain or loss. It tells you how to work out if you have made a gain or loss from each event and the time of each event. It also contains exceptions for gains and losses for many events (such as the exception for CGT assets acquired before 20 September 1985) and some cost base adjustment rules.

104‑5 Summary of the CGT events

CGT events
Event number and description	Time of event is:	Capital gain is:	Capital loss is:
A1 Disposal of a CGT asset [See section 104‑10]	when disposal contract is entered into or, if none, when entity stops being asset’s owner	capital proceeds from disposal less asset’s cost base	asset’s reduced cost base less capital proceeds
B1 Use and enjoyment before title passes [See section 104‑15]	when use of CGT asset passes	capital proceeds less asset’s cost base	asset’s reduced cost base less capital proceeds
C1 Loss or destruction of a CGT asset [See section 104‑20]	when compensation is first received or, if none, when loss discovered or destruction occurred	capital proceeds less asset’s cost base	asset’s reduced cost base less capital proceeds
C2 Cancellation, surrender and similar endings [See section 104‑25]	when contract ending asset is entered into or, if none, when asset ends	capital proceeds from ending less asset’s cost base	asset’s reduced cost base less capital proceeds
C3 End of option to acquire shares etc. [See section 104‑30]	when option ends	capital proceeds from granting option less expenditure in granting it	expenditure in granting option less capital proceeds
D1 Creating contractual or other rights [See section 104‑35]	when contract is entered into or right is created	capital proceeds from creating right less incidental costs of creating it	incidental costs of creating right less capital proceeds
D2 Granting an option [See section 104‑40]	when option is granted	capital proceeds from grant less expenditure to grant it	expenditure to grant option less capital proceeds
D3 Granting a right to income from mining [See section 104‑45]	when contract is entered into or, if none, when right is granted	capital proceeds from grant of right less expenditure to grant it	expenditure to grant right less capital proceeds
D4 Entering into a conservation covenant [See section 104‑47]	when covenant is entered into	capital proceeds from covenant less cost base apportioned to the covenant	reduced cost base apportioned to the covenant less capital proceeds from covenant
E1 Creating a trust over a CGT asset [See section 104‑55]	when trust is created	capital proceeds from creating trust less asset’s cost base	asset’s reduced cost base less capital proceeds
E2 Transferring a CGT asset to a trust [See section 104‑60]	when asset transferred	capital proceeds from transfer less asset’s cost base	asset’s reduced cost base less capital proceeds
E3 Converting a trust to a unit trust [See section 104‑65]	when trust is converted	market value of asset at that time less its cost base	asset’s reduced cost base less that market value
E4 Capital payment for trust interest [See section 104‑70]	when trustee makes payment	non‑assessable part of the payment less cost base of the trust interest	no capital loss
E5 Beneficiary becoming entitled to a trust asset [See section 104‑75]	when beneficiary becomes absolutely entitled	for trustee—market value of CGT asset at that time less its cost base; for beneficiary—that market value less cost base of beneficiary’s capital interest	for trustee—reduced cost base of CGT asset at that time less that market value; for beneficiary—reduced cost base of beneficiary’s capital interest less that market value
E6 Disposal to beneficiary to end income right [See section 104‑80]	the time of the disposal	for trustee—market value of CGT asset at that time less its cost base; for beneficiary—that market value less cost base of beneficiary’s right to income	for trustee—reduced cost base of CGT asset at that time less that market value; for beneficiary—reduced cost base of beneficiary’s right to income less that market value
E7 Disposal to beneficiary to end capital interest [See section 104‑85]	the time of the disposal	for trustee—market value of CGT asset at that time less its cost base; for beneficiary—that market value less cost base of beneficiary’s capital interest	for trustee—reduced cost base of CGT asset at that time less that market value; for beneficiary—reduced cost base of beneficiary’s capital interest less that market value
E8 Disposal by beneficiary of capital interest [See section 104‑90]	when disposal contract entered into or, if none, when beneficiary ceases to own CGT asset	capital proceeds less appropriate proportion of the trust’s net assets	appropriate proportion of the trust’s net assets less capital proceeds
E9 Creating a trust over future property [See section 104‑105]	when entity makes agreement	market value of the property (as if it existed when agreement made) less incidental costs in making agreement	incidental costs in making agreement less market value of the property (as if it existed when agreement made)
E10 Annual cost base reduction exceeds cost base of interest in AMIT [See section 104‑107A]	when reduction happens	excess of cost base reduction over cost base	no capital loss
F1 Granting a lease [See section 104‑110]	for grant of lease—when entity enters into lease contract or, if none, at start of lease; for lease renewal or extension—at start of renewal or extension	capital proceeds less expenditure on grant, renewal or extension	expenditure on grant, renewal or extension less capital proceeds
F2 Granting a long term lease [See section 104‑115]	for grant of lease—when lessor grants lease; for lease renewal or extension—at start of renewal or extension	capital proceeds from grant, renewal or extension less cost base of leased property	reduced cost base of leased property less capital proceeds from grant, renewal or extension
F3 Lessor pays lessee to get lease changed [See section 104‑120]	when lease term is varied or waived	no capital gain	amount of expenditure to get lessee’s agreement
F4 Lessee receives payment for changing lease [See section 104‑125]	when lease term is varied or waived	capital proceeds less cost base of lease	no capital loss
F5 Lessor receives payment for changing lease [See section 104‑130]	when lease term is varied or waived	capital proceeds less expenditure in relation to variation or waiver	expenditure in relation to variation or waiver less capital proceeds
G1 Capital payment for shares [See section 104‑135]	when company pays non‑assessable amount	payment less cost base of shares	no capital loss
G3 Liquidator or administrator declares shares or financial instruments worthless [See section 104‑145]	when declaration was made	no capital gain	shares’ or financial instruments’ reduced cost base
H1 Forfeiture of a deposit [See section 104‑150]	when deposit is forfeited	deposit less expenditure in connection with prospective sale	expenditure in connection with prospective sale less deposit
H2 Receipt for event relating to a CGT asset [See section 104‑155]	when act, transaction or event occurred	capital proceeds less incidental costs	incidental costs less capital proceeds
I1 Individual or company stops being an Australian resident [See section 104‑160]	when individual or company stops being Australian resident	for each CGT asset the person owns, its market value less its cost base	for each CGT asset the person owns, its reduced cost base less its market value
I2 Trust stops being a resident trust [See section 104‑170]	when trust ceases to be resident trust for CGT purposes	for each CGT asset the trustee owns, its market value of asset less its cost base	for each CGT asset the trustee owns, its reduced cost base less its market value
J1 Company stops being member of wholly‑owned group after roll‑over [See section 104‑175]	when the company stops	market value of asset at time of event less its cost base	reduced cost base of asset less that market value
J2 Change in relation to replacement asset or improved asset after a roll‑over under Subdivision 152‑E [See section 104‑185]	when the change happens	the amount mentioned in subsection 104‑185(5)	no capital loss
J4 Trust fails to cease to exist after a roll‑over under Subdivision 124‑N [See section 104‑195]	when the failure happens	market value of asset less asset’s cost base	reduced cost base of asset less asset’s market value
J5 Failure to acquire replacement asset and to incur fourth element expenditure after a roll‑over under Subdivision 152‑E [See section 104‑197]	at the end of the replacement asset period	the amount of the capital gain that you disregarded under Subdivision 152‑E	no capital loss
J6 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain [See section 104‑198]	at the end of the replacement asset period	the amount mentioned in subsection 104‑198(3)	no capital loss
K1 As the result of an incoming international transfer of a Kyoto unit or an Australian carbon credit unit from your foreign account or your nominee’s foreign account, you start to hold the unit as a registered emissions unit [See section 104‑205]	when you start to hold the unit as a registered emissions unit	market value of unit less its cost base	reduced cost base of unit less its market value
K2 Bankrupt pays amount in relation to debt [See section 104‑210]	when payment is made	no capital gain	so much of payment as relates to denied part of a net capital loss
K3 Asset passing to tax‑advantaged entity [See section 104‑215]	when individual dies	market value of asset at death less its cost base	reduced cost base of asset less that market value
K4 CGT asset starts being trading stock [See section 104‑220]	when asset starts being trading stock	market value of asset less its cost base	reduced cost base of asset less its market value
K5 Special capital loss from collectable that has fallen in market value [See section 104‑225]	when CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable	no capital gain	market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8
K6 Pre‑CGT shares or trust interest [See section 104‑230]	when another CGT event involving the shares or interest happens	capital proceeds from the shares or trust interest (so far as attributable to post‑CGT assets owned by the company or trust) less the assets’ cost bases	no capital loss
K7 Balancing adjustment occurs for a depreciating asset that you used for purposes other than taxable purposes [See section 104‑235]	When balancing adjustment event occurs	Termination value less cost times fraction	Cost less termination value times fraction
K8 Direct value shifts affecting your equity or loan interests in a company or trust [See section 104‑250 and Division 725]	the decrease time for the interests	the gain worked out under section 725‑365	no capital loss
K9 Entitlement to receive payment of a carried interest [See section 104‑255]	when you become entitled to receive payment	capital proceeds from entitlement	no capital loss
K10 You make a forex realisation gain covered by item 1 of the table in subsection 775‑70(1) [See section 104‑260]	when the forex realisation event happens	the forex realisation gain	no capital loss
K11 You make a forex realisation loss covered by item 1 of the table in subsection 775‑75(1) [See section 104‑265]	when the forex realisation event happens	no capital gain	the forex realisation loss
K12 Foreign hybrid loss exposure adjustment [See section 104‑270]	just before the end of the income year	no capital gain	the amount stated in subsection 104‑270(3)
L1 Reduction under section 705‑57 in tax cost setting amount of assets of entity becoming subsidiary member of consolidated group or MEC group [See section 104‑500]	Just after entity becomes subsidiary member	no capital gain	amount of reduction
L2 Amount remaining after step 3A etc. of joining allocable cost amount is negative [See section 104‑505]	Just after entity becomes subsidiary member	amount remaining	no capital loss
L3 Tax cost setting amounts for retained cost base assets exceed joining allocable cost amount [See section 104‑510]	Just after entity becomes subsidiary member	amount of excess	no capital loss
L4 No reset cost base assets against which to apply excess of net allocable cost amount on joining [See section 104‑515]	Just after entity becomes subsidiary member	no capital gain	amount of excess
L5 Amount remaining after step 4 of leaving allocable cost amount is negative [See section 104‑520]	When entity ceases to be subsidiary member	amount remaining	no capital loss
L6 Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6 [See section 104‑525]	start of the income year when the Commissioner becomes aware of the errors	the net overstated amount resulting from the errors, or a portion of that amount	the net understated amount resulting from the errors, or a portion of that amount
L8 Reduction in tax cost setting amount for reset cost base assets on joining cannot be allocated [See section 104‑535]	Just after entity becomes subsidiary member	no capital gain	amount of reduction that cannot be allocated

Note: Subsection 230‑310(4) (which deals with hedging financial arrangements) provides that in certain circumstances a CGT event is taken to have occurred in relation to a hedging financial arrangement at the same time as a CGT event actually occurs in relation to a hedged item covered by the arrangement.

Subdivision 104‑A—Disposals

104‑10 Disposal of a CGT asset: CGT event A1

(1) CGT event A1 happens if you *dispose of a *CGT asset.

(2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960‑100(2)). This means that CGT event A1 will not happen merely because of a change in the trustee.

(3) The time of the event is:

(a) when you enter into the contract for the *disposal; or

(b) if there is no contract—when the change of ownership occurs.

Example: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000.

The gain is made in the 1998‑99 income year (the year you entered into the contract) and not the 1999‑2000 income year (the year that settlement takes place).

Note 1: If the contract falls through before completion, this event does not happen because no change in ownership occurs.

Note 2: If the asset was compulsorily acquired from you: see subsection (6).

(4) You make a capital gain if the *capital proceeds from the disposal are more than the asset’s *cost base. You make a capital loss if those capital proceeds are less than the asset’s *reduced cost base.

Exceptions

(5) A *capital gain or *capital loss you make is disregarded if:

(a) you *acquired the asset before 20 September 1985; or

(b) for a lease that you granted:

(i) it was granted before that day; or

(ii) if it has been renewed or extended—the start of the last renewal or extension occurred before that day.

Note 1: You can make a gain if you dispose of shares in a company, or an interest in a trust, that you acquired before that day: see CGT event K6.

Note 2: A capital gain or loss you make because you assign a right under or in relation to a general insurance policy you held with an HIH company to the Commonwealth, the trustee of the HIH Trust or a prescribed entity is also disregarded: see section 322‑15.

Note 3: A capital gain or loss made by a demerging entity from CGT event A1 happening as a result of a demerger is also disregarded: see section 125‑155.

Note 4: A capital gain or loss you make because of section 16AI of the Banking Act 1959 is disregarded: see section 253‑10 of this Act. Section 16AI of the Banking Act 1959:

(a) reduces your right to be paid an amount by an ADI in connection with an account to the extent of your entitlement under Division 2AA of Part II of that Act to be paid an amount by APRA; and

(b) provides that, to the extent of the reduction, the right becomes a right of APRA.

Note 5: A capital gain or loss you make because, under section 62ZZL of the Insurance Act 1973, you dispose of a CGT asset consisting of your rights against a general insurance company to APRA is disregarded: see section 322‑30 of this Act.

Compulsory acquisition

(6) If the asset was *acquired from you by an entity under a power of compulsory acquisition conferred by an *Australian law or a *foreign law, the time of the event is the earliest of:

(a) when you received compensation from the entity; or

(b) when the entity became the asset’s owner; or

(d) when the entity took possession under that power.

Note: You may be able to choose a roll‑over if an asset is compulsorily acquired: see Subdivision 124‑B.

Subdivision 104‑B—Use and enjoyment before title passes

104‑15 Use and enjoyment before title passes: CGT event B1

(1) CGT event B1 happens if you enter into an agreement with another entity under which:

(a) the right to the use and enjoyment of a *CGT asset you own passes to the other entity; and

(b) title in the asset will or may pass to the other entity at or before the end of the agreement.

Note: Division 240 provides for the inclusion of amounts under hire purchase agreements in assessable income.

(2) The time of the event is when the other entity first obtains the use and enjoyment of the asset.

(3) You make a capital gain if the *capital proceeds from the agreement are more than the asset’s *cost base. You make a capital loss if those capital proceeds are less than the asset’s *reduced cost base.

Exceptions

(4) A *capital gain or *capital loss you make is disregarded if:

(a) title in the asset does not pass to the other entity at or before the end of the agreement; or

(b) you *acquired the asset before 20 September 1985.

Subdivision 104‑C—End of a CGT asset

Table of sections

104‑20 Loss or destruction of a CGT asset: CGT event C1

104‑25 Cancellation, surrender and similar endings: CGT event C2

104‑30 End of option to acquire shares etc.: CGT event C3

104‑20 Loss or destruction of a CGT asset: CGT event C1

(1) CGT event C1 happens if a *CGT asset you own is lost or destroyed.

Note: This event can apply to part of a CGT asset: see section 108‑5 (definition of CGT asset).

(2) The time of the event is:

(a) when you first receive compensation for the loss or destruction; or

(b) if you receive no compensation—when the loss is discovered or the destruction occurred.

(3) You make a capital gain if the *capital proceeds from the loss or destruction are more than the asset’s *cost base. You make a capital loss if those capital proceeds are less than the asset’s *reduced cost base.

Exception

(4) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

104‑25 Cancellation, surrender and similar endings: CGT event C2

(1) CGT event C2 happens if your ownership of an intangible *CGT asset ends by the asset:

(a) being redeemed or cancelled; or

(b) being released, discharged or satisfied; or

(d) being abandoned, surrendered or forfeited; or

(e) if the asset is an option—being exercised; or

(f) if the asset is a *convertible interest—being converted.

(2) The time of the event is:

(a) when you enter into the contract that results in the asset ending; or

(b) if there is no contract—when the asset ends.

(3) You make a capital gain if the *capital proceeds from the ending are more than the asset’s *cost base. You make a capital loss if those capital proceeds are less than the asset’s *reduced cost base.

Note: The capital proceeds referred to in this subsection are reduced if the gain or loss was for shares and an amount was taken into account as a capital gain for the shares under former section 160ZL of the Income Tax Assessment Act 1936 for the 1997‑98 income year or an earlier income year: see section 104‑25 of the Income Tax (Transitional Provisions) Act 1997.

(4) A lease is taken to have expired even if it is extended or renewed.

Exceptions

(5) A *capital gain or *capital loss you make is disregarded if:

(a) you *acquired the asset before 20 September 1985; or

(b) for a lease that you granted:

(i) it was granted before that day; or

(ii) if it has been renewed or extended—the start of the last renewal or extension occurred before that day.

Note 1: There are other exceptions if:

• your lease expires and you did not use it mainly to produce assessable income: see section 118‑40; or

• you exercise rights to acquire shares or units: see section 130‑40; or

• you acquire shares or units by converting a convertible interest: see section 130‑60; or

• you exercise an option: see section 134‑1.

Note 2: A company can agree to forgo any capital loss it makes as a result of forgiving a commercial debt owed to it by another company where the companies are under common ownership: see section 245‑90.

Note 3: A capital gain or loss a company makes because shares in its 100% subsidiary are cancelled (an example of CGT event C2) on the liquidation of the subsidiary may be reduced if there was a roll‑over for a CGT asset under Subdivision 126‑B: see section 126‑85.

Note 5: Cost base adjustments are made only under Subdivision 125‑B if there is a roll‑over under that Subdivision for CGT event C2 happening as a result of a demerger.

Note 6: A capital gain or loss made by a demerging entity from CGT event C2 happening as a result of a demerger is also disregarded: see section 125‑155.

Note 7: A capital gain or loss you make from the meeting of your entitlement under Division 2AA (Financial claims scheme for account‑holders with insolvent ADIs) of Part II of the Banking Act 1959 or Part VC (Financial claims scheme for account‑holders with insolvent general insurers) of the Insurance Act 1973 is disregarded: see sections 253‑10 and 322‑30 of this Act.

104‑30 End of option to acquire shares etc.: CGT event C3

(1) CGT event C3 happens if an option a company or a trustee of a unit trust granted to an entity to *acquire a *CGT asset that is:

(a) *shares in the company or units in the unit trust; or

(b) *debentures of the company or unit trust;

ends in one of these ways:

(d) it is cancelled;

(e) it is released or abandoned.

(2) The time of the event is when the option ends.

(3) The company or trustee makes a capital gain if the *capital proceeds from the grant of the option are more than the expenditure incurred in granting it. It makes a capital loss if those capital proceeds are less.

(4) The expenditure can include giving property: see section 103‑5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income.

Exception

(5) A *capital gain or *capital loss the company or trustee makes is disregarded if it granted the option before 20 September 1985.

Note: This subsection is modified for the purpose of calculating the attributable income of a CFC: see section 418 of the Income Tax Assessment Act 1936.

Subdivision 104‑D—Bringing into existence a CGT asset

Table of sections

104‑35 Creating contractual or other rights: CGT event D1

104‑40 Granting an option: CGT event D2

104‑45 Granting a right to income from mining: CGT event D3

104‑47 Conservation covenants: CGT event D4

104‑35 Creating contractual or other rights: CGT event D1

(1) CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity.

Example: You enter into a contract with the purchaser of your business not to operate a similar business in the same town. The contract states that $20,000 was paid for this.

You have created a contractual right in favour of the purchaser. If you breach the contract, the purchaser can enforce that right.

(2) The time of the event is when you enter into the contract or create the other right.

(3) You make a capital gain if the *capital proceeds from creating the right are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those capital proceeds are less.

Example: To continue the example: If you paid your lawyer $1,500 to draw up the contract, you make a capital gain of:

(4) The costs can include giving property: see section 103‑5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it.

Exceptions

(5) CGT event D1 does not happen if:

(a) you created the right by borrowing money or obtaining credit from another entity; or

(b) the right requires you to do something that is another *CGT event that happens to you; or

(d) the trustee of a unit trust issues units in the trust; or

(e) a company grants an option to acquire equity interests, non‑equity shares or *debentures in the company; or

(f) the trustee of a unit trust grants an option to acquire units or debentures in the trust; or

(g) you created the right by creating in another entity a right to receive an *exploration benefit under a *farm‑in farm‑out arrangement.

Example: You agree to sell land. You have created a contractual right in the buyer to enforce completion of the transaction. The sale results in you disposing of the land, an example of CGT event A1. This means that CGT event D1 does not happen.

104‑40 Granting an option: CGT event D2

(1) CGT event D2 happens if you grant an option to an entity, or renew or extend an option you had granted.

Note: Some options are not covered: see subsections (6) and (7).

(2) The time of the event is when you grant, renew or extend the option.

(3) You make a capital gain if the *capital proceeds from the grant, renewal or extension of the option are more than the expenditure you incurred to grant, renew or extend it. You make a capital loss if those capital proceeds are less.

(4) The expenditure can include giving property: see section 103‑5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it.

Exceptions

(5) A *capital gain or *capital loss you make from the grant, renewal or extension of the option is disregarded if the option is exercised.

Note 1: Section 134‑1 sets out the consequences of an option being exercised.

Note 2: A capital gain or capital loss you made for the 1997‑98 income year or an earlier income year under former Part IIIA of the Income Tax Assessment Act 1936 is also disregarded where the option is exercised in the 1998‑99 income year or a later one: see section 104‑40 of the Income Tax (Transitional Provisions) Act 1997.

(6) This section does not apply to an option granted, renewed or extended by a company or the trustee of a unit trust to *acquire a *CGT asset that is:

(a) *shares in the company or units in the unit trust; or

(b) debentures of the company or unit trust.

Note: Section 104‑30 deals with this situation.

(7) Nor does it apply to an option relating to a *personal use asset or a *collectable.

104‑45 Granting a right to income from mining: CGT event D3

(1) CGT event D3 happens if you own a *prospecting entitlement or *mining entitlement, or an interest in one, and you grant another entity a right to receive *ordinary income or *statutory income from operations permitted to be carried on by the entitlement.

Note: If this event applies, there is no disposal of the entitlement.

(2) The time of the event is:

(a) when you enter into the contract with the other entity; or

(b) if there is no contract—when you grant the right to receive *ordinary income or *statutory income.

(3) You make a capital gain if the *capital proceeds from the grant of the right are more than the expenditure you incurred in granting it. You make a capital loss if those capital proceeds are less.

104‑47 Conservation covenants: CGT event D4

(1) CGT event D4 happens if you enter into a *conservation covenant over land you own.

(2) The time of the event is when you enter into the covenant.

(3) You make a *capital gain if the *capital proceeds from entering into the covenant are more than that part of the *cost base of the land that is apportioned to the covenant. You make a *capital loss if those capital proceeds are less than the part of the *reduced cost base of the land that is apportioned to the covenant.

Note: The capital proceeds from entering into the covenant are modified if you do not receive anything for entering into the covenant: see section 116‑105.

(4) The part of the *cost base of the land that is apportioned to the covenant is worked out in this way:

The part of the *reduced cost base of the land that is apportioned to the covenant is worked out similarly.

(5) The *cost base and *reduced cost base of the land are reduced by the part of the cost base or reduced cost base of the land that is apportioned to the covenant.

Example: Lisa receives $10,000 for entering into a conservation covenant that covers 15% of the land she owns. Lisa uses the following figures in calculating the cost base of the land that is apportioned to the covenant:

The cost base of the entire land is $200,000.

The market value of the entire land before entering into the covenant is $300,000, and its market value after entering into the covenant is $285,000.

Lisa calculates the cost base of the land that is apportioned to the covenant to be:

She reduces the cost base of the land by the part that is apportioned to the covenant:

Exceptions

(6) *CGT event D4 does not happen if:

(a) you did not receive any *capital proceeds for entering into the covenant; and

(b) you cannot deduct an amount under Division 31 for entering into the covenant.

Note: In this case, CGT event D1 will apply.

(7) A *capital gain or *capital loss you make is disregarded if you *acquired the land before 20 September 1985.

Subdivision 104‑E—Trusts

Table of sections

104‑55 Creating a trust over a CGT asset: CGT event E1

104‑60 Transferring a CGT asset to a trust: CGT event E2

104‑65 Converting a trust to a unit trust: CGT event E3

104‑70 Capital payment for trust interest: CGT event E4

104‑71 Adjustment of non‑assessable part

104‑72 Reducing your capital gain under CGT event E4 if you are a trustee

104‑75 Beneficiary becoming entitled to a trust asset: CGT event E5

104‑80 Disposal to beneficiary to end income right: CGT event E6

104‑85 Disposal to beneficiary to end capital interest: CGT event E7

104‑90 Disposal by beneficiary of capital interest: CGT event E8

104‑95 Making a capital gain

104‑100 Making a capital loss

104‑105 Creating a trust over future property: CGT event E9

104‑107A AMIT—cost base reduction exceeds cost base: CGT event E10

104‑107B Annual cost base adjustment for member’s unit or interest in AMIT

104‑107C AMIT cost base net amount

104‑107D AMIT cost base reduction amount

104‑107E AMIT cost base increase amount

104‑107F Receipt of money etc. increasing AMIT cost base reduction amount not to be treated as income

104‑107G 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

104‑107H 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

104‑55 Creating a trust over a CGT asset: CGT event E1

(1) CGT event E1 happens if you create a trust over a *CGT asset by declaration or settlement.

Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960‑100(2)). This means that CGT event E1 will not happen merely because of a change in the trustee.

(2) The time of the event is when the trust over the asset is created.

(3) You make a capital gain if the *capital proceeds from the creation are more than the asset’s *cost base. You make a capital loss if those capital proceeds are less than the asset’s *reduced cost base.

Cost base rule

(4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset’s *cost base and *reduced cost base in your hands is its *market value when the trust is created.

Exceptions

(5) CGT event E1 does not happen if you are the sole beneficiary of the trust and:

(a) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and

(b) the trust is not a unit trust.

(6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

104‑60 Transferring a CGT asset to a trust: CGT event E2

(1) CGT event E2 happens if you transfer a *CGT asset to an existing trust.

Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960‑100(2)). This means that CGT event E2 will not happen merely because of a change in the trustee.

(2) The time of the event is when the asset is transferred.

(3) You make a capital gain if the *capital proceeds from the transfer are more than the asset’s *cost base. You make a capital loss if those capital proceeds are less than the asset’s *reduced cost base.

Exceptions

(5) CGT event E2 does not happen if you are the sole beneficiary of the trust and:

(a) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and

(b) the trust is not a unit trust.

(6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

104‑65 Converting a trust to a unit trust: CGT event E3

(1) CGT event E3 happens if:

(a) a trust (that is not a unit trust) over a *CGT asset is converted to a unit trust; and

(b) just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under).

(2) The time of the event is when the trust is converted.

(3) The beneficiary makes a capital gain if the *market value of the asset (when the trust is converted) is more than the asset’s *cost base. The beneficiary makes a capital loss if that market value is less than the asset’s *reduced cost base.

Exception

(4) A *capital gain or *capital loss the beneficiary makes is disregarded if it *acquired the asset before 20 September 1985.

104‑70 Capital payment for trust interest: CGT event E4

(1) CGT event E4 happens if:

(a) the trustee of a trust makes a payment to you in respect of your unit or your interest in the trust (except for *CGT event A1, C2, E1, E2, E6 or E7 happening in relation to it); and

(b) some or all of the payment (the non‑assessable part) is not included in your assessable income.

To avoid doubt, in applying paragraph (b) to work out what part of the payment is included in your assessable income, disregard your share of the trust’s net income that is subject to the rules in subsection 115‑215(3).

Note 1: Subsections 104‑71(1) (tax‑exempted amounts), 104‑71(3) (tax‑free amounts) and 104‑71(4) (CGT concession amounts) can affect the calculation of the non‑assessable part.

Note 2: The non‑assessable part includes amounts (tax‑deferred amounts) associated with the small business 50% reduction, frozen indexation, building allowance and accounting differences in income.

Note 3: A payment made to you after you stop owning the unit or interest in the trust forms part of the capital proceeds for the CGT event that happened when you stopped owning it.

(1A) However, CGT event E4 does not happen if the unit or interest mentioned in subsection (1) is a unit or interest in an *AMIT.

(2) The payment can include giving property (see section 103‑5).

(3) The time of the event is:

(a) just before the end of the income year in which the trustee makes the payment; or

(b) if another *CGT event (except CGT event E4) happens in relation to the unit or interest or part of it after the trustee makes the payment but before the end of that income year—just before the time of that other CGT event.

(4) You make a capital gain if the sum of the amounts of the non‑assessable parts of the payments made in the income year made by the trustee in respect of the unit or interest is more than its *cost base.

Note: You cannot make a capital loss.

(5) If you make a *capital gain, the *cost base and *reduced cost base of the unit or interest are reduced to nil.

Note: A capital gain under former section 160ZM of the Income Tax Assessment Act 1936 is also taken into account for the purposes of this subsection: see subsection 104‑70(3) of the Income Tax (Transitional Provisions) Act 1997.

(6) However, if that sum is not more than the *cost base:

(a) the cost base is reduced by that sum; and

(b) the *reduced cost base is reduced by that sum (without the adjustment in subsection 104‑71(3)).

Example: Mandy owns units in a unit trust that she bought on 1 July 1998 for $10 each. During the 1999‑2000 income year the trustee makes 4 non‑assessable payments of $0.50 per unit. If at the end of the income year Mandy’s cost base for each unit (including indexation) would otherwise be $10.10, the payments require that it be reduced by $2, giving a new cost base of $8.10. If Mandy sells the units (CGT event A1) in the 2000‑01 year for more than their cost base at that time, she will make a capital gain equal to the difference.

Note: Cost base adjustments are made only under Subdivision 125‑B if there is a roll‑over under that Subdivision for CGT event E4 happening as a result of a demerger.

Exceptions

(7) A *capital gain you make from *CGT event E4 is disregarded if you *acquired the *CGT asset that is the unit or interest before 20 September 1985.

(8) CGT event E4 does not happen to the extent that the payment is reasonably attributable to a *LIC capital gain.

(9) CGT event E4 does not happen for a payment made to a foreign resident to the extent that the payment is reasonably attributable to *ordinary income or *statutory income from sources other than an *Australian source. However, this exception does not apply if the trust is a *public trading trust.

104‑71 Adjustment of non‑assessable part

(1) In working out the non‑assessable part referred to in section 104‑70, disregard any part of the payment that is:

(a) *non‑assessable non‑exempt income; or

(d) paid from an amount that is *personal services income included in your assessable income, or another entity’s assessable income, under section 86‑15; or

(da) a payment to which paragraph 118‑37(1)(ba) applies (about compensation paid through a trust); or

(db) a payment to which subsection 118‑300(1A) applies (about insurance and annuity payments paid through a trust); or

(e) repaid by you; or

(f) compensation you paid that can reasonably be regarded as a repayment of all or part of the payment; or

(g) an amount referred to in section 152‑125 (which exempts a payment of a small business 15‑year exemption amount) as an exempt amount.

The payment can include giving property (see section 103‑5).

(2) However, the non‑assessable part is not reduced by any part of the payment that you can deduct.

(3) The amount of the non‑assessable part referred to in section 104‑70 is adjusted to exclude any part of it that is attributable to:

(a) an amount that is not included in the assessable income of an entity because of section 124ZM or 124ZN (which exempt income arising from *shares in a *PDF) of the Income Tax Assessment Act 1936; or

(aa) an amount that is not included in the assessable income of an entity because of section 51‑52 or subsection 51‑54(1) or (1A) of this Act; or

(b) *capital proceeds from a *CGT event that happens in relation to *shares in a company that was a *PDF when that event happened; or

(i) the CGT event relates to an *eligible venture capital investment; and

(ii) the share of a partner in an ESVCLP in a *capital gain or *capital loss from the CGT event is disregarded under section 118‑407; or

(d) that part of the capital proceeds from a CGT event, relating to an eligible venture capital investment, for which there is a partial exemption under section 118‑408; or

(e) capital proceeds from a CGT event if a capital gain made from the event may be disregarded under subsection 360‑50(4).

(4) The amount of the non‑assessable part referred to in section 104‑70 for an entity shown in the table is adjusted to exclude the amount or amounts applicable to the entity under the table.

Adjustment of non‑assessable part
Item	Entity	Amount excluded
1	Any entity	So much of the amount of a discount capital gain excluded from the net capital gain of the trust making the payment because of step 3 of the method statement in subsection 102‑5(1) and that is reflected in the payment to the entity
2	Individual, company or trust that has a capital loss or net capital loss to reduce its *capital gain described in paragraph 115‑215(3)(b) where the trust gain referred to in subsection 115‑215(3) is reduced under Subdivision 152‑C	1/2 of the amount of the capital loss or net capital loss
3	Individual or trust that has a capital loss or net capital loss to reduce its *capital gain described in paragraph 115‑215(3)(c)	1/4 of the amount of the capital loss or net capital loss
4	Company that has a capital loss or net capital loss to reduce its *capital gain described in paragraph 115‑215(3)(c) where: (a) that capital loss or net capital loss is more than 1/2 of the trust gain referred to in subsection 115‑215(3); and (b) that trust gain is reduced by an amount (the reduction amount) under Subdivision 152‑C	The excess of the reduction amount over the Subdivision 152‑C reduction to the paragraph 115‑215(3)(c) amount
5	Complying superannuation entity that has a capital loss or net capital loss to reduce its capital gain described in paragraph 115‑215(3)(b) where: (a) that capital loss or net capital loss is more than 1/2 of the trust gain referred to in subsection 115‑215(3); and (b) that trust gain is reduced under Subdivision 152‑C	1/2 of the amount of the capital loss or net capital loss
6	Complying superannuation entity that has a capital loss or net capital loss to reduce its capital gain described in paragraph 115‑215(3)(c) where: (a) that capital loss or net capital loss is more than 1/4 of the trust gain referred to in subsection 115‑215(3); and (b) that trust gain is reduced by an amount (also the reduction amount) under Subdivision 152‑C	The excess of the reduction amount over the Subdivision 152‑C reduction to the paragraph 115‑215(3)(c) amount
7	Any entity receiving the payment where the trust making the payment, or another trust that is part of the same chain of trusts, has a capital loss or net capital loss to reduce its capital gain described in subsection 115‑215(3)	The proportion of the capital loss or net capital loss reflected in the payment

Example: Claude is paid $100 by the trustee of a unit trust. The trustee advises that the amount comprises $50 CGT discount, $25 small business 50% reduction and $25 net income from a capital gain made by the trust.

In applying the rules in Subdivision 115‑C of the Income Tax Assessment Act 1997, Claude reduces his capital gain of $100 by a $20 net capital loss from an earlier year. He then reduces the remaining $80 gain by $40 (CGT discount) and $20 (small business 50% reduction) leaving a net capital gain of $20.

In applying the rules in CGT event E4, the $100 payment is reduced by $25 (being the amount assessed under section 97 of the Income Tax Assessment Act 1936). It is further reduced by $50 under item 1 of the table and $5 under item 3. Claude’s non‑assessable part is $20.

Effectively, CGT event E4 applies to the $20 small business 50% reduction allowed to Claude in applying Subdivision 115‑C of the Income Tax Assessment Act 1997.

Note 1: Step 3 of the method statement in subsection 102‑5(1) (see table item 1) reduces by 50% the trust’s discount capital gains remaining after applying capital losses and earlier net capital losses. That 50% is excluded from the trust’s net capital gain.

Note 2: Subdivision 152‑C (small business 50% reduction—see table items 2, 3, 4, 5, 6 and 7) reduces by 50% the trust’s capital gains or discount capital gains remaining after applying step 3 of the method statement in subsection 102‑5(1). That 50% is also excluded from the trust’s net capital gain.

Note 3: Paragraph 115‑215(3)(b) or (c) (see table items 2, 3, 4, 5 and 6) treats a beneficiary as having an extra capital gain if an amount of the trust’s net income that is included in the beneficiary’s assessable income is attributable to trust gains that were reduced by step 3 of the method statement in subsection 102‑5(1) and/or the small business 50% reduction.

(5) A chain of trusts consists of 2 or more trusts where at least one of these conditions is satisfied for each of the trusts:

(a) the trustee of the trust owns units or interests in another of the trusts; or

(b) the trustee of another of the trusts owns units or interests in the trust.

(6) Item 7 of the table in subsection (4) does not apply if the entity making the payment is a *managed investment trust.

104‑72 Reducing your capital gain under CGT event E4 if you are a trustee

(1) A *capital gain you make under subsection 104‑70(4) is reduced if:

(a) you are the trustee of another trust that is a *fixed trust and is not a *complying superannuation entity; and

(b) you are taken to have a *capital gain under paragraph 115‑215(3)(b) or (c) (your notional gain) in respect of a corresponding trust gain (the trust gain); and

(c) some or all (the attributable amount) of the total of the non‑assessable parts referred to in subsection 104‑70(4) is attributable to proceeds from the trust gain.

(2) The *capital gain is reduced (but not below 0) by the lesser of:

(a) your notional gain; and

(b) the attributable amount.

104‑75 Beneficiary becoming entitled to a trust asset: CGT event E5

(1) CGT event E5 happens if a beneficiary becomes absolutely entitled to a *CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee (disregarding any legal disability the beneficiary is under).

Note: Division 128 deals with the effect of death.

(2) The time of the event is when the beneficiary becomes absolutely entitled to the asset.

Trustee makes a capital gain or loss

(3) The trustee makes a capital gain if the *market value of the asset (at the time of the event) is more than its *cost base. The trustee makes a capital loss if that market value is less than the asset’s *reduced cost base.

Exception for trustee

(4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985.

Note: There is also an exception for employee share trusts: see section 130‑80.

Beneficiary makes a capital gain or loss

(5) The beneficiary makes a capital gain if the *market value of the asset (at the time of the event) is more than the *cost base of the beneficiary’s interest in the trust capital to the extent it relates to the asset.

The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that beneficiary’s interest in the trust capital to the extent it relates to the asset.

Exceptions for beneficiary

(6) A *capital gain or *capital loss the beneficiary makes is disregarded if:

(a) the beneficiary *acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or

(b) the beneficiary acquired it before 20 September 1985; or

(c) all or part of the capital gain or capital loss the trustee makes from the *CGT event is disregarded under Subdivision 118‑B (about main residence).

Expenditure can include giving property: see section 103‑5.

Note 1: For provisions affecting the application of Subdivision 118‑B to the trustee, see sections 118‑215 to 118‑230.

Note 2: