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Tax Law Improvement Act (No. 1) 1998

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Act No. 46 of 1998 as made
An Act to amend the law about income tax, and for related purposes
Administered by: Treasury
Date of Assent 22 Jun 1998

 

 

 

 

Tax Law Improvement Act (No. 1) 1998

 

No. 46 of 1998

 

 

 

 

 

  

  


 

 

 

 

Tax Law Improvement Act (No. 1) 1998

 

No. 46, 1998

 

 

 

 

An Act to amend the law about income tax, and for related purposes

  

  


Contents

1............ Short title............................................................................................ 1

2............ Commencement.................................................................................. 1

3............ Schedules............................................................................................ 2

4............ Application of amendments............................................................... 2

Schedule 1—Amendment of the Income Tax Assessment Act 1997       3

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

Division 100—A Guide to capital gains and losses                                     3

Division 102—Assessable income includes net capital gain                       13

Division 103—General rules                                                                                         17

Division 104—CGT events                                                                                            17

Division 106—Entity making the gain or loss                                                          17

Division 108—CGT assets                                                                         ; ;                    17

Division 109—Acquisition of CGT assets                                                                17

Division 110—Cost base and reduced cost base                                                   17

Division 112—Modifications to cost base and reduced cost base                   17

Division 114—Indexation of cost base                                                                      17

Division 116—Capital proceeds                                                                                   17

Division 118—Exemptions                                                                                             17

Division 121—Record keeping                                                                                     17

Part 3-3—Capital gains and losses: special topics                                  17

Division 122—Roll-over for the disposal of assets to, or the creation of assets in, a wholly-owned company           17

Division 124—Replacement-asset roll-overs                                                          17

Division 126—Same-asset roll-overs                                                                         17

Division 128—Effect of death                                                                                      17

Division 130—Investments                                                                                            17

Division 132—Leases                                                                         1797

Division 134—Options                                                                                                    17

Division 136—Non-residents                                                                                        17

Division 140—Share value shifting                                                                             17

Division 149—When an asset stops being a pre-CGT asset                             17

Subdivision 165-CA—Applying net capital losses of earlier income years       17

Subdivision 165-CB—Working out the net capital gain and the net capital loss for the income year of the change   17

Subdivision 165-C—Deducting bad debts                                                                     17

Subdivision 166-C—Deducting bad debts                                                                     17

Subdivision 170-B—Transfer of net capital losses within wholly-owned groups of companies                 17

Subdivision 175-CA—Tax benefits from unused net capital losses of earlier income years                        17

Subdivision 175-CB—Tax benefits from unused capital losses of the current year               17

Subdivision 175-C—Tax benefits from unused bad debt deductions                  17

Subdivision 175-D—Shareholding interest in the company                                     17

Division 373—Intellectual property                                                                                   17

Subdivision 387-C—Establishing horticultural plants                                                 17

Division 392—Long-term averaging of primary producers’ tax liability              17

Division 400—Environmental impact assessment and environmental protection 17

Division 405—Above-average special professional income of authors, inventors, performing artists, production associates and sportspersons                                                                         17

Schedule 2—CGT (new Parts 3-1, 3-3 and 3-5)                                       17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1997           17

Part 3—Consequential amendment of the Income Tax Assessment Act 1936           17

Part 4—Consequential amendment of other Acts                                   17

Schedule 3—Company bad debts                                                             17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1997              17

Part 3—Consequential amendment of the Income Tax Assessment Act 1936              17

Part 4—Consequential amendment of other Acts                                              17

Schedule 4—Intellectual property (new Division 373)                            17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1997           17

Part 3—Consequential amendment of the Income Tax Assessment Act 1936           17

Schedule 5—Horticultural plants (new Subdivision 387-C)                    17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1997           17

Part 3—Consequential amendment of the Income Tax Assessment Act 1936           17

Schedule 6—Averaging primary producers’ tax liability (new Division 392)          17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1997           17

Part 3—Consequential amendment of the Income Tax Assessment Act 1936           17

Part 4—Consequential amendment of the Income Tax Rates Act 1986  17

Schedule 7— Environment (new Division 400)                                       17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1997           17

Part 3—Consequential amendment of the Income Tax Assessment Act 1936           17

Schedule 8—Above-average special professional income (new Division 405)       17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1936           17

Part 3—Consequential amendment of the Income Tax Rates Act 1986  17

Schedule 9—Consequential amendments relating to indexation           17

Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997             17

Part 2—Consequential amendment of the Income Tax Assessment Act 1997           17

Part 3—Consequential amendment of the Income Tax Assessment Act 1936           17

Part 4—Application                                                                              17

Schedule 10—Amendment of Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997          17


Tax Law Improvement Act (No. 1) 1998

No. 46, 1998

 

 

 

An Act to amend the law about income tax, and for related purposes

Assented to 22 June 1998

The Parliament of Australia enacts:

1  Short title

                   This Act may be cited as the Tax Law Improvement Act (No. 1) 1998.

2  Commencement

             (1)  Subject to this section, this Act commences on the day on which it receives the Royal Assent.

             (2)  Schedule 2 (except item 3 of it) commences immediately after the commencement of Schedule 1.

             (3)  Schedule 3 commences immediately after the commencement of Schedule 2 (except item 4 of it).

             (4)  Each of Schedules 4 to 8 commences immediately after the commencement of the immediately preceding Schedule.

             (5)  Item 3 of Schedule 2 commences immediately after the commencement of Schedule 8.

3  Schedules

                   Subject to section 2, each Act specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned. Any other item in a Schedule to this Act has effect according to its terms.

4  Application of amendments

                   An amendment made by an item in a Schedule (except an item in Schedule 1 or in Part 1 of any of Schedules 2 to 8) applies to assessments for the 1998-99 income year and later income years, unless otherwise indicated in the Schedule in which the item appears.


 

Schedule 1Amendment of the Income Tax Assessment Act 1997

1  Before Part 3-5

Insert:


Part 3-1Capital gains and losses: general topics

Division 100A 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 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

                  


 

Step 1Have 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 receipts: for example, compensation for personal injury;

                       3.  exempt transactions: for example, your tenancy comes to an end;

                       4.  anti-overlap provisions (that reduce your capital gain by the amount that is otherwise assessable).

Note:          Most of the exceptions are in Division 104. You will find a full explanation of the possible exemptions in Division 118.

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 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 2Work 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 are indexed for inflation in working out a capital gain (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 3Work out your net capital gain or loss for the income year

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

              1.  Add up your capital gains for the income year. Then add up your capital losses for the income year.

              2.  Subtract the total losses from the total gains.

              3.  If the gains exceed the losses, then also subtract any unapplied net capital losses for previous income years. If the result is still more than zero, then this is your net capital gain.

              4.  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.)

                   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 102Assessable 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.)

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

Step 2.   Subtract your *capital losses from your *capital gains. (If your capital losses exceed your capital gains, you have no net capital gain for the income year.)

                   Note:             You do have a net capital loss if your capital losses exceed your capital gains: see section 102-10.

Step 3.   If the Step 2 amount is more than zero, reduce it by applying any unapplied *net capital losses from previous income years. (If this reduces it to zero, you have no net capital gain for the income year.)

                   Note:             To apply net capital losses: see section 102-15.

Step 4.   If the Step 3 amount is more than zero, it 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.

Note:          However, it can be applied against your capital gains for a later income year: see section 102-5 and subsection 102-15(3).

102-15  How to apply net capital losses

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

             (2)  A *net capital loss can be applied only to the extent that it has not already been applied.

             (3)  To the extent that a *net capital loss cannot be applied in an income year, it can be carried forward to a later income year.

Example:    You have capital gains for the income year of $1,000 and capital losses for the income year of $600. Your capital losses are subtracted from your capital gains to leave a balance of $400.

                   You have available net capital losses of $300 (for last year) and $200 (for the year before that).

                   The $400 is reduced to zero by applying the available net capital losses in the order in which you made them. This leaves $100 of the $300 to be carried forward and extinguishes the $200.

Note:          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:       These Divisions of Part IIIA of the Income Tax Assessment Act 1936 continue to have effect for the purposes of working out capital gains and capital losses under this Part and Part 3-3:

·       Division 17A (about roll-over relief on certain disposals of assets of small businesses);

·       Division 17B (about disposal of small business assets where the proceeds are used for retirement);

·       Division 19A (about transfers of assets between companies under common ownership).

                   See sections 160ZZPJA, 160ZZPZAA and 160ZZRAAAA of that Act.

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 is an exception for *CGT event K5 (which depends on CGT event A1, C2 or E8 happening). In that case, CGT event K5 happens in addition to the other event.

             (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

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 of Schedule 2C to the Income Tax Assessment Act 1936

4        

A company

If it has a change of ownership or control during the income year, and has not carried on the same business, 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 both the loss year and the income 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;

or the company has carried on the same business and commenced no additional business or new transactions.

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

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

11

A life assurance company

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.

section 116CD

12

A registered organisation

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.

section 116GB

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 103General 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

103-20      Amounts to be expressed in Australian currency

103-25      Choices

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 one does, 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.

103-20  Amounts to be expressed in Australian currency

                   If an amount of money or the market value of other property:

                     (a)  is to be taken into account at a particular time under this Part or Part 3-3; and

                     (b)  is in a foreign currency;

it is to be converted into the equivalent amount of Australian currency at that time.

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 2 exceptions: see subsections 124-380(5) and 124-465(5). These relate to *replacement-asset roll-over events where there is an interposed company. The company is required to make the choice at an earlier time specified in that subsection.

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


 

Division 104CGT 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     Reversals of roll-overs

104-K    Other CGT events

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

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)

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

G2  Shifts in share values






[See section 104-140 and Division 140]

when the shift happens

the decrease in the shares’ market value (so far as it has shifted into certain other shares) less the corresponding proportion of the shares’ cost base

no capital loss

G3  Liquidator declares shares worthless
[See section 104-145]

when liquidator makes declaration

no capital gain

shares’ 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 a 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

K1  Partial realisation of intellectual property right



[See section 104-205]

when contract is entered into or, if none, when partial realisation happens

capital proceeds from partial realisation less cost base of the item of intellectual property

no capital loss

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

Subdivision 104-ADisposals

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:

                     (a)  if you stop being the legal owner of the asset but continue to be its beneficial owner; or

                     (b)  merely because of a change of 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:

                              (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:          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.

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

                     (c)  when the entity entered it under that power; 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.

             (7)  CGT event A1 does not happen if the *disposal of the asset was done to provide or redeem a security.

Subdivision 104-BUse 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 the end of the agreement.

             (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 when the agreement ends; or

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

Subdivision 104-CEnd 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

                     (c)  expiring; or

                     (d)  being abandoned, surrendered or forfeited.

             (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.

             (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:

                              (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 note: 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 of Schedule 2C to the Income Tax Assessment Act 1936.

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.

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:

                     (c)  it is not exercised by the latest time for its exercise;

                     (d)  it is cancelled;

                     (e)  the entity releases or abandons it.

             (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-DBringing 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

104-35  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

                     (c)  a company issues or allots *shares to you; or

                     (d)  the trustee of a unit trust issues units in the trust to you.

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 a gain or loss from CGT event D1 is disregarded.

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 other entity exercises the option.

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

             (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.

             (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.

Subdivision 104-ETrusts

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

104-75      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

104-55  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.

             (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:

                     (a)  you are the sole beneficiary of the trust and:

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

                             (ii)  the trust is not a unit trust; or

                     (b)  the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same.

             (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.

             (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.

             (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 asset is transferred.

Exceptions

             (5)  CGT event E2 does not happen if:

                     (a)  you are the sole beneficiary of the trust and:

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

                             (ii)  the trust is not a unit trust; or

                     (b)  the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same.

Note:          There is also an exception for employee share trusts: see section 130-90.

             (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 trustee of the original trust 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 trustee 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 trustee 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 a unit or an 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.

                   The payment can include giving property: see section 103-5.

             (2)  In working out the non-assessable part, disregard any part of the payment that is:

                     (a)  *excluded exempt income; or

                     (b)  *exempt income subject to withholding tax; or

                     (c)  paid from an amount that has been assessed to the trustee.

             (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 CGT event.

             (4)  You make a capital gain if the sum of the amounts of the non-assessable parts (adjusted by subsection (7)) 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.

             (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 subsection (7) adjustment).

Example:    Mandy owns units in a unit trust that she bought on 1 July 1999 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.

             (7)  The amount of the non-assessable part is adjusted to exclude any part of it that is attributable to:

                     (a)  deductions under Division 43 (about capital works); or

                     (b)  an amount that is not included in the assessable income of an entity because of:

                              (i)  section 124ZM or 124ZN (which exempt income arising from *shares in a *PDF) of the Income Tax Assessment Act 1936; or

                             (ii)  section 159GZZZZE (which exempts certain payments related to infrastructure borrowings) of that Act; or

                     (c)  proceeds from a *CGT event that happens in relation to *shares in a company that was a *PDF when that event happened.

Note 1:       Deductions under Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 (about capital works) are also relevant: see section 104-72 of the Income Tax (Transitional Provisions) Act 1997.

Note 2:       In working out the cost base of the unit or interest, the non-assessable part does not exclude any part attributable to a deduction under Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 (about capital works) if the payment was made before 18 December 1986: see section 104-70 of the Income Tax (Transitional Provisions) Act 1997.

Exception

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

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 130-90.

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 the beneficiary:

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

                     (b)  acquired it before 20 September 1985.

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

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

             (1)  CGT event E6 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary’s right, or part of it, to receive *ordinary income or *statutory income from the trust.

Note:          Division 128 deals with the effect of death.

             (2)  The time of the event is when the disposal occurs.

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 disposal) is more than its *cost base. It 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.

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 disposal) is more than the *cost base of the right, or the part of it. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of the right or part.

Note:          If the beneficiary did not pay anything for the right, the market value substitution rule does not apply: see section 112-20.

Exception for beneficiary

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

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

             (1)  CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary’s interest, or part of it, in the trust capital.

Note:          Division 128 deals with the effect of death.

             (2)  The time of the event is when the disposal occurs.

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 disposal) is more than its *cost base. It 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.

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 disposal) is more than the *cost base of the interest, or the part of it, being satisfied. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that interest or part.

Exceptions for beneficiary

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

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

                     (b)  acquired it before 20 September 1985.

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

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

             (1)  CGT event E8 happens if:

                     (a)  you are the beneficiary under a trust (except a unit trust or a trust to which Division 128 applies); and

                     (b)  you did not give any money or property to *acquire the *CGT asset that is your interest in the trust capital and you did not acquire it by assignment; and

                     (c)  you *dispose of the interest, or part of it (but not to the trustee).

Note:          Division 128 deals with the effect of death.

             (2)  The time of the event is:

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

                     (b)  if there is no contract—when you stop owning the interest or part.

Note 1:       You work out if you have made a capital gain or capital loss under sections 104-95 and 104-100.

Note 2:       There is a special indexation rule for this event: see section 114-10.

104-95  Making a capital gain

You are the only beneficiary

             (1)  If you are the only beneficiary with an interest in the trust capital and you *dispose of that interest, you work out if you have made a *capital gain in this way:

Working out your capital gain

Step 1.   Work out the *capital proceeds from the *disposal.

Step 2.   Work out the *net asset amount.

Step 3.   If the Step 1 amount is greater, you make a capital gain equal to the difference.

             (2)  The net asset amount is worked out in this way:

Working out the net asset amount

Step 1.   Work out the total of the *cost bases (at the time of the disposal) of the *CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time.

Step 2.   Work out the total of the market values (at the time of the disposal) of the *CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time.

Step 3.   Work out the amount of money that formed part of the trust capital at the time of the disposal.

Step 4.   Add up the Step 1, 2 and 3 amounts.

Step 5.   Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal.

Step 6.   The result is the net asset amount.

Example:    You dispose of your interest in the trust capital for $10,000 (the capital proceeds).

                   The total of the cost bases of the CGT assets that the trustee acquired on or after 20 September 1985 is $6,000.

                   The total of the market values of the CGT assets that the trustee acquired before 20 September 1985 is $2,500.

                   There is $1,000 in the trust. The trust liabilities are $500.

                   The net asset amount is:

                   You make a capital gain of:

             (3)  If you *dispose of only part of that interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

Example:    To vary the example in subsection (2), suppose you dispose of 50% of your interest for $5,000 (the capital proceeds).

                   The Step 2 amount becomes:

                   You make a capital gain of:

There is more than one beneficiary

             (4)  If you are not the only beneficiary with an interest in the trust capital and you *dispose of your interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

Example:    To vary the example in subsection (2), suppose you have a 20% interest in the trust capital and you dispose of it for $4,000 (the capital proceeds).

                   The Step 2 amount becomes:

                   You make a capital gain of:

             (5)  If you are not the only beneficiary with an interest in the trust capital and you *dispose of part of your interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

Example:    To vary the example in subsection (2), suppose you have a 50% interest in the trust capital. You dispose of 20% of it for $1,000 (the capital proceeds).

                   The Step 2 amount becomes:

                   You make a capital gain of:

Exception

             (6)  A *capital gain you make is disregarded if you *acquired the *CGT asset that is the interest in the trust capital before 20 September 1985.

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

104-100  Making a capital loss

You are the only beneficiary

             (1)  If you are the only beneficiary with an interest in the trust capital and you *dispose of that interest, you work out if you have made a *capital loss in this way:

Working out your capital loss

Step 1.   Work out the *capital proceeds from the *disposal.

Step 2.   Work out the *reduced net asset amount.

Step 3.   If the Step 1 amount is less, you make a capital loss equal to the difference.

             (2)  The reduced net asset amount is worked out in this way:

Working out the reduced net asset amount

Step 1.   Work out the total of the *reduced cost bases (at the time of the disposal) of the *CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time.

Step 2.   Work out the total of the market values (at the time of the disposal) of the *CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time.

Step 3.   Work out the amount of money that formed part of the trust capital at the time of the disposal.

Step 4.   Add up the Step 1, 2 and 3 amounts.

Step 5.   Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal.

Step 6.   The result is the reduced net asset amount.

             (3)  If you *dispose of only part of that interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

There is more than one beneficiary

             (4)  If you are not the only beneficiary with an interest in the trust capital and you *dispose of your interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

             (5)  If you are not the only beneficiary with an interest in the trust capital and you *dispose of part of your interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

Exception

             (6)  A *capital loss you make is disregarded if you *acquired the *CGT asset that is the interest in the trust capital before 20 September 1985.

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

             (1)  CGT event E9 happens if:

                     (a)  you agree for consideration that when property comes into existence you will hold it on trust; and

                     (b)  at the time of the agreement, no potential beneficiary under the trust has a beneficial interest in the rights created by the agreement.

             (2)  The time of the event is when you made the agreement.

             (3)  You make a capital gain if the market value the property would have had if it had existed when you made the agreement is more than any *incidental costs you incurred that relate to the event. You make a capital loss if that market value is less.

             (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.

Subdivision 104-FLeases

Table of sections

104-110    Granting a lease: CGT event F1

104-115    Granting a long-term lease: CGT event F2

104-120    Lessor pays lessee to get lease changed: CGT event F3

104-125    Lessee receives payment for changing lease: CGT event F4

104-130    Lessor receives payment for changing lease: CGT event F5

104-110  Granting a lease: CGT event F1

             (1)  CGT event F1 happens if a lessor grants, renews or extends a lease.

Note 1:       Other CGT events can apply to leases. An assignment of a lease is an example of CGT event A1.

Note 2:       There are special rules that apply to some lease transactions: see Division 132.

             (2)  The time of the event is:

                     (a)  for the grant of a lease:

                              (i)  when the contract for the lease is entered into; or

                             (ii)  if there is no contract—at the start of the lease; or

                     (b)  for a renewal or extension—at the start of the renewal or extension.

             (3)  The lessor makes a capital gain if the *capital proceeds from the grant, renewal or extension are more than the expenditure it incurred on the grant, renewal or extension. 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, or an amount to the extent that you have deducted or can deduct it.

Exception

             (5)  The lessor can choose to apply section 104-115 to certain long term leases. If it does so, this section does not apply.

104-115  Granting a long-term lease: CGT event F2

             (1)  CGT event F2 happens if:

                     (a)  a lessor grants a lease over land (whether or not the lessor owns an estate in fee simple in the land), or renews or extends a lease over land; and

                     (b)  the lease, renewal or extension is for at least 50 years and:

                              (i)  at the time of the grant, renewal or extension, it was reasonable to expect that it would continue for at least 50 years; and

                             (ii)  the terms of the lease, renewal or extension as they apply to the lessee are substantially the same as those under which the lessor owned the land; and

                     (c)  the lessor chooses to apply this section instead of section 104-110.

Note:          Section 103-25 tells you when the choice must be made.

             (2)  The time of the event is when the lessor grants the lease, or at the start of the renewal or extension, as appropriate.

             (3)  The lessor makes a capital gain if the *capital proceeds from the event are more than the *cost base of the lessor’s interest in the land. The lessor makes a capital loss if those *capital proceeds are less than the *reduced cost base of that interest.

Exceptions

             (4)  A *capital gain or *capital loss the lessor makes is disregarded if:

                     (a)  it *acquired the *CGT asset that is the land, or the lease to the lessor was granted, before 20 September 1985; or

                     (b)  the lease to the lessor has been renewed or extended and the last renewal or extension started before that day.

Note:          For any later CGT event that happens to the land or the lessor’s lease of it: see section 132-10.

104-120  Lessor pays lessee to get lease changed: CGT event F3

             (1)  CGT event F3 happens if a lessor incurs expenditure in getting the lessee’s agreement to vary or waive a term of the lease. The lessor makes a capital loss equal to the amount of expenditure it incurred. (The expenditure can include giving property: see section 103-5.)

             (2)  The time of the event is when the term is varied or waived.

Exception

             (3)  However, this event does not apply to expenditure for a lease to which the lessor has chosen to apply section 104-115.

104-125  Lessee receives payment for changing lease: CGT event F4

             (1)  CGT event F4 happens if a lessee receives a payment from the lessor for agreeing to vary or waive a term of the lease.

                   The payment can include giving property: see section 103-5.

             (2)  The time of the event is when the term is varied or waived.

             (3)  The lessee makes a capital gain if the *capital proceeds from the event are more than the lease’s *cost base (at the time of the event). If the lessee makes a *capital gain, the lease’s cost base is also reduced to nil.

Note:          The lessee cannot make a capital loss.

             (4)  On the other hand, if those *capital proceeds are less, the lease’s *cost base is reduced by that amount at the time of the event.

Example:    On 1 January 1999 a lessee enters a lease. On 1 May 1999 the lessee agrees to waive a term. The lessor pays the lessee $1,000 for this.

                   If the lease’s cost base at the time of the waiver is $2,500, it is reduced from $2,500 to $1,500.

                   On 1 September 1999 the lessee agrees to waive another term. The lessor pays the lessee $2,000 for this.

                   If the lease’s cost base at the time of the waiver is $1,500, the lessee makes a capital gain of $500, and the cost base is reduced to nil.

Exceptions

             (5)  A *capital gain the lessee makes is disregarded if:

                     (a)  the lease was granted before 20 September 1985; or

                     (b)  for a lease that has been renewed or extended—the start of the last renewal or extension occurred before that day.

104-130  Lessor receives payment for changing lease: CGT event F5

             (1)  CGT event F5 happens if a lessor receives a payment from the lessee for agreeing to vary or waive a term of the lease.

                   The payment can include giving property: see section 103-5.

             (2)  The time of the event is when the term is varied or waived.

             (3)  The lessor makes a capital gain if the *capital proceeds from the event are more than the expenditure the lessor incurs in relation to the variation or waiver. The lessor makes a capital loss if those *capital proceeds are less.

Example:    You own a shopping centre. The lessee of a shop in the centre pays you $10,000 for agreeing to change the terms of its lease. You incur expenses of $1,000 for a solicitor and $500 for a valuer. You make a capital gain of $8,500.

             (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.

Exceptions

             (5)  A *capital gain or *capital loss the lessor makes is disregarded if:

                     (a)  the lease was granted before 20 September 1985; or

                     (b)  for a lease that has been renewed or extended—the start of the last renewal or extension occurred before that day.

Subdivision 104-GShares

Table of sections

104-135    Capital payment for shares: CGT event G1

104-140    Shifts in share values: CGT event G2

104-145    Liquidator declares shares worthless: CGT event G3

104-135  Capital payment for shares: CGT event G1

             (1)  CGT event G1 happens if:

                     (a)  a company makes a payment to you for a *share you own in the company (except for *CGT event A1 or C2 happening in relation to the share); and

                     (b)  some or all of the payment (the non-assessable part) is not a *dividend, or an amount that is taken to be a dividend under section 47 of the Income Tax Assessment Act 1936.

                   The payment can include giving property: see section 103-5.

             (2)  The time of the event is when the company makes the payment.

             (3)  You make a capital gain if the amount of the non-assessable part is more than the *share’s *cost base. If you make a *capital gain, the share’s *cost base and *reduced cost base are reduced to nil.

Note:          You cannot make a capital loss.

             (4)  However, if the amount of the non-assessable part is not more than the *share’s *cost base, that cost base and its *reduced cost base are reduced by the amount of the non-assessable part.

Exceptions

             (5)  A *capital gain you make is disregarded if you *acquired the *CGT asset that is the *share before 20 September 1985.

             (6)  You disregard a payment by a liquidator for the purposes of this section if the company is dissolved within 18 months of the payment. The payment will be part of your *capital proceeds for *CGT event C2 happening when the share ends.

104-140  Shifts in share values: CGT event G2

             (1)  CGT event G2 happens if:

                     (a)  a *share value shift occurs under a *scheme involving a company and an entity (or the entity’s *associate); and

                     (b)  the entity is a *controller (for CGT purposes) of the company at any time from when the scheme is entered into to when it has been implemented; and

                     (c)  there is a *material decrease in the market value of a share in the company that is owned by the entity or the entity’s associate.

Note 1:       Other matters relevant to this event are set out in Division 140.

Note 2:       Division 140 is also relevant to interests in shares and rights or options to acquire shares: see section 140-30.

             (2)  The time of the event is when the *share value shift happens.

             (3)  An entity makes a capital gain in the circumstances set out in sections 140-55 and 140-90.

Note 1:       The entity cannot make a capital loss.

Note 2:       The entity will not make a capital gain unless:

·       for value shifted into shares acquired before 20 September 1985—value is shifted into shares owned by the entity or an associate or, in certain circumstances, owned by an associate of an associate; or

·       for value shifted into shares acquired on or after 20 September 1985—value is shifted into shares owned by an associate of the entity or, in certain circumstances, owned by an associate of an associate.

104-145  Liquidator declares shares worthless: CGT event G3

             (1)  CGT event G3 happens if you own a *share in a company and its liquidator declares in writing that he or she has reasonable grounds to believe (as at the time of the declaration) there is no likelihood that the shareholders in the company, or shareholders of the relevant class of shares, will receive any further distribution in the course of winding up the company.

             (2)  The time of the event is when the liquidator makes the declaration.

             (3)  You can choose to make a capital loss equal to the *reduced cost base of your *share (as at the time of the declaration).

             (4)  If you make the choice, the *cost base and *reduced cost base of the *share are reduced to nil just after the liquidator makes the declaration.

Note:          This is for the purpose of working out if you make a capital gain or loss from any later CGT event in relation to the share.

Exception

             (5)  You cannot choose to make a *capital loss if you *acquired the *CGT asset that is the *share before 20 September 1985.

Subdivision 104-HSpecial capital receipts

Table of sections

104-150    Forfeiture of deposit: CGT event H1

104-155    Receipt for event relating to a CGT asset: CGT event H2

104-150  Forfeiture of deposit: CGT event H1

             (1)  CGT event H1 happens if a deposit paid to you is forfeited because a prospective sale or other transaction does not proceed.

                   The payment can include giving property: see section 103-5.

Example:    You decide to sell land. Before entering into a contract of sale, the prospective purchaser pays you a 2 month holding deposit of $1,000.

                   The negotiations fail and the deposit is forfeited.

             (2)  The time of the event is when the deposit is forfeited.

             (3)  You make a capital gain if the deposit is more than the expenditure you incur in connection with the prospective sale or other transaction. You make a capital loss if the deposit is 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.

Example:    To continue the example: if you gave a lawyer wine worth $400 in connection with the prospective sale, you make a capital gain of:

104-155  Receipt for event relating to a CGT asset: CGT event H2

             (1)  CGT event H2 happens if:

                     (a)  an act, transaction or event occurs in relation to a *CGT asset that you own; and

                     (b)  the act, transaction or event does not result in an adjustment being made to the asset’s *cost base or *reduced cost base.

Example:    You own land on which you intend to construct a manufacturing facility. A business promotion organisation pays you $50,000 as an inducement to start construction early.

                   No contractual rights or obligations are created by the arrangement.

                   The payment is made because of an event (the inducement to start construction early) in relation to your land.

Note:          This event does not apply if any other CGT event applies: see section 102-25.

             (2)  The time of the event is when the act, transaction or event occurs.

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

             (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.

Exceptions

             (5)  CGT event H2 does not happen if:

                     (a)  the act, transaction or event is the borrowing of money or the obtaining of credit from another entity; or

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

                     (c)  a company issues or allots *shares to you; or

                     (d)  the trustee of a unit trust issues units in the trust to you.

Subdivision 104-IAustralian residency ends

Table of sections

104-160    Individual or company stops being resident: CGT event I1

104-165    Exception for individual who stops being resident

104-170    Trust stops being a resident trust: CGT event I2

104-160  Individual or company stops being resident: CGT event I1

             (1)  CGT event I1 happens if you stop being an *Australian resident.

             (2)  The time of the event is when you stop being one.

             (3)  You need to work out if you have made a *capital gain or a *capital loss for each *CGT asset that you owned just before the time of the event, except one having the *necessary connection with Australia.

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

Exception

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

Note 1:       An individual may be able disregard the gain or loss if he or she was a short term resident: see section 104-165.

Note 2:       An individual can choose to disregard a capital gain or loss he or she makes until another CGT event happens in relation to the asset or he or she becomes a resident again: see section 104-165.

104-165  Exception for individual who stops being resident

Short term residents

             (1)  A *capital gain or *capital loss from a *CGT asset covered by *CGT event I1 is disregarded if you are an individual and you were an *Australian resident for less than 5 years during the 10 years before you stopped being one and:

                     (a)  you owned the asset before last becoming one; or

                     (b)  you *acquired the asset (after last becoming one) because of someone’s death.

Choosing to disregard making a gain or loss

             (2)  If you are an individual, you can choose to disregard making a *capital gain or a *capital loss from all *CGT assets covered by *CGT event I1.

             (3)  If you do so choose, each of those assets is taken to have the *necessary connection with Australia until the earlier of:

                     (a)  a *CGT event happening in relation to the asset;

                     (b)  you again becoming an *Australian resident.

104-170  Trust stops being a resident trust: CGT event I2

             (1)  CGT event I2 happens if a trust stops being a *resident trust for CGT purposes.

             (2)  The time of the event is when the trust stops being one.

             (3)  The trustee needs to work out if it has made a *capital gain or a *capital loss for each *CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event (except one having the *necessary connection with Australia).

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

Exception

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

Subdivision 104-JReversal of roll-overs

Table of sections

104-175    Company ceasing to be member of wholly-owned group after roll-over: CGT event J1

104-180    Sub-group break-up

104-175  Company ceasing to be member of wholly-owned group after roll-over: CGT event J1

             (1)  CGT event J1 happens if:

                     (a)  there is a roll-over under Subdivision 126-B for a *CGT event (the roll-over event) that happens in relation to a *CGT asset (the roll-over asset) involving 2 companies that are members of the same *wholly-owned group; and

                     (b)  the company (the recipient company) that owns the roll-over asset just after the roll-over stops being a 100% subsidiary of a company in the group in the circumstances set out in subsection (2) or (3); and

                     (c)  at the time of the roll-over, the recipient company was a *100% subsidiary of:

                              (i)  the other company involved in the roll-over event (the originating company); or

                             (ii)  another member of the same *wholly-owned group.

Note:          If the roll-over was under section 160ZZO of the Income Tax Assessment Act 1936, CGT event J1 does not happen if there would not have been a deemed disposal and re-acquisition under that Act: see section 104-175 of the Income Tax (Transitional Provisions) Act 1997.

             (2)  This condition applies if there has been only one roll-over within the *wholly-owned group under Subdivision 126-B involving the roll-over asset.

                   The recipient company must stop, at a time (the break-up time) when it still owns the roll-over asset, being a *100% subsidiary of a member of the group (the ultimate holding company) that is not a 100% subsidiary of any other member of the group at the time of the roll-over event.

             (3)  This condition applies if the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events.

                   The recipient company must stop, at a time (also the break-up time) when it still owns the roll-over asset, being a *100% subsidiary of another member of the group (also the ultimate holding company) that was not a 100% subsidiary of any other member of the group at the time of the first of the events.

             (4)  The time of the event is the break-up time.

             (5)  The recipient company makes a capital gain if the roll-over asset’s market value (at the break-up time) is more than its *cost base. It makes a capital loss if that market value is less than its *reduced cost base.

Exceptions

             (6)  CGT event J1 does not happen if the conditions in section 104-180 are satisfied.

             (7)  A *capital gain or *capital loss the recipient company makes is disregarded if the roll-over asset is taken to have been *acquired by it before 20 September 1985 under Subdivision 126-B.

Acquisition rule

             (8)  The recipient company is taken to have *acquired the roll-over asset at the break-up time.

Cost base adjustment

             (9)  The first element of the recipient company’s *cost base and *reduced cost base of the roll-over asset (just after the break-up time) is its market value (at the break-up time).

104-180  Sub-group break-up

             (1)  The condition in subsection (2) must have been satisfied at each time when there is a roll-over within the *wholly-owned group under Subdivision 126-B for a *CGT event happening in relation to the roll-over asset.

             (2)  The originating company and the recipient company must have been members of a group of 2 or more companies (the sub-group) within the *wholly-owned group (excluding the ultimate holding company) for which one of these is satisfied:

                     (a)  if the sub-group consists of 2 companies, either the recipient company is a 100% subsidiary of the other company (the holding company), or the other company is a 100% subsidiary of the recipient company (also the holding company);

                     (b)  if the sub-group consists of 3 or more companies:

                              (i)  the recipient company is a 100% subsidiary of one of those other companies (also the holding company) and so are the other companies (except the holding company) in the sub-group; or

                             (ii)  each of the companies in the sub-group (except the recipient company) is a 100% subsidiary of the recipient company (also the holding company).

             (3)  If the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events, each company that was the originating company or the recipient company for the purposes of that Subdivision for one of those roll-overs must have been members of the sub-group at the time of each of the roll-overs.

             (4)  The conditions in subsection (5) or (6) must be satisfied just after the break-up time.

             (5)  If the recipient company was the holding company of the sub-group, none of its *shares can be owned by:

                     (a)  the ultimate holding company; or

                     (b)  a company that is a *100% subsidiary of the ultimate holding company just after the break-up time.

             (6)  If the recipient company was not the holding company of the sub-group, no *shares in it or in the holding company can be owned by:

                     (a)  the ultimate holding company; or

                     (b)  a company that is a *100% subsidiary of the ultimate holding company just after the break-up time.

Subdivision 104-KOther CGT events

Table of sections

104-205    Partial realisation of intellectual property: CGT event K1

104-210    Bankrupt pays amount in relation to debt: CGT event K2

104-215    Asset passing to tax-advantaged entity: CGT event K3

104-220    CGT asset starts being trading stock: CGT event K4

104-225    Special collectable losses: CGT event K5

104-230    Pre-CGT shares or trust interest: CGT event K6

104-205  Partial realisation of intellectual property: CGT event K1

             (1)  CGT event K1 happens if there is a *partial realisation of an item of *intellectual property.

             (2)  The time of the event is:

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

                     (b)  if there is no contract—when the realisation occurred.

             (3)  You make a capital gain if the *capital proceeds from the realisation are more than the item’s *cost base. If you make a *capital gain, the item’s *cost base and *reduced cost base are also reduced to nil.

Note:          You cannot make a capital loss.

             (4)  On the other hand, if the *capital proceeds from the realisation are less than the item’s *cost base, the item’s cost base is reduced by that amount at the time of the realisation.

Example:    On 1 January 1999 you buy a patent for an invention for $100,000. On 1 March 1999 you grant a 5 year licence to exploit the patent in South Australia for $60,000 (a partial realisation).

                   Suppose the patent’s cost base just before the grant is $100,000. The capital proceeds ($60,000) are less than the patent’s cost base, which is reduced to $40,000.

                   On 1 September 1999 you receive damages of $70,000 for infringement of the patent (another partial realisation).

                   Suppose the patent’s cost base just before the other realisation is $40,000. The capital proceeds ($70,000) exceed the patent’s cost base. You make a capital gain of $30,000 and the patent’s cost base is reduced to nil.

Extension of licence treated as grant of new licence

             (5)  This section has effect as if an extension of the term of a licence relating to a patent, design or copyright were the grant of a new licence (and so a *partial realisation).

Exception

             (6)  A *capital gain you make is disregarded if you *acquired the *CGT asset that is the item of intellectual property before 20 September 1985.

104-210  Bankrupt pays amount in relation to debt: CGT event K2

             (1)  CGT event K2 happens if:

                     (a)  you made a *net capital loss for an income year that, because of subsection 102-5(2), cannot be applied in working out whether you made a *net capital gain for the income year or a later one; and

                     (b)  you make a payment in an income year (the payment year) in respect of a debt that was taken into account in working out the amount of that net capital loss; and

                     (c)  ignoring subsection 102-5(2), some part of the net capital loss (the denied part) would have been applied (if you had made sufficient *capital gains) in working out whether you had made a *net capital gain for the payment year.

                   The payment can include giving property: see section 103-5.

Note:          A net capital loss mentioned in subsection 160ZC(4A) of the Income Tax Assessment Act 1936 is also relevant: see section 104-210 of the Income Tax (Transitional Provisions) Act 1997.

             (2)  The time of the event is when you make the payment.

             (3)  You make a capital loss equal to the smallest of:

                     (a)  the amount you paid; or

                     (b)  that part of it that was taken into account in working out the denied part; or

                     (c)  the denied part less the sum of *capital losses you made as a result of previous payments you made in respect of the debt that was taken into account in working out the denied part.

             (4)  In calculating that capital loss, disregard any amount you have received as *recoupment of the payment and that is not included in your assessable income.

104-215  Asset passing to tax-advantaged entity: CGT event K3

             (1)  CGT event K3 happens if you die and a *CGT asset you owned just before dying *passes to a beneficiary in your estate who (when the asset passes):

                     (a)  is an *exempt entity; or

                     (b)  is the trustee of a *complying superannuation fund; or

                     (c)  is the trustee of a *complying approved deposit fund; or

                     (d)  is the trustee of a *pooled superannuation trust; or

                     (e)  is not an *Australian resident.

             (2)  If the asset passes to a beneficiary who is not an *Australian resident, CGT event K3 happens only if:

                     (a)  you were an *Australian resident just before dying; and

                     (b)  the asset (in the hands of the beneficiary) does not have the *necessary connection with Australia.

             (3)  The time of the event is just before you die.

             (4)  A capital gain is made if the market value of the asset on the day you died is more than the asset’s *cost base. A capital loss is made if that market value is less than the asset’s *reduced cost base.

Note:          The trustee of the estate must include in the date of death return any net capital gain for the income year when you died.

Exception

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

Note:          There is also an exception if the CGT asset is property under the Cultural Bequests Program: see section 118-5.

104-220  CGT asset starts being trading stock: CGT event K4

             (1)  CGT event K4 happens if:

                     (a)  you start holding as *trading stock a *CGT asset you already own but do not hold as trading stock; and

                     (b)  you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its market value.

Note 1:       Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock.

Note 2:       There is an exemption if you elect its cost: see section 118-25.

             (2)  The time of the event is when you start.

             (3)  You make a capital gain if the asset’s market value (just before it became *trading stock) is more than its *cost base. You make a capital loss if that market value is less than its *reduced cost base.

Exception

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

104-225  Special collectable losses: CGT event K5

             (1)  CGT event K5 happens if the requirements in subsections (2), (3) and (4) are satisfied.

             (2)  There is a fall in the market value of a *collectable of a company or trust.

             (3)  *CGT event A1, C2 or E8 happens to:

                     (a)  *shares you own in the company (or in a company that is a member of the same *wholly-owned group); or

                     (b)  an interest you have in the trust;

and there is no roll-over for that CGT event.

             (4)  As a result of the *capital proceeds from that event being replaced under section 116-80:

                     (a)  you make a *capital gain that you would not otherwise have made; or

                     (b)  you do not make the *capital loss you would otherwise have made; or

                     (c)  you make a capital loss that is less than you would otherwise have made.

Note:          The capital proceeds from that event are replaced with the market value of the shares or the interest in the trust as if the fall in the market value of collectables and personal use assets had not occurred: see section 116-80.

             (5)  The time of CGT event K5 is the time of *CGT event A1, C2 or E8.

             (6)  You make a capital loss from a *collectable equal to:

                          the market value of the *shares or the interest in the trust (worked out as at the time of *CGT event A1, C2 or E8 as if the fall in market value of the collectable had not occurred);

less:

                          the actual *capital proceeds from CGT event A1, C2 or E8.

Example:    You own 50% of the shares in a company. You bought them in 1999 for $60,000. The company owns a painting worth $100,000 and another asset worth $20,000. The painting falls in value to $50,000.

                   In 1999 you sell your shares for $35,000 (the actual capital proceeds). You would otherwise make a capital loss of $25,000.

                   However, the actual capital proceeds are replaced with $60,000 (the market value of the shares if the painting had not fallen in value).  You do not make a capital loss from selling the shares.

                   You do make a collectable loss equal to:

Note:          You can subtract capital losses from collectables only from your capital gains from collectables: see section 108-10.

104-230  Pre-CGT shares or trust interest: CGT event K6

             (1)  CGT event K6 happens if:

                     (a)  you own *shares in a company or an interest in a trust you *acquired before 20 September 1985; and

                     (b)  *CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and

                     (c)  there is no roll-over for the other CGT event; and

                     (d)  the applicable requirement in subsection (2) is satisfied.

             (2)  Just before the other event happened:

                     (a)  the market value of property of the company or trust (that is not its *trading stock) that was *acquired on or after 20 September 1985; or

                     (b)  the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was *acquired on or after 20 September 1985;

must be at least 75% of the *net value of the company or trust.

             (5)  The time of CGT event K6 is when the other event happens.

             (6)  You make a capital gain if the part of the *capital proceeds from the *shares or interest that is reasonably attributable to the market value of property referred to in subsection (2) is more than the sum of the *cost bases of that property.

Note:          You cannot make a capital loss.

             (7)  This section applies to property that a company that is not an *Australian resident *acquired after 15 August 1989 from another company as if it were acquired before 20 September 1985 if:

                     (a)  the other company acquired it before 20 September 1985; and

                     (b)  the companies are members of the same *wholly-owned group; and

                     (c)  the property does not have the *necessary connection with Australia.

             (8)  In working out the *net value of a company or trust for the purposes of subsection (2), disregard:

                     (a)  the discharge or release of any liabilities; or

                     (b)  the market value of any *CGT assets acquired;

if the discharge or release, or the *acquisition, was done for a purpose that included ensuring that the requirement in subsection (2) would not be satisfied in a particular situation.

Exceptions

             (9)  CGT event K6 does not happen if:

                     (a)  for a company referred to in subsection (2)—some of its *shares were listed for quotation in the official list of a stock exchange in Australia or a foreign country at the time of the other event and at all times in the period of 5 years before the time of the other event; or

                     (b)  for a trust referred to in subsection (2) that is a unit trust—some of its units were so listed, or were ordinarily available to the public for subscription or purchase, at the time of the other event and at all times in that period.


 

Division 106Entity making the gain or loss

Table of Subdivisions

             Guide to Division 106

106-A    Partnerships

106-B    Bankruptcy and liquidation

106-C    Absolutely entitled beneficiaries

106-D    Security holders

Guide to Division 106

106-1  What this Division is about

This Division sets out the cases where a capital gain or loss is made by someone other than the entity to which a CGT event happens.

The entities affected are:

·               partnerships (Subdivision 106-A);

·               bankruptcy trustees and company liquidators (Subdivision 106-B);

·               trustees where there is an absolutely entitled beneficiary (Subdivision 106-C);

·               security holders (Subdivision 106-D).

Subdivision 106-APartnerships

106-5  Partnerships

             (1)  Any *capital gain or *capital loss from a *CGT event happening in relation to a partnership or one of its *CGT assets is made by the partners individually.

                   Each partner’s gain or loss is calculated by reference to the partnership agreement, or partnership law if there is no agreement.

Example 1: A partnership creates contractual rights in another entity (CGT event D1). Each partner’s capital gain or loss is calculated by allocating an appropriate share of the capital proceeds from the event and the incidental costs that relate to the event (according to the partnership agreement, or partnership law if there is no agreement).

Example 2: Helen and Clare set up a business in partnership. Helen contributes a block of land to the partnership capital. Their partnership agreement recognises that Helen has a 75% interest in the land and Clare 25%. The agreement is silent as to their interests in other assets and profit sharing.

                   When the land is sold, Helen’s capital gain or loss will be determined on the basis of her 75% interest. For other partnership assets, Helen’s gain or loss will be determined on the basis of her 50% interest (under the relevant Partnership Act).

             (2)  Each partner has a separate *cost base and *reduced cost base for the partner’s interest in each *CGT asset of the partnership.

             (3)  If a partner leaves a partnership, a remaining partner *acquires a separate *CGT asset to the extent that the remaining partner acquires a share of the departing partner’s interest in a partnership asset.

Note:          The remaining partners would not be affected if the departing partner sells its interests to an entity that was not a partner.

Example:    (Indexation is ignored for the purpose of this example).

                   John, Wil and Patricia form a partnership (in equal shares).

                   John contributes a building (which is a pre-20 September 1985 asset) having a market value of $200,000. Wil and Patricia contribute $200,000 each in cash.

                   The partnership buys another asset for $400,000.

                   John is taken to have disposed of 2/3 of his interest in the building (1/3 to Wil and 1/3 to Patricia). His remaining 1/3 share in the building remains a pre-CGT asset. The 1/3 shares that Wil and Patricia acquire are post-CGT assets.

                   Wil retires from the partnership when the partnership assets have a market value of $1,200,000 ($500,000 for the building and $700,000 for the other asset). John and Patricia pay Wil $400,000 for his interest in the partnership.

                   Wil has a capital gain of $100,000 on the building and $100,000 on the other asset. John and Patricia each acquire an additional 1/6 interest in the partnership assets. These additional interests are separate assets and post-CGT assets.

             (4)  If a new partner is admitted to a partnership:

                     (a)  the new partner *acquires a share (according to the partnership agreement, or partnership law if there is no agreement) of each partnership asset; and

                     (b)  the existing partners are treated as having *disposed of part of their interest in each partnership asset to the extent that the new partner has acquired it.

Example:    (Indexation is ignored for the purpose of this example).

                   Lyn and Barry form a partnership, each contributing $15,000 to its capital. The partnership buys land for $30,000.

                   The land increases in value to $300,000.

                   Andrew is admitted as an equal partner, paying Lyn and Barry $50,000 each to acquire a 1/3 share in the land. His cost base is $100,000.

                   Lyn and Barry have each disposed of 1/3 of their interest in the land. Each has a cost base for that interest of $5,000, and capital proceeds of $50,000, leaving them with a capital gain of $45,000 each on Andrew’s admission to the partnership.

                   The land is sold for its market value.

                   Andrew has no capital gain on the land.

                   Lyn and Barry have disposed of their remaining 2/3 original interest in the land for capital proceeds of $100,000, leaving each of them with a capital gain of:

Subdivision 106-BBankruptcy and liquidation

Table of sections

106-30      Effect of bankruptcy

106-35      Effect of liquidation

106-30  Effect of bankruptcy

             (1)  For the purposes of this Part and Part 3-3, the vesting of the individual’s *CGT assets in the trustee under the Bankruptcy Act 1966 or under a similar foreign law is ignored.

             (2)  This Part and Part 3-3 apply to an act done in relation to a *CGT asset of an individual in these circumstances as if it had been done by the individual:

                     (a)  as a result of the bankruptcy of the individual by the Official Trustee in Bankruptcy or a registered trustee, or the holder of a similar office under a *foreign law;

                     (b)  by a trustee under a deed of assignment or arrangement made under Part X of the Bankruptcy Act 1966, or under a similar instrument under a foreign law;

                     (c)  by a trustee as a result of an arrangement with creditors under that Act or a foreign law.

106-35  Effect of liquidation

                   This Part and Part 3-3 apply to an act done by a liquidator of a company, or the holder of a similar office under a *foreign law, as if the act had been done instead by the company.

Example:    Ben, a liquidator of a company, sells a CGT asset of the company. Any capital gain or loss is made by the company, not by Ben.

Subdivision 106-CAbsolutely entitled beneficiaries

106-50  Absolutely entitled beneficiaries

                   If you are absolutely entitled to a *CGT asset as against the trustee of a trust (disregarding any legal disability), this Part and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it.

Subdivision 106-DSecurity holders

106-60  Acts by security holders

                   This Part and Part 3-3 apply to an act done by an entity (or an agent of the entity) in relation to a *CGT asset for the purpose of enforcing or giving effect to a security, charge or encumbrance the entity holds over the asset as if the act had been done instead by the person who provided the security.

Example:    A lender sells property under a power of sale after the failure of the owner of the property to make payments on the loan. Any capital gain or loss is made by the owner of the property, not the lender.


 

Division 108CGT assets

Table of Subdivisions

             Guide to Division 108

108-A    What a CGT asset is

108-B    Collectables

108-C    Personal use assets

108-D    Separate CGT assets

Guide to Division 108

108-1  What this Division is about

This Division defines the various categories of assets that are relevant to working out your capital gains and losses. They are CGT assets, collectables and personal use assets.

It also tells you how capital losses from collectables and personal use assets are relevant to working out your net capital gain or loss.

It also sets out when land, buildings and capital improvements are taken to be separate CGT assets.

Subdivision 108-AWhat a CGT asset is

Table of sections

108-5        CGT assets

108-7        Interest in CGT assets as joint tenants

108-5  CGT assets

             (1)  A CGT asset is:

                     (a)  any kind of property; or

                     (b)  a legal or equitable right that is not property.

             (2)  To avoid doubt, these are CGT assets:

                     (a)  part of, or an interest in, an asset referred to in subsection (1);

                     (b)  goodwill or an interest in it;

                     (c)  an interest in an asset of a partnership;

                     (d)  an interest in a partnership that is not covered by paragraph (c).

Note 1:       Examples of CGT assets are:

·       land and buildings;

·       shares in a company and units in a unit trust;

·       options;

·       debts owed to you;

·       a right to enforce a contractual obligation;

·       foreign currency.

Note 2:       A capital gain or loss from a CGT asset is disregarded if the asset was last acquired before 26 June 1992 and was not an asset for the purposes of Part IIIA of the Income Tax Assessment Act 1936: see section 108-5 of the Income Tax (Transitional Provisions) Act 1997.

108-7  Interest in CGT assets as joint tenants

                   Individuals who own a *CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common.

Note:          Section 128-50 contains rules that apply when a joint tenant dies.

Subdivision 108-BCollectables

Table of sections

108-10      Losses from collectables to be offset only against gains from collectables

108-15      Sets of collectables

108-17      Cost base of a collectable

108-10  Losses from collectables to be offset only against gains from collectables

             (1)  In working out your *net capital gain or *net capital loss for the income year, *capital losses from *collectables can be used only to reduce *capital gains from collectables.

Example:    Your capital gains from collectables total $200 and your capital losses from collectables total $400. You have other capital gains of $500. You have a net capital gain of $500 and a net capital loss from collectables of $200.

                   The losses from collectables cannot be used to reduce the $500 capital gain.

             (2)  A collectable is:

                     (a)  *artwork, jewellery, an antique, or a coin or medallion; or

                     (b)  a rare folio, manuscript or book; or

                     (c)  a postage stamp or first day cover;

that is used or kept mainly for your (or your *associate’s) personal use or enjoyment.

             (3)  These are also collectables:

                     (a)  an interest in any of the things covered by subsection (2); or

                     (b)  a debt that arises from any of those things; or

                     (c)  an option or right to *acquire any of those things.

Note:          Collectables acquired for $500 or less are exempt. However, you get an exemption for an interest in one only if the market value of all the interests combined is $500 or less: see Subdivision 118-A.

             (4)  If some or all of a *capital loss from a *collectable cannot be applied in an income year, the unapplied amount can be applied in the next income year for which your *capital gains from *collectables exceed your *capital losses (if any) from collectables.

Example:    You have a capital gain from a collectable for the income year of $200 and a capital loss from another collectable of $600.

                   Your capital loss from one collectable reduces your capital gain from the other to zero. You cannot apply the remaining $400 of the capital loss in this income year, but you can apply it in a later income year.

             (5)  If you have 2 or more unapplied *net capital losses from *collectables, you must apply them in the order you made them.

108-15  Sets of collectables

             (1)  This section sets out what happens if:

                     (a)  you own *collectables that are a set; and

                     (b)  they would ordinarily be *disposed of as a set; and

                     (c)  you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10.

Example:    You buy a set of 3 books for $900. You apportion the $900 among each book: see section 112-30. If the books are of equal value, you have acquired each one for $300.

                   If you dispose of each book individually, you would ordinarily obtain the exemption in section 118-10, because you acquired each one for less than $500.

             (2)  The set of *collectables is taken to be a single *collectable and each of your *disposals is a disposal of part of that collectable.

Example:    To continue the example, the 3 books are taken to be a single collectable. You will not obtain the exemption in section 118-10, because you acquired the set for more than $500.

                   You work out if you make a capital gain or loss from a disposal of part of an asset by comparing the capital proceeds from it with the cost base or reduced cost base (as appropriate) of the disposed part.

Note 1:       Section 112-30 tells you how to apportion the cost base and reduced cost base of a CGT asset on a disposal of part of an asset.

Note 2:       This section does not apply to a collectable you last acquired before 16 December 1995: see section 108-15 of the Income Tax (Transitional Provisions) Act 1997.

108-17  Cost base of a collectable

                   In working out the *cost base of a *collectable, disregard the third element (about non-capital costs of ownership).

Subdivision 108-CPersonal use assets

Table of sections

108-20      Losses from personal use assets must be disregarded

108-15      Sets of personal use assets

108-30      Cost base of a personal use asset

108-20  Losses from personal use assets must be disregarded

             (1)  In working out your *net capital gain or *net capital loss for the income year, any *capital loss you make from a *personal use asset is disregarded.

             (2)  A personal use asset is:

                     (a)  a *CGT asset (except a *collectable) that is used or kept mainly for your (or your *associate’s) personal use or enjoyment; or

                     (b)  an option or right to *acquire a *CGT asset of that kind; or

                     (c)  a debt arising from a *CGT event in which the *CGT asset the subject of the event was one covered by paragraph (a); or

                     (d)  a debt arising other than:

                              (i)  in the course of gaining or producing your assessable income; or

                             (ii)  from your carrying on a *business.

Note 1:       There is an exemption for a personal use asset you acquire for $10,000 or less: see section 118-10.

Note 2:       A debt arising from a CGT event involving a CGT asset kept mainly for your personal use and enjoyment is a personal use asset to prevent any loss arising from the debt being a normal capital loss.

             (3)  A personal use asset does not include land, a *stratum unit or a building or structure that is taken to be a separate *CGT asset because of Subdivision 108-D.

108-25  Sets of personal use assets

             (1)  This section sets out what happens if:

                     (a)  you own *personal use assets that are a set; and

                     (b)  they would ordinarily be *disposed of as a set; and

                     (c)  you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10.

             (2)  The set of *personal use assets is taken to be a single *personal use asset and each of your *disposals is a disposal of part of that asset.

108-30  Cost base of a personal use asset

                   In working out the *cost base of a *personal use asset, disregard the third element (about the non-capital costs of ownership).

Subdivision 108-DSeparate CGT assets

Guide to Subdivision 108-D

108-50  What this Subdivision is about

For CGT purposes, there are:

       exceptions to the common law principle that what is attached to the land is part of the land; and

      special rules about buildings and adjacent land; and

    •   rules about when a capital improvement to a CGT asset is treated as a separate CGT asset.

Table of sections

Operative provisions

108-55      When is a building a separate asset from land?

108-60      Plant that is part of a building is a separate asset

108-65      Land adjacent to land acquired before 20 September 1985

108-70      When is a capital improvement a separate asset?

108-75      Capital improvements to CGT assets for which a roll-over may be available

108-80      Deciding if capital improvements are related to each other

108-85      Meaning of improvement threshold

Operative provisions

108-55  When is a building a separate asset from land?

             (1)  A building or structure on land that you *acquired on or after 20 September 1985 is taken to be a separate *CGT asset from the land if one of the balancing adjustment provisions in this table applies to the building or structure (whether or not there is a balancing adjustment):

 

Balancing adjustment provisions

Item

For this capital allowance:

You do a balancing adjustment under:

1

Depreciation

Subdivision 42-F

2

Mining

Subdivision 330-J

3

Research and development

section 73B of the Income Tax Assessment Act 1936

4

Timber mill buildings

Subdivision 387-G

5

Timber operations: access roads

Subdivision 387-G

Example:    You construct a timber mill building on land you own. The building is subject to a balancing adjustment on its disposal, loss or destruction. It is taken to be a separate CGT asset from the land.

             (2)  A building or structure that is constructed on land that you *acquired before 20 September 1985 is taken to be a separate *CGT asset from the land if:

                     (a)  you entered into a contract for the construction on or after that day; or

                     (b)  if there is no contract—the construction started on or after that day.

Example:    You bought a block of land with a building on it on 10 August 1984. On 1 December 1999 you construct another building on the land. The other building is taken to be a separate CGT asset from the land.

108-60  Plant that is part of a building is a separate asset

                   A unit of *plant that is part of a building or structure is taken to be a separate *CGT asset from the building or structure.

Example:    You own a factory from which you carry on a business. You install rest rooms for your employees. The plumbing fixtures and fittings are plant. These are taken to be a separate CGT asset from the factory.

108-65  Land adjacent to land acquired before 20 September 1985

                   Land that you *acquire on or after 20 September 1985 that is adjacent to land (the original land) you acquired before that day is taken to be a separate *CGT asset from the original land if it and the original land are amalgamated into one title.

Example:    On 1 April 1984 you bought a block of land. On 1 June 1999 you bought another block of land adjacent to the first block. You amalgamate the titles to the 2 blocks into 1 title.

                   The second block is treated as a separate CGT asset. You can make a capital gain or loss from it if you sell the whole area of land.

108-70  When is a capital improvement a separate asset?

Improvements to land

             (1)  A capital improvement to land is taken to be a separate *CGT asset from the land if one of the balancing adjustment provisions set out in the table in section 108-55 applies to the improvement (whether or not there is a balancing adjustment).

Example:    You own land that you use for pastoral operations. You build some fences that are destroyed by fire. The fences are plant and are subject to a balancing adjustment on their destruction under Division 42. The fences are taken to be a separate CGT asset from the land.

Unrelated improvements to pre-CGT assets

             (2)  A capital improvement to a *CGT asset (the original asset) that you *acquired before 20 September 1985 (that is not related to any other capital improvement to the asset) is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when a *CGT event happens in relation to the original asset is:

                     (a)  more than the *improvement threshold for the income year in which the event happened; and

                     (b)  more than 5% of the *capital proceeds from the event.

Example:    In 1983 you bought a boat. In 1999 you install a new mast (a capital improvement) for $30,000. Later, you sell the boat for $150,000.

                   If the cost base of the improvement in the sale year is $41,000 and the improvement threshold for that year is $96,000, the improvement will not be treated as a separate asset.

Note 1:       Section 108-80 sets out the factors for deciding whether capital improvements are related to each other.

Note 2:       If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvement: see section 116-40.

Related improvements to pre-CGT assets

             (3)  Capital improvements to a *CGT asset (the original asset) that you *acquired before 20 September 1985 that are related to each other are taken to be a separate *CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when a *CGT event happens in relation to the original asset is:

                     (a)  more than the *improvement threshold for the income year in which the event happened; and

                     (b)  more than 5% of the *capital proceeds from the event.

Note:          If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvements: see section 116-40.

Some improvements not relevant

             (4)  This section does not apply to a capital improvement:

                     (a)  that took place under a contract that you entered into before 20 September 1985; or

                     (b)  if there is no contract—that started or occurred before that day.

             (5)  Subsections (2) and (3) do not apply if the capital improvement is made to:

                     (a)  a *Crown lease; or

                     (b)  a *prospecting entitlement or *mining entitlement; or

                     (c)  a *statutory licence; or

                     (d)  *plant to which Subdivision 124-K applies.

Note:          Section 108-75 deals with this situation.

             (6)  This section does not apply to a capital improvement consisting of repairs to or restoration of a *CGT asset *acquired before 20 September 1985 in circumstances where there is a roll-over under Subdivision 124-B.

108-75  Capital improvements to CGT assets for which a roll-over may be available

             (1)  This section is relevant only if a *CGT event happens in relation to a *CGT asset that is:

                     (a)  a *Crown lease; or

                     (b)  a *prospecting entitlement or *mining entitlement; or

                     (c)  a *statutory licence; or

                     (d)  *plant to which Subdivision 124-K applies.

                   You must have *acquired it before 20 September 1985.

Note:          Division 124 treats you as having acquired a CGT asset before that day in some situations.

             (2)  There are possible consequences if there has been one or more capital improvements to:

                     (a)  the *CGT asset the subject of the *CGT event; or

                     (b)  any *CGT assets of the same kind that were in existence before the CGT asset and came to an end where a roll-over was obtained under a provision set out in this table:

 

Roll-over provisions


Item


For this CGT asset:

Roll-over is obtained under this provision:

1

A *Crown lease

Subdivision 124-J

2

A prospecting or mining entitlement

Subdivision 124-L

3

A *statutory licence

Subdivision 124-C

4

*Plant

Subdivision 124-K

Note:          Roll-overs under sections 160ZWA, 160ZZF, 160ZZPE and 160ZWC of the Income Tax Assessment Act 1936 are also relevant: see section 108-75 of the Income Tax (Transitional Provisions) Act 1997.

Example:    In 1984 you acquired a commercial fishing licence. In 1986 you paid $62,000 to get an extra right (a capital improvement) attached to the licence.

                   In June 1999 the licence expired and you got a new licence. You obtained a roll-over for the old licence expiring. In April 2000 you sold the new fishing licence for $200,000.

             (3)  Any capital improvement that is not related to another capital improvement is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when the *CGT event happens is:

                     (a)  more than the *improvement threshold for the income year in which the event happened; and

                     (b)  more than 5% of the *capital proceeds from the event.

Example:    To continue the example, suppose the cost base of the right is $101,000 and the improvement threshold for the 1999-2000 income year is $96,000.

                   Since the cost base of the right is more than the improvement threshold and more than 5% of the capital proceeds, the right is taken to be a separate CGT asset.

Note 1:       Section 108-80 sets out the factors for deciding whether capital improvements are related to each other.

Note 2:       If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvement: see section 116-40.

             (4)  Any capital improvements that are related to each other are taken to be a separate *CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when the *CGT event happens is:

                     (a)  more than the *improvement threshold for the income year in which the event happened; and

                     (b)  more than 5% of the *capital proceeds from the event.

Note:          If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvements: see section 116-40.

             (5)  This section does not apply to any capital improvement:

                     (a)  that took place under a contract that you entered into before 20 September 1985; or

                     (b)  if there is no contract—that started or occurred before that day.

108-80  Deciding if capital improvements are related to each other

                   In deciding whether capital improvements are related to each other, the factors to be considered include:

                     (a)  the nature of the *CGT asset to which the improvements are made; and

                     (b)  the nature, location, size, value, quality, composition and utility of each improvement; and

                     (c)  whether an improvement depends in a physical, economic, commercial or practical sense on another improvement; and

                     (d)  whether the improvements are part of an overall project; and

                     (e)  whether the improvements are of the same kind; and

                      (f)  whether the improvements are made within a reasonable period of time of each other.

108-85  Meaning of improvement threshold

             (1)  The improvement threshold for the 1997-98 income year is $89,992.

             (2)  The *improvement threshold is indexed annually.

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

             (3)  The Commissioner must publish before the beginning of each *financial year the *improvement threshold for that year.


 

Division 109Acquisition of CGT assets

  

Table of Subdivisions

             Guide to Division 109

109-A    Operative rules

109-B    Signposts to other acquisition rules

Guide to Division 109

109-1  What this Division is about

This Division sets out the ways in which you can acquire a CGT asset and the time of acquisition.

The time of acquisition is important for indexation, and for the exemption of assets acquired before 20 September 1985.

Generally, you acquire a CGT asset when you become its owner. You can also acquire a CGT asset:

        as a result of a CGT event happening: see section 109-5; or

        in other circumstances: see section 109-10.

This Division also directs you to special acquisition rules in other Divisions.

Subdivision 109-AOperative rules

Table of sections

109-5        General acquisition rules

109-10      When you acquire a CGT asset without a CGT event

109-15      Exception

109-5  General acquisition rules

             (1)  In general, you acquire a *CGT asset when you become its owner.

             (2)  This table sets out specific rules for when you acquire a *CGT asset as a result of a *CGT event happening.

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

 

Acquisition rules (CGT events)

Event Number


In these circumstances:


You acquire the asset at this time:

A1
(case 1)

An entity *disposes of a CGT asset to you (except where you compulsorily acquire it)

when the disposal contract is entered into or, if none, when the entity stops being the asset’s owner

A1
(case 2)

You compulsorily acquire a *CGT asset from another entity

the earliest of:

(a)  when you paid compensation to the entity; or

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

(c)  when you entered the asset under the power of compulsory acquisition; or

(d) when you took possession of it under that power

B1

You enter into an agreement to obtain the use and enjoyment of a *CGT asset

when you first obtain the use and enjoyment of the asset (unless title does not pass to you when the agreement ends)

D1

An entity creates contractual or other rights in you

when the contract is entered into or the right created

D2

An entity grants an option to you

when the option is granted

D3

An entity grants you a right to receive *ordinary income from mining

when the contract is entered into or, if none, when the right is granted

E1

An entity creates a trust over a *CGT asset and you are the trustee

when the trust is created

E2

An entity transfers a *CGT asset to a trust and you are the trustee

when the asset is transferred

E3

A trust over a *CGT asset is converted to a unit trust and you are the trustee

when the trust is converted

E5

You as beneficiary under a trust become absolutely entitled to a *CGT asset of the trust as against the trustee (disregarding any legal disability)

when you become absolutely entitled

E6

Trustee *disposes of a *CGT asset of the trust to you to satisfy a right you had to receive *ordinary income from the trust

when the *disposal occurs

E7

Trustee *disposes of a *CGT asset of the trust to you to satisfy your interest, or part of it, in trust capital

when the *disposal occurs

E8

Beneficiary under a trust *disposes of its interest, or part of it, in trust capital to you

when disposal contract is entered into or, if none, when beneficiary stops being interest’s owner

E9

An entity creates a trust over future property and you are the trustee

when the entity makes the agreement to create the trust

F1

A lessor grants a lease to you, or renews or extends a lease

for grant of lease—when the contract is entered into or, if none, at the start of lease;
for lease renewal or extension—at the start of renewal or extension

F2

A lessor grants a lease to you, or renews or extends a lease, and term is at least 50 years

for grant of lease—when lessor grants the lease;
for lease renewal or extension—at the start of renewal or extension

K1

An entity *partially realises an item of *intellectual property to you

when the contract is entered into or, if none, when the *partial realisation happens

K3

An individual dies and a *CGT asset of the individual *passes to you (as a tax advantaged entity)

when the individual dies

K6

A *CGT event happens to *shares or an interest in a trust you own

when the other CGT event happens

Note 1:       For CGT events E1, E2 and E3, if the circumstances specified in the second column of the table happened to an asset before 12 January 1994, there may be no acquisition: see section 109-5 of the Income Tax (Transitional Provisions) Act 1997.

Note 2:       The acquisition rule for CGT event E9 in the table does not apply to you as trustee if the agreement to create the trust was made before 12 noon on 12 January 1994: see section 109-5 of the Income Tax (Transitional Provisions) Act 1997.

109-10  When you acquire a CGT asset without a CGT event

                   This table sets out specific rules for some cases where you acquire a *CGT asset otherwise than as a result of a *CGT event happening.

 

Acquisition rules (no CGT event)

Item

In these circumstances

You acquire the asset at this time:

1

You (or your agent) construct or create a *CGT asset, and you own it when the construction is finished or the asset is created

when the construction, or work that resulted in the creation, started

2

A company issues or allots *shares to you

when contract is entered into or, if none, when *shares issued or allotted

3

A trustee of a unit trust issues units in the trust to you

when contract is entered into or, if none, when units issued

109-15  Exception

                   You do not acquire a *CGT asset if the asset was *disposed of to you to provide or redeem a security.

Subdivision 109-BSignposts to other acquisition rules

Table of sections

109-50      Effect of this Subdivision

109-55      Other acquisition rules

109-60      Acquisition rules outside this Part and Part 3-3

109-50  Effect of this Subdivision

                   This Subdivision is a *Guide.

109-55  Other acquisition rules

                   This table sets out other acquisition rules in this Part and Part 3-3.

 

Other acquisition rules


Item


In these circumstances

You acquire the asset at this time:


See:

1

A CGT asset devolves to you as legal personal representative of a deceased individual

when the individual died

section 128-15

2

A CGT asset passes to you as beneficiary in the estate of a deceased individual

when the individual died

sections 128-15 and 128-25

3

A surviving joint tenant acquires deceased joint tenant’s interest in a CGT asset

when the deceased died

section 128-50

4

You get only a partial exemption under Subdivision 118-B for a CGT event happening to a CGT asset that is a dwelling, but you would have got a full exemption if the CGT event had happened just before the first time the dwelling was used for that purpose

at that time

section 118-92

5

The trustee of a deceased estate acquires a dwelling under the deceased’s will for you to occupy, and you obtain an interest in it

when the trustee acquired it

section 118-210

6

You obtain a replacement-asset roll-over for replacing an asset you acquired before 20 September 1985

before 20 September 1985

Divisions 122 and 124

7

You obtain a replacement-asset roll-over for a Crown lease, or a *prospecting or mining entitlement that is renewed or replaced and part of the new entitlement relates a part of the old one that you acquired before 20 September 1985

before 20 September 1985 (for that part of the new entitlement that relates to the pre-CGT part of the old one)

sections 124-595 and 124-725

8

You obtain a same-asset roll-over for a CGT asset the transferor acquired before 20 September 1985

before 20 September 1985

Divisions 122 and 126

8A

There is a same-asset roll-over for a CGT event that happens to a CGT asset (acquired on or after 20 September 1985) because the trust deed of a fund is changed and you are the fund that owns the asset after the CGT event

at the time of the CGT event

Subdivision 126-C

9

A company or trustee of a unit trust issues you with bonus equities because it owes you an amount, and the amount is not included in your assessable income

if the original equities are post-CGT assets, or are pre-CGT assets and fully paidwhen you acquired the original equities; or
if the original equities are pre-CGT assets and you had to pay an amount for the bonus equities—when the liability to pay arose

section 130-20

10

You own shares in a company or units in a unit trust and you exercise rights to acquire new equities in the company or trust

for the rights
if you acquired them from the company or trustee—when you acquired the original equities; or
for the new equities—when you exercise the rights

section 130-40

11

You acquire shares in a company or units in a unit trust by converting a convertible note

when the liability to pay for the convertible note arose

section 130-60

12

You acquire a qualifying share or right under an employee share scheme and a CGT event does not happen to it at the cessation time or within 30 days after that time

at the cessation time

section 130-80

13

You (as a lessee of land) acquire the reversionary interest of the lessor and there is no roll-over for the acquisition

if term of lease was for 99 years or more—when the lease was granted or assigned to you; or
if term of lease less than 99 years—when the reversionary interest acquired

section 132-15

14

You acquired a CGT asset before 20 September 1985, and there has since been a change in the majority underlying interests in the asset

at the time of the change

Division 149

15

You become an Australian resident and you owned a CGT asset that you acquired on or after 20 September 1985 and that did not have the necessary connection with Australia

when you become an Australian resident

section 136-40

16

A trust of which you are trustee becomes a resident trust for CGT purposes and you owned a CGT asset that you acquired on or after 20 September 1985 and that did not have the necessary connection with Australia

when the trust becomes a resident trust for CGT purposes

section 136-45

17

There is a roll-over under Subdivision 126-B for a *CGT event and you are the company owning the roll-over asset just after the roll-over and you stop being a *100% subsidiary of another company in the *wholly-owned group

when you stop

section 104-175

109-60  Acquisition rules outside this Part and Part 3-3

                   This table sets out other acquisition rules outside this Part and Part 3-3.

                   Provisions of the Income Tax Assessment Act 1936 are in bold.

 

Other acquisition rules


Item


In these circumstances

The asset is acquired at this time:


See:

1

You stop holding an item as trading stock

when you stop

paragraph 70-110(b)

2

CGT event happens to Cocos (Keeling) Islands asset

30 June 1991

section 24P

3

Trust ceases to be a resident trust for CGT purposes and there is an attributable taxpayer

when it ceases

section 102AAZBA

4

CGT event happens to CGT asset in connection with the demutualisation of an insurance company

on the demutualisation resolution day

section 121AS

5

CGT event happens to assets of NSW State Bank

at the first taxing time

section 121EN

6

You own shares in a company that stops being a PDF

just after it stops

section 124ZR

7

You acquire a number of shares that results in you obtaining a 10% (threshold) interest in a SME

when you obtained the threshold interest

section 128TI

8

CGT event happens to 30 June 1988 asset of complying superannuation fund, complying ADF or complying PST

30 June 1988

section 306

9

A CGT asset of a CFC (that it owned on its commencing day)

on the CFC’s commencing day

section 411

10

A CGT asset is owned by a tax exempt entity and it becomes taxable

at the transition time

section 57-25 of Schedule 2D


 

Division 110Cost base and reduced cost base

  

Table of Subdivisions

             Guide to Division 110

110-A    Cost base

110-B    Reduced cost base

Guide to Division 110

110-1  What this Division is about

This Division tells you how to work out the cost base and reduced cost base of a CGT asset. You need to know these to work out if you make a capital gain or loss from most CGT events.

Table of sections

110-5        Modifications to general rules

110-10      Rules about cost base not relevant for some CGT events

110-5  Modifications to general rules

                   After you have read the general rules, you need to know if there are any modifications to them. Division 112 lists each situation that may result in a modification and tells you where you can find the detailed provisions for each situation.

110-10  Rules about cost base not relevant for some CGT events

                   This table sets out each CGT event for which you do not need to know what the cost base or reduced cost base of a CGT asset is to work out if you make a capital gain or loss. The section describing the event tells you what amount is relevant instead.

 

Rules about cost base not relevant for some CGT events

Event number


Description of event:


See section:

C3

End of option to acquire shares etc.

104-30

D1

Creating contractual or other rights

104-35

D2

Granting an option

104-40

D3

Granting a right to income from mining

104-45

E9

Creating a trust over future property

104-105

F1

Granting a lease

104-110

F3

Lessor pays lessee to get lease changed

104-120

F5

Lessor receives payment for changing lease

104-130

H1

Forfeiture of deposit

104-150

H2

Receipt for event relating to a CGT asset

104-155

K2

Bankrupt pays amount in relation to debt

104-210

Subdivision 110-ACost base

Table of sections

110-25      General rules about cost base

110-30      Cost base of partnership assets

110-35      Incidental costs

110-25  General rules about cost base

             (1)  The cost base of a *CGT asset consists of 5 elements. It can also include indexation of those elements (except the third one).

To find out how to index expenditure: see Division 114.

Note:          You need to keep records of each element: see Division 121.

5 elements of the cost base

             (2)  The first element is the total of:

                     (a)  the money you paid, or are required to pay, in respect of *acquiring it; and

                     (b)  the market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition).

Note 1:       There are special rules for working out when you are required to pay money or give other property: see section 103-15.

Note 2:       This element is replaced with another amount in many situations: see Division 112.

             (3)  The second element is the *incidental costs you incurred:

                     (a)  to *acquire the *CGT asset; and

                     (b)  that relate to the *CGT event.

                   These costs can include giving property: see section 103-5.

Note:          There is one situation to do with options in which the incidental costs relating to the CGT event are modified: see section 112-85.

             (4)  The third element is the non-capital costs of ownership of the *CGT asset you incurred (but only if you *acquired the asset after 20 August 1991). These costs include:

                     (a)  interest on money you borrowed to acquire the asset; and

                     (b)  costs of maintaining, repairing or insuring it; and

                     (c)  rates or land tax, if the asset is land; and

                     (d)  interest on money you borrowed to refinance the money you borrowed to acquire the asset; and

                     (e)  interest on money you borrowed to finance the capital expenditure you incurred to increase the asset’s value.

                   These costs can include giving property: see section 103-5.

Note:          This element does not apply to personal use assets or collectables: see sections 108-17 and 108-30.

             (5)  The fourth element is capital expenditure you incurred to increase the asset’s value. However, the expenditure must be reflected in the state or nature of the asset at the time of the *CGT event. (The expenditure can include giving property: see section 103-5.)

Note:          There are 3 situations involving leases in which this element is modified: see section 112-80.

             (6)  The fifth element is capital expenditure that you incurred to establish, preserve or defend your title to the asset, or a right over the asset. (The expenditure can include giving property: see section 103-5.)

What does not form part of the cost base

             (7)  Expenditure does not form part of the second or third element of the cost base to the extent that you have deducted or can deduct it.

             (8)  Expenditure does not form part of any element of the cost base to the extent of any amount you have received as *recoupment of it, except so far as the amount is included in your assessable income.

110-30  Cost base of partnership assets

             (1)  Expenditure does not form part of the second or third element of the cost base for your interest in a *CGT asset of a partnership to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct it.

             (2)  Expenditure does not form part of any element of the cost base for your interest in a *CGT asset of a partnership to the extent of any amount that you, or a partnership in which you are or were a partner, have received as *recoupment of it, except so far as the amount is included in your assessable income or the partnership’s assessable income.

110-35  Incidental costs

             (1)  There are 5 incidental costs you may have incurred:

                     (a)  to *acquire a *CGT asset; or

                     (b)  that relate to a *CGT event.

             (2)  The first is remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser. However, remuneration for professional advice about the operation of this Act is not included unless it is provided by a *recognised tax adviser.

Note:          The requirement in subsection (2) that the professional advice be provided by a recognised tax adviser does not apply to expenditure incurred before 1 July 1989: see section 110-35 of the Income Tax (Transitional Provisions) Act 1997.

             (3)  The second is costs of transfer.

             (4)  The third is stamp duty or other similar duty.

             (5)  The fourth is:

                     (a)  if you *acquired a *CGT asset—costs of advertising to find a seller; or

                     (b)  if a *CGT event happened—costs of advertising to find a buyer.

             (6)  The fifth is costs relating to the making of any valuation or apportionment for the purposes of this Part or Part 3-3.

Subdivision 110-BReduced cost base

Table of sections

110-55      General rules about reduced cost base

110-60      Reduced cost base for partnership assets

110-55  General rules about reduced cost base

             (1)  The reduced cost base of a *CGT asset consists of 5 elements. It does not include indexation of those elements.

5 elements of the reduced cost base

             (2)  All of the elements (except the third one) of the reduced cost base of a *CGT asset are the same as those for the *cost base.

             (3)  The third element is:

                     (a)  any amount included in your assessable income for any income year because of a balancing adjustment for the asset; and

                     (b)  any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income):

                              (i)  section 42-285 or 42-290; or

                             (ii)  subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936.

What does not form part of the reduced cost base

             (4)  The reduced cost base does not include an amount to the extent that you have deducted or can deduct it (including because of a balancing adjustment) or could have deducted apart from paragraph 43-70(2)(h).

Note:          That paragraph excludes from deductibility under Division 43 expenditure that qualifies for the heritage conservation rebate.

             (5)  The reduced cost base does not include an amount that is taken into account under paragraph 42-175(b).

Note:          That paragraph covers reductions in the undeducted cost of plant.

             (6)  Expenditure does not form part of the reduced cost base to the extent of any amounts you have received as *recoupment of it. However, this rule does not apply to the extent that the amounts are included in your assessable income.

             (7)  If your *CGT asset is a *share in a company, its reduced cost base is reduced by the amount calculated under subsection (8) if:

                     (a)  the company makes a distribution to you under an *arrangement; and

                     (b)  an amount (the attributable amount) representing the distribution or part of it is reasonably attributable to profits derived by the company before you *acquired the share; and

                     (c)  you are entitled to a rebate of income tax under section 46 or 46A of the Income Tax Assessment Act 1936 (the dividend rebate) on the part of the distribution that is a *dividend (the dividend amount); and

                     (d)  you were a *controller (for CGT purposes) of the company, or an *associate of such a controller, when the arrangement was made or carried out.

             (8)  The amount of the reduction is:

110-60  Reduced cost base for partnership assets

             (1)  The third element of an entity’s reduced cost base for its interest in a *CGT asset of a partnership is the entity’s share of:

                     (a)  an amount included in the assessable income of the partnership because of a balancing adjustment for the asset; and

                     (b)  any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income):

                              (i)  section 42-285 or 42-290; or

                             (ii)  subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936;

calculated according to the entity’s share in the partnership net income or net loss.

             (2)  Expenditure does not form part of an entity’s reduced cost base for its interest in a *CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner has deducted or can deduct it (including because of a balancing adjustment), or could have deducted it apart from paragraph 43-70(2)(h).

             (3)  Expenditure does not form part of an entity’s reduced cost base for its interest in a *CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner has taken the expenditure into account under paragraph 42-175(b).

             (4)  Expenditure does not form part of an entity’s reduced cost base for its interest in a *CGT asset of a partnership to the extent of any amounts that a partnership in which the entity is or was a partner has received as *recoupment of it and that are not included in the assessable income of the partnership.

             (5)  If a *CGT asset of a partnership is a *share in a company, an entity’s reduced cost base for its interest in the share is reduced by the amount calculated under subsection (7) if:

                     (a)  the company makes a distribution to the partnership under an *arrangement; and

                     (b)  an amount (the attributable amount) representing the distribution or part of it is reasonably attributable to profits derived by the company before the partnership *acquired the share; and

                     (c)  the partnership is entitled to a rebate of income tax under section 46 or 46A of the Income Tax Assessment Act 1936 (the dividend rebate) on the part of the distribution that is a *dividend (the dividend amount); and

                     (d)  a partner in the partnership was a *controller (for CGT purposes) of the company, or an *associate of such a controller, when the arrangement was made or carried out.

             (6)  The amount of the reduction is:


 

Division 112Modifications to cost base and reduced cost base

  

Table of Subdivisions

             Guide to Division 112

112-A    General modifications

112-B    Finding tables for special rules

112-C    Replacement-asset roll-overs

112-D    Same-asset roll-overs

Guide to Division 112

112-1  What this Division is about

This Division tells you the situations that may modify the general rules about the cost base and reduced cost base of a CGT asset.

112-5  Discussion of modifications

             (1)  Modifications can occur from the time you acquired the CGT asset to when a CGT event happens in relation to it.

Note:          You should keep records of the modifications: see Division 121.

             (2)  Most modifications replace the first element (what you paid for a CGT asset) of the cost base and reduced cost base of the asset.

             (3)  Subdivision 112-A contains operative provisions setting out the general situations that may result in a modification to the general rules.

             (4)  Subdivision 112-B (which is a guide) has a number of tables (each one covering a specialist topic) that tell you each situation that may result in a modification to the general rules.

             (5)  Subdivision 112-C (which is a guide) explains what a replacement-asset roll-over is and how it can modify the cost base or reduced cost base.

             (6)  Subdivision 112-D (which is a guide) explains what a same-asset roll-over is and how it can modify the cost base or reduced cost base.

Subdivision 112-AGeneral modifications

Table of sections

112-15      General rule for replacement modifications

112-20      Market value substitution rule

112-25      Split, changed or merged assets

112-30      Apportionment rules on acquisition or disposal of part

112-35      Assumption of liability rule

112-15  General rule for replacement modifications

                   If a cost base modification replaces an element of the *cost base of a *CGT asset with an amount, this Part and Part 3-3 apply to you as if you had paid that amount.

Example:    An individual pays $10,000 to acquire an option. The individual dies and the option devolves to his legal personal representative, who exercises the option.

                   Section 134-1 applies to the legal personal representative as if the representative had paid $10,000 for the option.

112-20  Market value substitution rule

             (1)  The first element of your *cost base and *reduced cost base of a *CGT asset you *acquire from another entity is its market value (at the time of acquisition) if:

                     (a)  you did not incur expenditure to acquire it; or

                     (b)  some or all of the expenditure you incurred to acquire it cannot be valued; or

                     (c)  you did not deal at arm’s length with the other entity in connection with the acquisition.

                   The expenditure can include giving property: see section 103-5.

             (2)  Despite paragraph (1)(c), if you did not deal at arm’s length with the other entity and:

                     (a)  your *acquisition of the *CGT asset resulted from *CGT event D1 happening; or

                     (b)  the *CGT asset is a *share in a company that was issued or allotted to you by the company; or

                     (c)  the *CGT asset is a unit in a unit trust issued to you by the trustee of the unit trust;

the market value is substituted only if what you paid to acquire the CGT asset was more than its market value (at the time of acquisition).

                   The payment can include giving property: see section 103-5.

             (3)  The rule in subsection (1) does not apply in the situations set out in this table:

 

Exceptions to the market value substitution rule

Item

You *acquired this CGT asset:

...in this situation:

1

A right to receive *ordinary income or *statutory income from a trust (except a unit trust or a trust that arises because of someone’s death)

(a)  you did not pay or give anything for the right; and

(b) you did not acquire the right by way of an assignment from another entity

2

A decoration awarded for valour or brave conduct

you did not pay or give anything for it

3

A contractual or other legal or equitable right

you did not pay or give anything for it

4

Rights to *acquire:

(a)  *shares, or options to acquire *shares, in a company; or

(b) units, or options to acquire units, in a unit trust;

in a situation covered by Subdivision 130-B

you did not pay or give anything for the rights

5

A *share in a company

it was issued or allotted to you by the company and you did not pay or give anything for it

6

A unit in a unit trust

it was issued to you by the trustee of the unit trust and you did not pay or give anything for it

Note:          Disregard subsections (2) and (3) for shares or units that you acquired before 16 August 1989: see section 112-20 of the Income Tax (Transitional Provisions) Act 1997.

112-25  Split, changed or merged assets

Split or changed assets

             (1)  This section sets out what happens if:

                     (a)  a *CGT asset (the original asset) is split into 2 or more assets (the new assets); or

                     (b)  a *CGT asset (also the original asset) changes in whole or in part into an asset (also the new asset) of a different nature;

and you are the beneficial owner of the original asset and each new asset.

Example:    You subdivide a block of land into 3 separate blocks. Each of those blocks is a new asset.

             (2)  The splitting or change is not a *CGT event.

             (3)  You work out the *cost base and *reduced cost base of each new asset as follows:

Method statement

Step 1.   Work out each element of the *cost base and *reduced cost base of the original asset at the time of the event referred to in subsection (1).

Step 2.   Apportion in a reasonable way each element to each new asset. The result is each corresponding element of the new asset’s *cost base and *reduced cost base.

Merged assets

             (4)  If 2 or more *CGT assets (the original assets) are merged into a single asset (the new asset) and you are the beneficial owner of the original assets and the new asset:

                     (a)  the merger is not a *CGT event; and

                     (b)  each element of the *cost base and *reduced cost base of the new asset (at the time of the merging) is the sum of the corresponding elements of each original asset.

112-30  Apportionment rules on acquisition or disposal of part

Apportionment on acquisition of an asset

             (1)  If you *acquire a *CGT asset because of a transaction and only part of the expenditure you incurred under the transaction relates to the acquisition of the asset, the first element of your *cost base and *reduced cost base of the asset is that part of the expenditure that is reasonably attributable to the acquisition of the asset.

                   The expenditure can include giving property: see section 103-5.

Apportionment of expenditure in other elements

          (1A)  If you incur expenditure and only part of it relates to another element of the *cost base or *reduced cost base of a *CGT asset, that element includes that part of the expenditure that is reasonably attributable to that element.

Apportionment for CGT asset that was part of another asset

             (2)  The *cost base and *reduced cost base of a *CGT asset is apportioned if a *CGT event happens to some part of the asset, but not to the remainder of it.

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

             (3)  The *cost base for the *CGT asset representing the part to which the *CGT event happened is worked out using the formula:

                   The *reduced cost base is worked out similarly.

             (4)  The remainder of the *cost base and *reduced cost base of the asset is attributed to the part that remains.

Example:    You acquire a truck for $24,000 and sell its motor for $9,000. Suppose the market value of the remainder of the truck is $16,000.

                   Under subsection (4), the cost base of the motor is:

                   Under subsection (5), the cost base of the remainder of the truck is:

             (5)  However, an amount forming part of the *cost base or *reduced cost base of the asset is not apportioned if, on the facts, that amount is wholly attributable to the part to which the *CGT event happened or to the remaining part.

112-35  Assumption of liability rule

                   If you *acquire a *CGT asset from another entity that is subject to a liability, the first element of your *cost base and *reduced cost base of the asset includes the amount of the liability you assume.

Example:    You acquire a block of land for $150,000. You pay $50,000 and assume a liability for an outstanding mortgage of $100,000.

Note:          The first element of cost base is dealt with in subsection 110-30(2). The first element of reduced cost base is the same: see subsection 110-55(2).

Subdivision 112-BFinding tables for special rules

Table of sections

112-40      Effect of this Subdivision

112-45      CGT events

112-50      Main residence

112-55      Effect of you dying

112-60      Bonus shares or units

112-65      Rights

112-70      Convertible notes

112-75      Employee share schemes

112-80      Leases

112-85      Options

112-87      Residency

112-90      An asset stops being a pre-CGT asset

112-95      Transfer of net capital losses within wholly-owned groups of companies

112-97      Modifications outside this Part and Part 3-3

112-40  Effect of this Subdivision

             (1)  This Subdivision is a *Guide.

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

             (2)  It sets out which element of the cost base or reduced cost base of a CGT asset is affected by various situations.

112-45  CGT events

 

CGT events

Event number


In this situation:


Element affected:


See section:

E1

A trust is created over a CGT asset

First element of cost base and reduced cost base

104-55

E4

A trustee makes a capital payment to you in relation to units or an interest in the trust

The total cost base and reduced cost base

104-70

F4

A lessee receives payment for changing lease

The total cost base

104-125

G1

A company makes a capital payment to you in relation to your shares

The total cost base and reduced cost base

104-135

G2

There is a shift in share values

The total cost base and reduced cost base

140-60
140-95

G2

There is a shift in share values

Fourth element of cost base and reduced cost base

140-65

G3

A liquidator declares shares to be worthless

The total cost base and reduced cost base

104-145

K1

There is a partial realisation of an item of intellectual property

The total cost base

104-205

112-50  Main residence

 

Main residence

Item

In this situation:

Element affected:

See section:

1

A dwelling that is your main residence begins to be used for the first time for the purpose of producing assessable income

The total cost base and reduced cost base

118-192

112-55  Effect of you dying

 

Effect of an individual dying

Item

In this situation:

Element affected:

See section:

1

CGT asset devolves to the legal personal representative

First element of cost base and reduced cost base

128-15

2

CGT asset passes to a beneficiary

First element of cost base and reduced cost base

128-15

3

CGT asset passes to a trustee of:

(a)  a complying superannuation fund; or

(b) a complying approved deposit fund; or

(c)  a pooled superannuation trust

First element of cost base and reduced cost base

128-25

4

Surviving joint tenant acquires deceased joint tenant’s interest in CGT asset

First element of cost base and reduced cost base

128-50

112-60  Bonus shares or units

 

Bonus shares or units

Item

In this situation:

Element affected:

See section:

1

A company issues you with bonus shares because of a dividend or other amount it owes you

First element of cost base and reduced cost base

130-20

2

A unit trust issues you with bonus units because of a dividend or other amount it owes you

First element of cost base and reduced cost base

130-20

112-65  Rights

 

Exercise of rights

Item

In this situation:

Element affected:

See section:

1

You exercise rights to acquire shares, or options to acquire shares, in a company

First element of cost base and reduced cost base

130-40

2

You exercise rights to acquire units, or options to acquire units, in a unit trust

First element of cost base and reduced cost base

130-40

112-70  Convertible notes

 

Convertible notes

Item

In this situation:

Element affected:

See section:

1

You acquire shares, or units in a unit trust, by converting a convertible note

First element of cost base and reduced cost base

130-60

112-75  Employee share schemes

 

Employee share schemes

Item

In this situation:

Element affected:

See section:

1

You acquire a share or right at a discount under an employee share scheme

First element of cost base and reduced cost base

130-80
130-85

112-80  Leases

 

Leases

Item

In this situation:

Element affected:

See section:

1

A lessee incurs expenditure in obtaining the lessor’s agreement to vary or waive a term of the lease

Fourth element of cost base and reduced cost base

132-1

2

A lessor pays an amount to the lessee for improvements made by the lessee to the property

Fourth element of cost base and reduced cost base

132-5

3

A lessor of a long-term lease incurs expenditure in obtaining the lessee’s agreement to vary or waive a term of the lease or to forfeit or surrender the lease

Fourth element of cost base and reduced cost base

132-10

4

A lessee of land acquires the reversionary interest of the lessor

First element of cost base and reduced cost base

132-15

112-85  Options

 

Exercise of options

Item

In this situation:

Element affected:

See section:

1

Grantee of option acquires the CGT asset the subject of the option

First element of cost base and reduced cost base

134-1

2

Grantor of option acquires the CGT asset the subject of the option

For the grantor—the first element of cost base and reduced cost base;

For the grantee—the second element of cost base and reduced cost base

134-1

112-87  Residency

 

Residency

Item

In this situation:

Element affected:

See section:

1

An individual or company becomes an Australian resident

First element of cost base and reduced cost base

136-40

2

A trust becomes a resident trust for CGT purposes

First element of cost base and reduced cost base

136-45

112-90  An asset stops being a pre-CGT asset

 

An asset stops being a pre-CGT asset

Item

In this situation:

Element affected:

See section:

1

An asset of a non-public entity stops being a pre-CGT asset

The total cost base and reduced cost base

149-35

2

An asset of a public entity stops being a pre-CGT asset

The total cost base and reduced cost base

149-75

112-95  Transfer of net capital losses within wholly-owned groups of companies

 

Transfer of net capital losses within wholly-owned groups of companies

Item

In this situation:

Element affected:

See section:

1

An amount of a net capital loss is transferred and a company owns a share in the loss company or is owed a debt by it

The total cost base and reduced cost base

170-175

2

An amount of a net capital loss is transferred and a company owns a share in the gain company or is owed a debt by it

The total cost base and reduced cost base

170-180

112-97  Modifications outside this Part and Part 3-3

                   This table sets out other cost base modifications outside this Part and Part 3-3.

                   Provisions of the Income Tax Assessment Act 1936 are in bold.

 

Modifications outside this Part and Part 3-3

Item

In this situation

Element affected:

See:

1

You stop holding an item as trading stock

First element of cost base and reduced cost base

Paragraph 70-110(b)

2

CGT event happens to Cocos (Keeling) Islands asset

First element of cost base and reduced cost base

section 24P

3

CGT event happens by the borrower disposing of the borrowed security to a third party

First element of cost base and reduced cost base

paragraph 26BC(9)(a)

4

CGT event happens to replacement security and compensatory payment was incurred by the borrower

Second element of cost base and reduced cost base

subsection 26BC(9A)

5

CGT event happens to CGT asset in connection with the demutualisation of an insurance company

First element of cost base and reduced cost base

section 121AS

6

CGT event happens to assets of NSW State Bank

First element of cost base and reduced cost base

section 121EN

7

Trust ceases to be a resident trust for CGT purposes and there is an attributable taxpayer

The total cost base and reduced cost base

section 102AAZBA

< P class=Table>8

You own shares in a company that stops being a PDF

First element of cost base and reduced cost base

section 124ZR

9

You acquire a number of shares that results in you obtaining a 10% (threshold) interest in a SME

First element of cost base and reduced cost base

section 128TI

10

CGT event happens to CGT asset used in gold mining

The total cost base

section 159GZZZBC

11

CGT event happens to CGT asset used in gold mining

The total reduced cost base

section 159GZZZBD

12

Shares in a holding company are cancelled

The total cost base and reduced cost base

section 159GZZZH

13

CGT event happens to 30 June 1988 asset of complying superannuation funds, complying ADF or PST

First element of cost base and reduced cost base

section 308

14

CGT event happens to CGT asset of complying superannuation fund, ADF or PST

First element of cost base and reduced cost base

section 311

15

A CGT asset of a CFC is taken into account in calculating its attributable income

First element of cost base and reduced cost base

section 412

16

A CGT asset of a CFC is taken into account in calculating its attributable income

First element of cost base and reduced cost base

subsection 413(2)

17

A CGT asset of a CFC is taken into account in calculating its attributable income

First element of cost base and reduced cost base

subsection 413(3)

18

A CGT asset of a CFC is taken into account in calculating its attributable income

First element of cost base and reduced cost base

section 414

19

A commercial debt is forgiven

The total cost base and reduced cost base of CGT assets of the debtor (except assets that are excluded assets under Schedule 2C)

sections 245-175 to 245-190 of Schedule 2C

20

A tax exempt entity becomes taxable

First element of cost base and reduced cost base

section 57-25 of Schedule 2D

Subdivision 112-CReplacement-asset roll-overs

Table of sections

112-100    Effect of this Subdivision

112-105    What is a replacement-asset roll-over?

112-110    How is the cost base of the replacement asset modified?

112-115    Table of replacement-asset roll-overs

112-100  Effect of this Subdivision

                   This Subdivision is a *Guide.

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

112-105  What is a replacement-asset roll-over?

             (1)  A replacement-asset roll-over allows you to defer the making of a capital gain or a capital loss from one CGT event until a later CGT event happens.

             (2)  It involves your ownership of one CGT asset (the original asset) ending and you acquiring another one (the replacement asset).

             (3)  All replacement-asset roll-overs are set out in Divisions 122 and 124 of this Act and Division 17A of Part IIIA of the Income Tax Assessment Act 1936.

112-110  How is the cost base of the replacement asset modified?

                   If you acquired the original asset on or after 20 September 1985:

                     (a)  the first element of the replacement asset’s cost base is replaced by the original asset’s cost base at the time you acquired the replacement asset; and

                     (b)  the first element of the replacement asset’s reduced cost base is replaced by the original asset’s  reduced cost base at the time you acquired the replacement asset.

Note 1:       Some replacement-asset roll-overs involve other rules that affect the cost base or reduced cost base of the replacement asset.

Note 2:       If you acquired the original asset before 20 September 1985, you are taken to have acquired the replacement asset before that day: see Subdivision 124-A.

112-115  Table of replacement-asset roll-overs

                   This table sets out all the replacement-asset roll-overs and tells you where you can find more detail about each one.

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

 

Replacement-asset roll-overs

Item

For the rules about this roll-over:

See:

1

Disposal or creation of assets by individual to a wholly-owned company

sections 122-40 to 122-65

2

Disposal or creation of assets by partners to a wholly-owned company

sections 122-150 to 122-195

3

CGT event happens to small business assets and you acquire replacement assets

Division 17A of Part IIIA

4

Asset compulsorily acquired, lost or destroyed

Subdivision 124-B

5

Renewal or extension of a statutory licence

Subdivision 124-C

6

Strata title conversion

Subdivision 124-CD

7

Exchange of shares in the same company or units in the same unit trust

Subdivision 124-E

8

Exchange of rights or options to acquire shares in a company or units in a unit trust

Subdivision 124-F

9

Exchange of shares in one company for shares in an interposed company

Subdivision 124-G

10

Exchange of units in a unit trust for shares in a company

Subdivision 124-H

11

Body is converted to an incorporated company

Subdivision 124-I

12

Crown leases

Subdivision 124-J

13

Plant

Subdivision 124-K

14

Prospecting and mining entitlements

Subdivision 124-L

15

Disposal of a security under a securities lending arrangement

section 26BC

Subdivision 112-DSame-asset roll-overs

Table of sections

112-135    Effect of this Subdivision

112-140    What is a same-asset roll-over?

112-145    How is the cost base of the asset modified?

112-150    Table of same-asset roll-overs

112-135  Effect of this Subdivision

                   This Subdivision is a *Guide.

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

112-140  What is a same-asset roll-over?

                   A same-asset roll-over allows one entity (the transferor) to disregard a capital gain or loss it makes from disposing of a CGT asset to, or creating a CGT asset in, another entity (the transferee). Any gain or loss is deferred until another CGT event happens in relation to the asset (in the hands of the transferee).

                   All same-asset roll-overs are set out in Divisions 122 and 126.

112-145  How is the cost base of the asset modified?

                   If the transferor acquired the asset on or after 20 September 1985:

                     (a)  the first element of the asset’s cost base (in the hands of the transferee) is replaced by the asset’s cost base at the time the transferee acquired it; and

                     (b)  the first element of the asset’s reduced cost base (in the hands of the transferee) is replaced by the asset’s reduced cost base at the time the transferee acquired it.

Note:          If the transferor acquired the asset before 20 September 1985, the transferee is taken to have acquired it before that day: see Subdivision 126-A.

112-150  Table of same-asset roll-overs

                   This table sets out all the same-asset roll-overs and tells you where you can find more detail about each one.

 

Same-asset roll-overs

Item

For the rules about this roll-over:

See:

1

Transfer of a CGT asset from one spouse to the other because of a marriage breakdown

Subdivision 126-A

2

Transfer of a CGT asset from a company or trust to a spouse because of a marriage breakdown

Subdivision 126-A

3

Transfer of a CGT asset to a wholly-owned company

sections 122-70 and 122-75

4

Transfer of a CGT asset of a partnership to a wholly-owned company

Sections 122-200 and 122-205

5

Transfer of a CGT asset between related companies

Subdivision 126-B

6

CGT event happens because a trust deed of a complying approved deposit fund or complying superannuation fund is changed

Subdivision 126-C


 

Division 114Indexation of cost base

  

Table of sections

114-1        Indexing elements of cost base

114-5        When indexation relevant

114-10      Requirement for 12 months ownership

114-15      Cost base modifications

114-20      When expenditure is incurred for roll-overs

114-1  Indexing elements of cost base

                   In working out the *cost base of a *CGT asset, index expenditure in each element. (The expenditure can include giving property: see section 103-5).

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

Note 2:       You have to work out the cost base of a CGT asset if a CGT event happens in relation to it or if there is a cost base modification.

Note 3:       You cannot index expenditure in the third element (non-capital costs of ownership): see subsection 960-275(4).

Example:    Peter purchases a building as an investment on 1 January 1994 for $250,000. This amount forms the first element of his cost base.

                   He sold the building on 1 February 1996.

                   The index number for the quarter in which he sold the building (the March quarter 1996) is 119.0. The index number for the quarter in which he purchased the building (the March quarter 1994) is 110.4.

                   Applying section 960-275, work out the indexation factor as follows:

                   The indexed first element of Peter’s cost base is:

114-5  When indexation relevant

                   Indexation is only relevant if the *cost base of a *CGT asset is relevant to a *CGT event.

Note 1:       The table in section 110-10 sets out the CGT events for which cost base is not relevant.

Note 2:       Indexation is not relevant to the reduced cost base of a CGT asset.

114-10  Requirement for 12 months ownership

             (1)  You only index expenditure in the *cost base of a *CGT asset for a *CGT event happening in relation to the asset if you, or the entity whose cost base is being worked out, had *acquired the asset at least 12 months before the time of that *CGT event.

Note:          Generally, expenditure is indexed from when it is incurred: see subsection 960-275(2). The exception is when there is an acquisition that did not result from a CGT event. The first element in this case is indexed from when the expenditure was paid: see subsection 960-275(3).

             (2)  There are 5 exceptions:

                        •  one for *CGT event E8: see subsection (3); and

                        •  one for roll-overs: see subsections (4) and (5); and

                        •  one for deceased estates: see subsection (6); and

                        •  one for a surviving joint tenant: see subsection (7); and

                        •  one for *CGT event J1: see subsection (8).

CGT event E8

             (3)  For *CGT event E8, the beneficiary indexes the *cost bases of the *CGT assets of the trust only if the beneficiary *acquired the *CGT asset that is the interest in the trust capital at least 12 months before *disposing of it.

                   It does not matter (for indexation from the beneficiary’s point of view) how long the trustee owned any of the assets of the trust.

Same asset roll-overs

             (4)  The 12 month rule is satisfied for both the entity that owned a *CGT asset before a *same-asset roll-over and the entity that owned it after the roll-over if the sum of their periods of ownership of the asset (and the sum of the periods of ownership of the asset of other entities involved in an unbroken series of roll-overs) is at least 12 months.

Replacement asset roll-overs

             (5)  The 12 month rule is satisfied for an entity obtaining a *replacement-asset roll-over for a *CGT event happening in relation to a *CGT asset if the period of the entity’s ownership of the original asset (and of other assets for an unbroken series of replacement-asset roll-overs) and of the replacement asset are together at least 12 months.

Example:    Company A transfers a CGT asset to Company B (which is a member of the same wholly-owned group) 5 months after acquiring it. There is a roll-over for the transfer under Subdivision 126-B.

                   Company B sells the asset 8 months after the transfer.

                   Company A indexes expenditure in its cost base up to the transfer. That cost base becomes the first element of Company B’s cost base. Company B indexes its cost base from the transfer to the sale.

Deceased estates

             (6)  If a *CGT asset you owned just before dying devolves to your *legal personal representative or *passes to a beneficiary in your estate, the 12 month rule applies to the legal personal representative or the beneficiary as if that entity had *acquired the asset when you acquired it.

Surviving joint tenant

             (7)  If individuals own a *CGT asset as joint tenants and one of them dies, the 12 month rule applies to the surviving joint tenant as if the surviving joint tenant had *acquired the deceased’s interest in the asset when the deceased acquired it.

Note:          The surviving joint tenant is taken to have acquired the deceased’s interest in the asset: see section 128-50.

CGT event J1

             (8)  If *CGT event J1 happens, the company that owns the roll-over asset ignores (for indexation purposes) the acquisition rule in subsection 104-175(8).

114-15  Cost base modifications

             (1)  There are a number of modifications to the *cost base of *CGT assets (see sections 112-20 and 112-35 and Subdivisions 112-B, 112-C and 112-D). These affect the way indexation works.

             (2)  If a cost base modification replaces an element of the *cost base of a *CGT asset with an amount, or includes an amount in such an element, you index the element or the amount as if expenditure equal to the amount had been incurred in the quarter in which the modification occurred.

Example:    A trust is declared over a CGT asset (an example of CGT event E1). The first element of the cost base in the hands of the trustee is its market value. The trustee indexes that market value from the quarter in which the trust was declared.

             (3)  A different rule applies if a cost base modification reduces the total *cost base of a *CGT asset.

Method statement

Step 1.   Work out the *cost base (all elements) of the asset as at the quarter in which the modification occurred.

Step 2.   Subtract the amount of the reduction.

Step 3.   The Step 2 amount forms a new first element of your *cost base, and is later indexed as if you had incurred expenditure equal to that amount in the quarter in which the modification occurred.

Example:    Margaret receives a capital payment of $1,000 for shares (an example of CGT event G1). The first element of her cost base is $10,250 (indexed to the quarter in which the payment was made) and the second element (similarly indexed) is $210. Add those amounts ($10,460) and subtract the $1,000. Her new first element of the cost base is $9,460. There are no other elements at that time.

114-20  When expenditure is incurred for roll-overs

                   If there is a roll-over for a *CGT event happening in relation to a *CGT asset and the first element of the *cost base of the asset is the whole of the cost base of:

                     (a)  for a *replacement-asset roll-over, the original asset; or

                     (b)  for a *same-asset roll-over, the CGT asset;

you index that element as if expenditure equal to the amount in that element had been incurred in the quarter in which the CGT event happened.


 

Division 116Capital proceeds

  

Guide to Division 116

116-1  What this Division is about

This Division tells you how to work out what the capital proceeds from a CGT event are. You need to know this to work out if you made a capital gain or loss from the event.

Table of sections

116-5        General rules

116-10      Modifications to general rules

General rules

116-20      General rules about capital proceeds

Modifications to general rules

116-25      Table of modifications to the general rules

116-30      Market value substitution rule: modification 1

116-40      Apportionment rule: modification 2

116-45      Non-receipt rule: modification 3

116-50      Repaid rule: modification 4

116-55      Assumption of liability rule: modification 5

Special rules

116-65      Disposal of a CGT asset the subject of an option

116-70      Option requiring both acquisition and disposal

116-75      Special rule for CGT event C2 happening to a lease

116-80      Special rule if CGT asset is shares or an interest in a trust

116-85      Section 47A of 1936 Act applying to rolled-over asset

116-95      Company changes residence from an unlisted country

116-5  General rules

                   Section 116-20 sets out the general rules about capital proceeds. They are relevant to each CGT event that is listed in the table in section 116-25.

116-10  Modifications to general rules

             (1)  There are 5 modifications to the general rules that may be relevant. The table in section 116-25 lists which ones may be relevant to each CGT event listed in the table.

Explanation of modifications

             (2)  The first is a market value substitution rule. It is relevant if:

                          you receive no capital proceeds from a CGT event; or

                        •  some or all of the capital proceeds cannot be valued; or

                          you did not deal at arm’s length with another entity in connection with the event.

             (3)  The second is an apportionment rule. It is relevant if a payment you receive in connection with a transaction relates in part only to a CGT event.

Example:    You sell 3 CGT assets for a total of $100,000. The $100,000 needs to be apportioned between the 3 assets.

             (4)  The third is a non-receipt rule. It is relevant if you do not receive, or are not likely to receive, some or all of the capital proceeds from a CGT event.

             (5)  The fourth is a repaid rule. It is relevant if you are required to repay some or all of the capital proceeds from a CGT event.

             (6)  The fifth is relevant only if another entity assumes a liability in connection with a CGT event.

Note:          Also, these provisions of the Income Tax Assessment Act 1936 modify capital proceeds:

·       sections 159GZZZF and 159GZZZG (cancellation of shares in a holding company);

·       sections 159GZZZQ and 159GZZZS (buy-backs of shares);

·       sections 401, 422, 423 and 461 (CFC’s);

·       section 613 (foreign investment funds).

General rules

116-20  General rules about capital proceeds

             (1)  The capital proceeds from a *CGT event are the total of:

                     (a)  the money you have received, or are entitled to receive, in respect of the event happening; and

                     (b)  the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event).

Note 1:       The timing rules for each event are in Division 104.

Note 2:       In some situations you are treated as having received money or other property, or being entitled to receive it: see section 103-10.

Note 3:       If you dispose of shares in a buy-back, the capital proceeds are worked out under Division 16K of the Income Tax Assessment Act 1936.

             (2)  This table sets out what the capital proceeds from *CGT events F1, F2 and H2 are:

 

General rules about capital proceeds

Event number

Description of event:


The capital proceeds are:

F1

Granting, renewing or extending a lease

Any premium paid or payable to you for the grant, renewal or extension

F2

Granting, renewing or extending a long-term lease

The greatest of:

(a)  the market value of the estate in fee simple or head lease (worked out when you grant, renew or extend the lease); and

(b) what would have been that market value if you had not granted, renewed or extended the lease; and

(c)  any premium paid or payable to you for the grant, renewal or extension

H2

Receipt for event relating to a CGT asset

The money or other consideration you received, or are entitled to receive, because of the act, transaction or event

             (3)  In working out the market value of the property the subject of the grant, renewal or extension of a long-term lease:

                     (a)  include the market value of any building, part of a building, structure or improvement that is treated as a separate *CGT asset from the property; and

                     (b)  disregard any *plant for which the lessor has deducted or can deduct an amount for depreciation under this Act.

Note:          Subdivision 108-D sets out when a building, structure or improvement is treated as a separate CGT asset.

             (4)  In working out the amount of any premium paid or payable to the lessor for the grant, renewal or extension of a long-term lease, disregard any part of it that is attributable to *plant of that kind.

                   The payment of any premium can include giving property: see section 103-5.

Modifications to general rules

116-25  Table of modifications to the general rules

                   There are 5 modifications to the general rules that may be relevant to a *CGT event. This table tells you:

                          each *CGT event for which the general rules about *capital proceeds are relevant; and

                          the modifications that can apply to that event; and

                          any special rules that apply to that event.

 

Capital proceeds modifications


Event number



Description of event:

Only these modifications can apply:



Special rules:

A1

Disposal of a CGT asset

1, 2, 3, 4, 5

If the disposal is because another entity exercises an option: see section 116-65

If the disposal is of *shares or an interest in a trust: see section 116-80

B1

Use and enjoyment before title passes

1, 2, 3, 4, 5

None

C1

Loss or destruction of a CGT asset

2, 3, 4

None

C2

Cancellation, surrender and similar endings

1, 2, 3, 4

See sections 116-75 and 116-80

C3

End of option to acquire shares etc.

2, 3, 4

None

D1

Creating contractual or other rights

1, 2, 3, 4

None

D2

Granting an option

1, 2, 3, 4

See section 116-70

D3

Granting a right to income from mining

1, 2, 3, 4

None

K1

Partial realisation of intellectual property

1, 2, 3, 4

None

E1

Creating a trust over a CGT asset

1, 2, 3, 4, 5

None

E2

Transferring a CGT asset to a trust

1, 2, 3, 4, 5

None

E8

Disposal by beneficiary of capital interest

1, 2, 3, 4, 5

See section 116-80

F1

Granting a lease

2, 3, 4

None

F2

Granting a long-term lease

2, 3, 4

None

F4

Lessee receives payment for changing lease

2, 3, 4

None

F5

Lessor receives payment for changing lease

2, 3, 4

None

H2

Receipt for event relating to a CGT asset

2, 3, 4

None

K6

Pre-CGT shares or trust interest

1, 2, 3, 4, 5

None

116-30  Market value substitution rule: modification 1

No capital proceeds

             (1)  If you received no *capital proceeds from a *CGT event, you are taken to have received the market value of the *CGT asset that is the subject of the event. (The market value is worked out as at the time of the event.)

Example:    You give a CGT asset to another entity. You are taken to have received the market value of the CGT asset.

There are capital proceeds

             (2)  The *capital proceeds from a *CGT event are replaced with the market value of the *CGT asset that is the subject of the event if:

                     (a)  some or all of those proceeds cannot be valued; or

                     (b)  those capital proceeds are more or less than the market value of the asset and:

                              (i)  you and the entity that *acquired the asset from you did not deal with each other at arm’s length in connection with the event; or

                             (ii)  the CGT event is the redemption, release, abandonment, surrender, forfeiture or cancellation of the asset.

(The market value is worked out as at the time of the event.)

Note:          The matters set out in subparagraph (2)(b)(ii) are examples of CGT event C2.

Market value for CGT event C2

             (3)  Subsection (1) does not apply to:

                     (a)  these examples of *CGT event C2:

                              (i)  the expiry of a *CGT asset you own;

                             (ii)  the cancellation of your statutory licence; or

                     (b)  *CGT event D1 (about creating contractual or other rights).

          (3A)  If you need to work out the market value of a *CGT asset that is the subject of *CGT event C2, work it out as if the event had not occurred and was never proposed to occur.

Example:    A company cancels shares you own in it. You work out the market value of the shares by disregarding the cancellation.

CGT assets the subject of certain events

             (4)  To avoid doubt, the *CGT asset that is the subject of a *CGT event specified in this table is the asset so specified.

 

*CGT assets the subject of certain events

For this *CGT event:


This asset is the subject of the event:

D1

the right you created

D2

the option you granted

D3

the right you granted

E8

your interest or part interest in the trust capital

K1

your partially realised item of *intellectual property

K6

the *share or interest you *acquired before 20 September 1985

116-40  Apportionment rule: modification 2

             (1)  If you receive a payment in connection with a transaction that relates to more than one *CGT event, the capital proceeds from each event are so much of the payment as is reasonably attributable to that event.

Example:    You sell a block of land and a boat for a total of $100,000. This transaction involves 2 CGT events.

                   The $100,000 must be divided among the 2 events. The capital proceeds from the disposal of the land are so much of the $100,000 as is reasonably attributable to it. The rest relates to the boat.

             (2)  If you receive a payment in connection with a transaction that relates to one *CGT event and something else, the capital proceeds from the event are so much of the payment as is reasonably attributable to the event.

Example:    You are an architect. You receive $70,000 for selling a block of land and giving advice to the new owner. This transaction involves one CGT event: the disposal of the land.

                   The capital proceeds from the disposal of the land is so much of the $70,000 as is reasonably attributable to that disposal.

             (3)  The payment can include giving property: see section 103-5.

116-45  Non-receipt rule: modification 3

             (1)  The *capital proceeds from a *CGT event are reduced if:

                     (a)  you are not likely to receive some or all (the unpaid amount) of those proceeds; and

                     (b)  this is not because of anything you (or your *associate) have done or omitted to do; and

                     (c)  you took all reasonable steps to get the unpaid amount paid.

                   The *capital proceeds are reduced by the unpaid amount.

Note:          This rule exists because the general rules treat you as having received an amount when you are entitled to receive it.

Example     You sell a painting to another entity for $5,000 (the capital proceeds). You agree to accept monthly instalments of $100.

                   You receive $2,000, but then the other entity stops making payments. It becomes clear that you are not likely to receive the remaining $3,000. The capital proceeds are reduced to $2,000.

             (2)  There is a further consequence if:

                     (a)  those proceeds are reduced by the unpaid amount; but

                     (b)  you later receive a part of that amount.

                   Those proceeds are increased by that part.

             (3)  This Part and Part 3-3 apply to the debt owed to you (the unpaid amount) as if it were not a *CGT asset.

116-50  Repaid rule: modification 4

             (1)  The *capital proceeds from a *CGT event are reduced by:

                     (a)  any part of them that you repay; or

                     (b)  any compensation you pay that can reasonably be regarded as a repayment of part of them.

However, the *capital proceeds are not reduced by any part of the payment that you can deduct.

Example:    You sell a block of land for $50,000 (the capital proceeds). The purchaser later finds out that you misrepresented a term in the contract. The purchaser sues you and the court orders you to pay $10,000 in damages to the purchaser.

                   The capital proceeds are reduced by $10,000.

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

116-55  Assumption of liability rule: modification 5

                   The *capital proceeds from a *CGT event are increased if another entity *acquires the *CGT asset (the subject of the event) subject to a liability by way of security over the asset.

                   They are increased by the amount of the liability the other entity assumes.

Example:    You sell land for $150,000. You receive $50,000 (the capital proceeds) and the buyer becomes responsible for a $100,000 liability under an outstanding mortgage. The capital proceeds are increased by $100,000 to $150,000.

Special rules

116-65  Disposal of a CGT asset the subject of an option

                   If you *dispose of a *CGT asset because another entity exercises an option you granted in relation to the asset, the *capital proceeds from the disposal include any payment you received for granting the option.

                   The payment can include giving property: see section 103-5.

Note:          This situation is an example of CGT event A1.

116-70  Option requiring both acquisition and disposal

                   If an option you granted requires you both to *acquire and *dispose of a *CGT asset, the option is treated as 2 separate options and half of the *capital proceeds from the grant is attributed to each option.

116-75  Special rule for CGT event C2 happening to a lease

                   The *capital proceeds from the expiry, surrender or forfeiture of a lease (an example of *CGT event C2) include any payment (because of the lease ending) by the lessor to the lessee for expenditure of a capital nature incurred by the lessee in making improvements to the leased property.

                   The payment or expenditure can include giving property: see section 103-5.

116-80  Special rule if CGT asset is shares or an interest in a trust

             (1)  This section sets out what happens if:

                     (a)  there is a fall in the market value of a *personal use asset (other than a car, motor cycle or similar vehicle) or a *collectable of a company or trust; and

                     (b)  *CGT event A1, C2 or E8 happens to:

                              (i)  *shares you own in the company (or in a company that is a member of the same *wholly-owned group); or

                             (ii)  an interest you have in the trust.

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

             (2)  The *capital proceeds from the event are replaced with the market value of the *shares, or the interest in the trust.

                   The market value is worked out as at the time of the event as if the fall in market value of the *personal use asset or *collectable had not occurred.

Note:          You may also make a collectable loss: see CGT event K5.

116-85  Section 47A of 1936 Act applying to rolled-over asset

             (1)  You reduce the *capital proceeds from a *CGT event that happens in relation to a *CGT asset you have if the conditions in this table are satisfied.

 

Conditions for reduction

Item

Condition

1

You must have *acquired the asset from a company or *CFC

2

Either:

(a)  the company obtained a roll-over for the *CGT event that resulted in your *acquisition of the asset; or

(b) the *CFC obtained a roll-over for that event in applying Division 7 of Part X of the Income Tax Assessment Act 1936 for the purpose of working out the *attributable income of a company in relation to any entity except a roll-over under Subdivision 124-J (about Crown leases), 124-K (about plant) or 124-L (about prospecting and mining entitlements)

3

The company or *CFC is taken, under section 47A of the Income Tax Assessment Act 1936, to have paid you a dividend in relation to that event, and:

(a)  some or all of the dividend is included in your assessable income under section 44 of that Act; or

(b) an amount is included in another entity’s assessable income in respect of the dividend under section 458 or 459 of that Act

Note:          For roll-overs: see Divisions 122, 124 and 126.

             (2)  The reduction is the lesser of:

                     (a)  the amount of the dividend; and

                     (b)  the amount of any *capital gain that, apart from the roll-over, the company or *CFC would have made from the *CGT event if its *capital proceeds from the event had been the asset’s market value (at the time of the event).

             (3)  The amount of that *capital gain is worked out:

                     (a)  for the company—under this Part and Part 3-3; or

                     (b)  for the *CFC—under this Part and Part 3-3 in their application for the purpose of calculating the *attributable income of the CFC in relation to the entity referred to in paragraph (b) of condition 3 in the table in subsection (1).

Note:          This section is disregarded in calculating the attributable income of a CFC: see section 410 of the Income Tax Assessment Act 1936.

116-95  Company changes residence from an unlisted country

             (1)  This section sets out what happens if:

                     (a)  a *CFC ceases at a time (the residency change time) to be a resident of an *unlisted country and becomes a resident of a *listed country; and

                    (aa)  subsection 457(3) of the Income Tax Assessment Act 1936 does not apply to the change of residence; and

                     (b)  because of the change in its residency status, an amount is included in an entity’s assessable income under section 457 of the Income Tax Assessment Act 1936 (including because of paragraph 58(1)(d) of the Taxation Laws Amendment (Foreign Income) Act 1990); and

                     (c)  a *CGT event happens in relation to a *CGT asset (the CFC asset) that has the *necessary connection with Australia and that the CFC owned since the residency change time.

             (2)  If the conditions in subsection (3) are satisfied, the *capital proceeds from the *CGT event are reduced by the amount worked out under subsection (4). If the conditions in subsection (5) are satisfied, those capital proceeds are increased by the amount worked out under subsection (6).

Reduction of capital proceeds

             (3)  If all the *CFC’s assets were *disposed of at the residency change time for their market values in the circumstances mentioned in subparagraph 457(2)(a)(i) of the Income Tax Assessment Act 1936:

                     (a)  *distributable profits of the CFC of a particular amount (the distributable profit amount) would be created, or its distributable profits would be increased by an amount (also the distributable profit amount); and

                     (b)  the CFC would have made a profit (the CFC asset profit) on the disposal of the CFC asset.

             (4)  The *capital proceeds are reduced by:

where:

total asset profits is the sum of the profits that the CFC would have made if all its assets were *disposed of at the residency change time for their market values (ignoring disposals that would not result in a profit).

Increase in capital proceeds

             (5)  If all the *CFC’s assets were *disposed of at the residency change time for their market values in the circumstances mentioned in subparagraph 457(2)(a)(i) of the Income Tax Assessment Act 1936:

                     (a)  the *distributable profits of the CFC would be reduced by an amount (the distributable profit reduction amount); and

                     (b)  the CFC would have made a loss (the CFC asset loss) on the disposal of the CFC asset.

             (6)  The *capital proceeds are increased by:

where:

total asset losses is the sum of the losses that the CFC would have made if all its assets were *disposed of at the residency change time for their market values (ignoring disposals that would not result in a loss).

Note:          This section is disregarded in calculating the attributable income of a CFC: see section 410 of the Income Tax Assessment Act 1936.


 

Division 118Exemptions

Table of Subdivisions

             Guide to Division 118

118-A    General exemptions

118-B    Main residence

118-C    Goodwill

118-D    Insurance and superannuation

118-E     Units in pooled superannuation trusts

Guide to Division 118

118-1  What this Division is about

This Division sets out various exemptions for many capital gains and losses.

There are other provisions that provide exemptions from CGT liability, for example, Division 104 (exceptions from CGT events) and Division 50 (exempt entities).

Note:          There are also these exemptions in the Income Tax Assessment Act 1936:

·       section 23AH (about foreign branch gains and losses of companies);

·       section 24B (about External Territories);

·       section 26BC (about securities lending arrangements);

·       section 27CB (about eligible termination payments);

·       section 116DK (about life insurance companies);

·       section 121AS (about demutualisation of insurance companies);

·       section 121EL (about offshore banking units);

·       section 159GZZZN (about buy-back and cancellation of shares);

·       section 315 (about superannuation and related businesses);

·       section 408 (about calculating the attributable income of a CFC).

Subdivision 118-AGeneral exemptions

Table of sections

Exempt assets

118-5        Cars, motor cycles and valour decorations

118-10      Collectables and personal use assets

118-12      Assets used to produce exempt income

118-13      Shares in a PDF

Exempt receipts

118-15      Exempt capital receipts

Anti-overlap provisions

118-20      Reducing capital gains if amount otherwise assessable

118-22      Eligible termination payments

118-25      Trading stock

118-30      Film copyright

118-35      Research and development

Exempt or loss-denying transactions

118-40      Expiry of a lease

118-42      Transfer of stratum units

118-45      Sale of rights to mine

118-55      Foreign currency hedging gains and losses

118-60      Gifts under Cultural Bequests Program

Exempt assets

118-5  Cars, motor cycles and valour decorations

                   A *capital gain or *capital loss you make from any of these *CGT assets is disregarded:

                     (a)  a *car, motor cycle or similar vehicle;

                     (b)  a decoration awarded for valour or brave conduct (unless you paid money or gave any other property for it).

118-10  Collectables and personal use assets

             (1)  A *capital gain or *capital loss you make from a *collectable is disregarded if you *acquired it for $500 or less.

             (2)  However, there is a special rule if the *collectable is an interest in one of these *CGT assets:

                     (a)  *artwork, jewellery, an antique, or a coin or medallion;

                     (b)  a rare folio, manuscript or book;

                     (c)  a postage stamp or first day cover.

                   A *capital gain or *capital loss you make from the interest is disregarded only if the market value of the asset (when you *acquired the interest) is $500 or less.

Note:          If you last acquired the interest before 16 December 1995, a capital gain or loss is disregarded if you acquired the interest for $500 or less: see section 118-10 of the Income Tax (Transitional Provisions) Act 1997.

             (3)  A *capital gain you make from a *personal use asset, or part of the asset, is disregarded if you *acquired the asset for $10,000 or less.

Note:          A capital loss you make from a personal use asset is disregarded: see subsection 108-20(1).

118-12  Assets used to produce exempt income

             (1)  A *capital gain or *capital loss you make from a *CGT asset that you used solely to produce your *exempt income is disregarded.

             (2)  However, the exemption does not apply if the asset was used to gain or produce *excluded exempt income or *exempt income subject to withholding tax.

Note:          This section is disregarded:

·       in calculating the attributable income of a trust: see section 102AAZB of the Income Tax Assessment Act 1936; and

·       in calculating the attributable income of a CFC: see section 410 of that Act.

118-13  Shares in a PDF

                   A *capital gain or *capital loss you make from a *CGT event happening in relation to *shares in a *PDF is disregarded.

Exempt receipts

118-15  Exempt capital receipts

                   In working out your *net capital gain or *net capital loss for the income year, disregard:

                     (a)  compensation or damages you receive for any wrong or injury you suffer in your occupation; and

                     (b)  compensation or damages you receive for any wrong, injury or illness you or your *relative suffers personally; and

                     (c)  compensation you receive under the *firearms surrender arrangements; and

                     (d)  winnings or losses from gambling, a game or a competition with prizes; and

                     (e)  an amount you receive as reimbursement or payment of your expenses under one of these schemes established by an *Australian government agency:

                              (i)  the General Practice Rural Incentives Program;

                             (ii)  the Sydney Aircraft Noise Insulation Project.

Anti-overlap provisions

118-20  Reducing capital gains if amount otherwise assessable

             (1)  A *capital gain you make from a *CGT event is reduced if, because of the event, a provision of this Act (outside of this Part) includes an amount (for any income year) in:

                     (a)  your assessable income or *exempt income; or

                     (b)  if you are a partner in a partnership, the assessable income or exempt income of the partnership.

          (1A)  Subsection (1) applies to an amount that, under a provision of this Act (outside of this Part), is included in:

                     (a)  your assessable income or *exempt income; or

                     (b)  if you are a partner in a partnership, the assessable income or exempt income of the partnership;

in relation to a *CGT asset as if it were so included because of the *CGT event referred to in that subsection if the amount would also be taken into account in working out the amount of a *capital gain you make.

Note:          An example is an amount assessable under Division 16E of Part III of the Income Tax Assessment Act 1936, which deals with accruals taxation of certain securities.

          (1B)  The rule in subsection (1) does not apply to:

                     (a)  an amount that is taken to be a dividend under section 159GZZZP of the Income Tax Assessment Act 1936 (which relates to buy-backs of *shares); or

                     (b)  an amount included in assessable income under section 160AQT of that Act (which relates to franked dividends).

             (2)  The gain is reduced to zero if it does not exceed:

                     (a)  the amount included; or

                     (b)  if you are a partner, your share (the partner’s share) of the amount included in the assessable income or *exempt income of the partnership (calculated according to your entitlement to share in the partnership net income or loss).

Example:    Liz bought some land in 1990, as part of a profit-making scheme. In December 1998 she sells it.

                   Her profit from the sale is $40,000 and is included in her assessable income under section 6-5 (about ordinary income).

                   Suppose she made a capital gain from the sale of $30,000. It is reduced to zero because it is does not exceed the amount included.

             (3)  The gain is reduced by the amount included, or the amount of the partner’s share, if the gain exceeds that amount.

Note:          These rules are modified for complying superannuation funds that become non-complying and for non-resident superannuation funds that become resident: see Part IX of the Income Tax Assessment Act 1936.

             (4)  A *capital gain you make from a *CGT event is reduced by the extent that a provision of this Act treats:

                     (a)  an amount of your *ordinary income or *statutory income from the event as being neither assessable income nor *exempt income; or

                     (b)  if you are a partner, your share of the ordinary income or *statutory income of the partnership from the event (calculated according to your entitlement to share in the partnership net income or loss) as being neither assessable income nor *exempt income of the partnership.

Note:          An example of a provision of this kind is section 121EG (about offshore banking units) of the Income Tax Assessment Act 1936.

          (4A)  A *capital gain the trustee of a *superannuation fund makes from a *CGT event happening in relation to a *CGT asset in an income year is reduced if the asset’s market value was taken into account in working out the fund’s net previous income for earlier income years under section 288A or 288B of the Income Tax Assessment Act 1936.

          (4B)  The gain is reduced to zero if it does not exceed the amount that would have been the *capital gain from the *CGT event if the *capital proceeds from the event were the asset’s market value that was taken into account in working out that net previous income.

If the gain exceeds that amount, it is reduced by that amount.

Exceptions

             (5)  The gain is not reduced if an amount is included in your assessable income, or the assessable income of the partnership, for any income year because of a balancing adjustment.

             (6)  The gain is not reduced if an amount is included in your *exempt income under section 23AJ (about exempting certain non-portfolio dividends paid by non-resident companies) of the Income Tax Assessment Act 1936 because a company pays a *dividend to you that is:

                     (a)  debited against a share capital account of the company; or

                     (b)  debited against an account to which the company has credited amounts because of share premiums it received on shares issued by it (even if an amount that is not a share premium, or that cannot be identified as one in the company’s books, has also been credited to the account); or

                     (c)  debited against an asset revaluation reserve of the company; or

                     (d)  directly or indirectly attributable to amounts transferred from such an account or reserve of the company.

118-22  Eligible termination payments

                   In applying section 118-20, if any part of an *eligible termination payment is included in your assessable income, the whole of the payment is taken to be included.

118-25  Trading stock

             (1)  A *capital gain or *capital loss you make from a *CGT asset is disregarded if, at the time of the *CGT event, the asset is:

                     (a)  your *trading stock; or

                     (b)  if you are a partner, trading stock of the partnership; or

                     (c)  if you are absolutely entitled to the asset as against the trustee of a trust (disregarding any legal disability), trading stock of the trustee.

             (2)  A *capital gain or *capital loss you make in these circumstances is disregarded:

                     (a)  you start holding as *trading stock a *CGT asset you already own but do not hold as trading stock; and

                     (b)  you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its cost (worked out under that section).

Note 1:       Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock.

Note 2:       You may make a capital gain or loss if you elect its market value: see CGT event K4.

118-30  Film copyright

             (1)  A *capital gain or *capital loss you make from a *CGT event relating to your interest in the copyright in a film is disregarded if:

                     (a)  an amount is included in your assessable income under section 26AG (about film proceeds) of the Income Tax Assessment Act 1936 because of the event; or

                     (b)  an amount would have been included apart from section 23H (about exempting film proceeds) of that Act.

             (2)  If you are a partner in a partnership, a *capital gain or *capital loss you make from a *CGT event relating to the partnership’s interest in the copyright in a film is disregarded if:

                     (a)  an amount is included in the assessable income of a partner (including you) under section 26AG of that Act because of the event; or

                     (b)  an amount would have been included apart from section 23H of that Act.

             (3)  If you are absolutely entitled to an interest in the copyright in a film as against the trustee of a trust (disregarding any legal disability), a *capital gain or *capital loss you make from a *CGT event relating to the interest is disregarded if:

                     (a)  an amount is included in your assessable income or the net income of the trust under section 26AG of that Act because of the event; or

                     (b)  an amount would have been included apart from section 23H of that Act.

118-35  Research and development

             (1)  Disregard a *capital gain or *capital loss from a *CGT event if an amount is included in your assessable income in any income year under subsection 73B(27A) of the Income Tax Assessment Act 1936 because of that CGT event.

             (2)  Disregard a *capital gain or *capital loss from a *CGT event if an amount is included in the assessable income of a partner (including you) in any income year under subsection 73B(27A) of that Act because of that CGT event.

             (3)  If you are absolutely entitled to a *CGT asset as against the trustee of a trust (disregarding any legal disability), disregard a *capital gain or *capital loss the trustee makes from a *CGT event if an amount is included in your assessable income or the net income of the trust under subsection 73B(27A) of that Act because of that CGT event.

Exempt or loss-denying transactions

118-40  Expiry of a lease

                   A *capital loss a lessee makes from the expiry, surrender, forfeiture or assignment of a lease (except one granted for 99 years or more) is disregarded if the lessee did not use the lease solely or mainly for the *purpose of producing assessable income.

118-42  Transfer of stratum units

                   If:

                     (a)  you own land on which there is a building; and

                     (b)  you subdivide the building into *stratum units; and

                     (c)  you transfer each unit to the entity who had the right to occupy it just before the subdivision;

a *capital gain or *capital loss you make from transferring the unit is disregarded.

118-45  Sale of rights to mine

                   A *capital gain or *capital loss you make from the sale, transfer or assignment of your rights to mine in a particular area in Australia is disregarded if you have *exempt income for the income year (because of section 330-60) from the sale, transfer or assignment.

118-55  Foreign currency hedging gains and losses

                   A *capital gain or *capital loss you make from a contract you entered into solely to reduce the risk of financial loss you may suffer from currency exchange rate fluctuations is disregarded if the contract relates to:

                     (a)  a liability you have to make a payment under another contract; or

                     (b)  a *CGT asset that is a right you *acquired before 20 September 1985 to receive money under another contract.

118-60  Gifts under Cultural Bequests Program

                   A *capital gain or *capital loss made from a testamentary gift of property under the Cultural Bequests Program is disregarded.

Subdivision 118-BMain residence

Guide to Subdivision 118-B

118-100  What this Subdivision is about

You can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence.

However, this exemption may not apply in full if:

        it was your main residence during part only of your ownership period; or

        it was used for the purpose of producing assessable income.

There are special rules for dwellings passed from, or owned by a trustee of, a deceased estate.

Table of sections

118-105    Map of this Subdivision

Basic case and concepts

118-110    Basic case

118-115    Meaning of dwelling

118-120    Extension to adjacent land

118-125    Meaning of ownership period

118-130    Meaning of ownership interest in land or a dwelling

Rules that may extend the exemption

118-135    Moving into a dwelling

118-140    Changing main residences

118-145    Absences

118-150    If you build, repair or renovate a dwelling

118-155    Where individual referred to in section 118-150 dies

118-160    Destruction of dwelling and sale of land

Rules that may limit the exemption

118-165    Separate CGT event for adjacent land or other structures

118-170    Spouse having different main residence

118-175    Dependent child having different main residence

118-180    Acquisition of dwelling from company or trust on marriage breakdown—roll-over provision applying

Partial exemption rules

118-185    Partial exemption where dwelling was your main residence during part only of ownership period

118-190    Use of dwelling for producing assessable income

118-192    Special rule for first use to produce income

Dwellings acquired from deceased estates

118-195    Dwelling acquired from a deceased estate

118-200    Partial exemption for deceased estate dwellings

118-205    Adjustment if dwelling inherited from deceased individual

118-210    Trustee acquiring dwelling under will

118-105  Map of this Subdivision

Basic case and concepts

118-110  Basic case

             (1)  A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *CGT asset that is a *dwelling or your *ownership interest in it is disregarded if:

                     (a)  you are an individual; and

                     (b)  the dwelling was your main residence throughout your *ownership period; and

                     (c)  the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person.

Note 1:       You may make a capital gain or capital loss even though you comply with this section if the dwelling was used for the purpose of producing assessable income: see section 118-190.

Note 2:       There is a separate rule for beneficiaries and trustees of deceased estates: see section 118-195.

             (2)  Only these *CGT events are relevant:

                     (a)  CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and

                     (b)  a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening.

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

118-115  Meaning of dwelling

             (1)  A dwelling includes:

                     (a)  a unit of accommodation that:

                              (i)  is a building or is contained in a building; and

                             (ii)  consists wholly or mainly of residential accommodation; and

                     (b)  a unit of accommodation that is a caravan, houseboat or other mobile home; and

                     (c)  any land immediately under the unit of accommodation.

             (2)  However, except as provided in section 118-120, a dwelling does not include any land adjacent to a building.

118-120  Extension to adjacent land

             (1)  This Subdivision applies to land that is adjacent to a *dwelling (if the same *CGT event happens to the land or your *ownership interest in it) to the extent that you used the land primarily for private or domestic purposes in association with the dwelling as if it were a dwelling.

             (2)  The maximum area of land covered by the exemption (including the area of the land on which the *dwelling is built) is 2 hectares.

             (3)  For a flat or home unit, this Subdivision also applies to a garage, storeroom or other structure that is associated with it (if the same *CGT event happens to the structure or your *ownership interest in it) as if it were a dwelling. However, it so applies only to the extent that you used the structure primarily for private or domestic purposes in association with the flat or home unit.

118-125  Meaning of ownership period

                   Your ownership period of a *dwelling is the period on or after 20 September 1985 when you had an *ownership interest in:

                     (a)  the dwelling; or

                     (b)  land (*acquired on or after 20 September 1985) on which the dwelling is later built.

118-130  Meaning of ownership interest in land or a dwelling

             (1)  You have an ownership interest in land or a *dwelling if:

                     (a)  for land—you have a legal or equitable interest in it or a right to occupy it; or

                     (b)  for a dwelling that is not a flat or home unit—you have a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it; or

                     (c)  for a flat or home unit—you have:

                              (i)  a legal or equitable interest in a *stratum unit in it; or

                             (ii)  a licence or right to occupy it; or

                            (iii)  a *share in a company that owns a legal or equitable interest in the land on which the flat or home unit is erected and that gives you to a right to occupy it.

             (2)  For land or a *dwelling that you *acquire under a contract, you have an ownership interest in it from:

                     (a)  the time when you obtain legal ownership of it; or

                     (b)  if the contract or a related contract gives you a right to occupy it at an earlier time—the earlier time.

             (3)  For land or a *dwelling where you have a contract for the happening of the *CGT event, you have an ownership interest in it until your legal ownership of it ends.

Rules that may extend the exemption

118-135  Moving into a dwelling

                   If a *dwelling becomes your main residence by the time it was first practicable for you to move into it after you *acquired your *ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence.

118-140  Changing main residences

             (1)  If you *acquire an *ownership interest in a *dwelling that is to become your main residence and you still have your ownership interest in your existing main residence, both dwellings are treated as your main residence for the shorter of:

                     (a)  6 months ending when your ownership interest in your existing main residence ends; or

                     (b)  the period between the acquisition of the new ownership interest and the time when the ownership interest referred to in paragraph (a) ends.

             (2)  Subsection (1) only applies if:

                     (a)  your existing main residence was your main residence for a continuous period of at least 3 months in the 12 months ending when your ownership interest in it ends; and

                     (b)  your existing main residence was not used for the *purpose of producing assessable income in any part of that 12 month period when it was not your main residence.

118-145  Absences

             (1)  If a *dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

             (2)  If you use the part of the *dwelling that was your main residence for the *purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.

             (3)  If you do not use the *dwelling for that purpose, you can treat it as your main residence under this section indefinitely.

             (4)  If you make the choice, you cannot treat any other *dwelling as your main residence while you apply this section, except if section 118-140 (about changing main residences) applies.

Example:    You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house.

                   You have not treated any other dwelling as your main residence during your absences.

                   You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years.

                   You can make this choice when preparing your income tax return for the income year in which you sold the house.

118-150  If you build, repair or renovate a dwelling

             (1)  This section applies to land in which you have an *ownership interest (except a life interest) if you build a *dwelling on the land, or repair, renovate or finish building a dwelling on the land.

             (2)  You can choose to apply this Subdivision as if the *dwelling that you are building, repairing or renovating on the land were your main residence from the time you *acquired the *ownership interest.

             (3)  You can make the choice only if:

                     (a)  a *dwelling on the land that you construct, repair or renovate becomes your main residence as soon as practicable after the work is finished; and

                     (b)  it continues to be your main residence for at least 3 months.

             (4)  There is a time limit during which the choice can operate. This is the shorter of:

                     (a)  4 years before the *dwelling becomes your main residence; or

                     (b)  the period starting when you *acquired your *ownership interest in the land and ending when the dwelling becomes your main residence.

             (5)  If there was already a *dwelling on the land when you *acquired your *ownership interest and you or someone else occupied it after that time, the period in subsection (2) and paragraph (4)(b) starts when the dwelling ceased to be occupied so that it could be repaired or renovated.

             (6)  Once you make the choice, no other *dwelling can be treated as your main residence during the period referred to in subsection (4), except if section 118-140 (about changing main residences) applies.

118-155  Where individual referred to in section 118-150 dies

             (1)  This section applies if the individual referred to in subsection 118-150(1) dies:

                     (a)  after the work began, or the individual entered into a contract for it to be done, but before it was finished; or

                     (b)  after the work was finished but before it was practicable for the *dwelling to become the individual’s main residence; or

                     (c)  during the period of 3 months referred to in paragraph 118-150(3)(b).

             (2)  If the individual owned the interest in the land as a joint tenant, the surviving joint tenant or, if none, the trustee of the individual’s estate, can choose to apply this Subdivision as if the *dwelling were the main residence of the individual:

                     (a)  when the individual died; and

                     (b)  for the shorter of:

                              (i)  4 years before the individual’s death; or

                             (ii)  the period starting when the individual *acquired the interest in the land and ending when the individual died.

             (3)  If there was already a *dwelling on the land when the individual *acquired the interest in the land and someone occupied it after that time, the period in subparagraph (2)(b)(ii) starts when the dwelling ceased to be occupied so that it could be repaired or renovated.

             (4)  If the *dwelling is treated as the deceased’s main residence under this section, no other dwelling can be treated as the deceased’s main residence at the same time.

118-160  Destruction of dwelling and sale of land

             (1)  This section applies if a *dwelling that is your main residence is accidentally destroyed and a *CGT event happens in relation to the land on which it was built without you erecting another dwelling on the land.

             (2)  You can choose to apply this Subdivision to the land as if, from the time of the destruction until your *ownership interest in the land ends, the *dwelling had not been destroyed and were your main residence.

             (3)  If you do so, you cannot treat any other *dwelling as your main residence during that period, except under section 118-140 (about changing main residences).

Rules that may limit the exemption

118-165  Separate CGT event for adjacent land or other structures

                   The exemption does not apply to a *CGT event that happens in relation to land, or a garage, storeroom or other structure, to which the exemption can extend under section 118-120 (about adjacent land) if that event does not also happen in relation to the *dwelling or your *ownership interest in it.

118-170  Spouse having different main residence

             (1)  If, during a period, a *dwelling is your main residence and another *dwelling is the main residence of your *spouse (except a spouse living permanently separately and apart from you), you and your spouse must either:

                     (a)  choose one of the dwellings as the main residence of both of you for the period; or

                     (b)  nominate the different dwellings as your main residences for the period.

             (2)  If you nominate the different *dwellings as your main residences for the period, you split the exemption in accordance with subsections (3) and (4).

             (3)  If your interest in the *dwelling you chose was not, during the period, more than half of the total interests in the dwelling, the dwelling is taken to have been your main residence during the period. Otherwise, the dwelling is taken to have been your main residence for half of the period.

             (4)  If your *spouse’s interest in the *dwelling your spouse chose was not, during the period, more than half of the total interests in the dwelling, the dwelling is taken to have been your spouse’s main residence during the period. Otherwise, the dwelling is taken to have been your spouse’s main residence for half of the period.

Example:    You and your spouse own a town house as tenants in common in equal shares. You and your spouse also own a beach house as tenants in common, with your interest being 30% and your spouse’s 70%. From 1 July 1999, you live mainly in the town house and your spouse lives mainly in the beach house. On 1 July 2000 you and your spouse dispose of both dwellings.

                   For the period 1 July 1999-30 June 2000 you nominate the town house as your main residence and your spouse nominates the beach house. The town house is taken to be your main residence during the period. The beach house is taken to be your spouse’s main residence during half the period.

118-175  Dependent child having different main residence

                   If, at a particular time, a *dwelling is your main residence and another *dwelling is the main residence of a *child of yours who is under 18 and is dependent on you for economic support, you must choose one of them as the main residence of both of you.

118-180  Acquisition of dwelling from company or trust on marriage breakdown—roll-over provision applying

             (1)  This Subdivision applies to you as if you owned an *ownership interest in land or a dwelling during a period when it was actually owned by a company or trustee if:

                     (a)  you *acquired the interest from the company or trustee; and

                     (b)  it was acquired by the company or trustee on or after 20 September 1985 ; and

                     (c)  a roll-over was available to the company or trustee under Subdivision 126-A.

             (2)  If subsection (1) applies to a *dwelling, it cannot be treated as your main residence during the period, despite other provisions of this Subdivision that would allow you to treat it as your main residence during the period.

Partial exemption rules

118-185  Partial exemption where dwelling was your main residence during part only of ownership period

             (1)  You get only a partial exemption for a *CGT event that happens in relation to a *dwelling or your *ownership interest in it if:

                     (a)  you are an individual; and

                     (b)  the dwelling was your main residence for part only of your *ownership period; and

                     (c)  the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person.

             (2)  You calculate your *capital gain or *capital loss using the formula:

where:

CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision.

non-main residence days is the number of days in your *ownership period when the *dwelling was not your main residence.

Note:          The capital gain or loss may be further adjusted if the dwelling was used to produce assessable income: see section 118-190.

Example:    You bought a house in July 1990 and moved in immediately. In July 1993, you moved out and began to rent it. You sold it in July 2000, making (apart from this Subdivision) a capital gain of $10,000.

                   You choose to continue to treat the dwelling as your main residence under section 118-145 (about absences) for the first 6 of the 7 years during which you rented the house out.

                   Under this section, you will be taken to have made a capital gain of:

118-190  Use of dwelling for producing assessable income

             (1)  You get only a partial exemption for a *CGT event that happens in relation to a *dwelling or your *ownership interest in it if:

                     (a)  apart from this section, because the dwelling was your main residence or someone else’s during a period:

                              (i)  you would not make a *capital gain or *capital loss from the event; or

                             (ii)  you would make a lesser capital gain or loss than if this Subdivision had not applied; and

                     (b)  the dwelling was used for the *purpose of producing assessable income during all or a part of that period; and

                     (c)  if you had incurred interest on money borrowed to *acquire the dwelling, or your ownership interest in it, you could have deducted some or all of that interest.

Example:    You acquire a house as a beneficiary in a deceased estate, rent it out for 12 months and sell it within 2 years of the deceased’s death. You can ignore the rental because the exemption does not require the house to be your main residence during the 2 years after the death.

             (2)  The *capital gain or *capital loss that you would have made apart from this section from the *CGT event is increased by an amount that is reasonable having regard to the extent to which you would have been able to deduct that interest.

             (3)  However, you ignore any use of the *dwelling for the *purpose of producing assessable income during any period that you continue to treat it as your main residence under section 118-145 (about absences) to the extent that any part of it was not used for that purpose just before it last ceased to be your main residence.

Example:    To continue the example from section 118-185, assume that, when you moved in, you used 1/4 of the house as a doctor’s surgery.

                   Under section 118-185, your capital gain was $1,000.

                   Under this section, it would be reasonable to add an amount of:

                   You have a total capital gain of $3,250 on the sale of the house.

             (4)  If a *dwelling or your *ownership interest in a dwelling *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, you ignore any use of the *dwelling for the *purpose of producing assessable income before the deceased’s death if:

                     (a)  the dwelling was the deceased’s main residence just before the death; and

                     (b)  it was not being used for that purpose just before the death, or any use for that purpose just before the death was ignored because of subsection (3).

118-192  Special rule for first use to produce income

             (1)  There is a special rule if:

                     (a)  you would get only a partial exemption under this Subdivision for a *CGT event happening in relation to a *dwelling or your *ownership interest in it because the dwelling was used for the *purpose of producing assessable income during your *ownership period; and

                     (b)  you would have got a full exemption under this Subdivision if the CGT event had happened just before the first time (the income time) it was used for that purpose during your ownership period.

             (2)  You are taken to have *acquired the *dwelling or your *ownership interest at the income time for its market value at that time.

             (3)  If your *ownership interest in the *dwelling *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate and the *CGT event did not happen within 2 years of the deceased’ death, you apply this Subdivision as if:

                     (a)  you had *acquired the interest as an individual and not as a beneficiary or trustee of a deceased estate; and

                     (b)  for applying the formula in section 118-185, your non-main residence days were the number of days in your *ownership period when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195.

Dwellings acquired from deceased estates

118-195  Dwelling acquired from a deceased estate

             (1)  A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *dwelling or your *ownership interest in it is disregarded if:

                     (a)  you are an individual and the interest *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and

                     (b)  at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied.

 

Beneficiary or trustee of deceased estate acquiring interest

Item

One of these items is satisfied

And also one of these items

1

the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased’s main residence just before the deceased’s death and was not then being used for the *purpose of producing assessable income

your *ownership interest ends within 2 years of the deceased’s death

2

the deceased *acquired the *ownership interest before 20 September 1985

the *dwelling was, from the deceased’s death until your *ownership interest ends, the main residence of one or more of:

(a)  the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or

(b) an individual who had a right to occupy the dwelling under the deceased’s will; or

(c)  if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary—that individual

Note 1:       You may make a capital gain or capital loss if the dwelling was used for the purpose of producing assessable income: see section 118-190.

Note 2:       In some cases the use of a dwelling to produce assessable income can be disregarded: see sections 118-45 and 118-190.

Note 3:       There are special rules for dwellings acquired before 7.30 pm on 20 August 1996. These rules also affect the operation of section 118-192 and subsections 118-190(4) and 118-200(4): see section 118-195 of the Income Tax (Transitional Provisions) Act 1997.

             (2)  Only these *CGT events are relevant:

                     (a)  CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and

                     (b)  a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening.

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

118-200  Partial exemption for deceased estate dwellings

             (1)  You get only a partial exemption (or no exemption) if:

                     (a)  you are an individual and your *ownership interest in a *dwelling *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and

                     (b)  section 118-195 does not apply.

             (2)  You calculate your *capital gain or *capital loss using the formula:

where:

CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision.

non-main residence days is the sum of:

                     (a)  if the deceased *acquired the *ownership interest on or after 20 September 1985—the number of days in the deceased’s *ownership period when the *dwelling was not the deceased’s main residence; and

                     (b)  the number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195.

total days is:

                     (a)  if the deceased *acquired the *ownership interest before 20 September 1985—the number of days in the period from the death until your ownership interest ends; or

                     (b)  if the deceased acquired the ownership interest on or after that day—the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends.

             (3)  However, if the deceased *acquired the *ownership interest on or after 20 September 1985 and your ownership interest ends within 2 years of the deceased’s death and you get a more favourable result by doing so, you can adjust the formula by ignoring any non-main residence days and total days in the period from the deceased’s death until your ownership interest ended.

Note 1:       The formula in this section will be adjusted (or further adjusted) under section 118-205 if the deceased acquired the dwelling through a deceased estate.

Note 2:       There may be a further adjustment if the dwelling was used for the purpose of producing assessable income: see section 118-190.

             (4)  You ignore any non-main residence days before the deceased’s death if:

                     (a)  the *dwelling was the deceased’s main residence just before the death; and

                     (b)  the dwelling was not being used for the *purpose of producing assessable income just before the death, or any use for that purpose just before the death was ignored because of subsection 118-190(3).

118-205  Adjustment if dwelling inherited from deceased individual

             (1)  You must adjust the formula in subsection 118-200(2) if the *ownership interest of the deceased individual referred to in section 118-200 (the most recently deceased) *passed to the individual on or after 20 September 1985 as a beneficiary in, or the individual owned it as trustee of, a deceased estate.

Note:          Any gains or losses of individuals earlier in the inheritance chain are included in the gain or loss you would have made apart from this Subdivision. This section adjusts the formula to take account of times when the dwelling was the main residence of the individuals.

             (2)  Add to the component total days in the formula the fewer of:

                     (a)  the number of days between 20 September 1985 and the day when the interest *passed to or was *acquired as trustee by the most recently deceased; and

                     (b)  the number of days between the time when an *ownership interest in the *dwelling was last acquired on or after 20 September 1985 by an individual except as a beneficiary in a deceased estate or as trustee of a deceased estate and the day when the interest passed to or was acquired as trustee by the most recently deceased.

             (3)  Add to the component non-main residence days in the formula the number of days in the period applicable under subsection (2) that the *dwelling was not the main residence of one or more of:

                     (a)  an individual who owned the dwelling at the time of the individual’s death; or

                     (b)  an individual who, immediately before the death of an individual referred to in paragraph (a), was the spouse of that individual (except a spouse who was living permanently separately and apart from the individual); or

                     (c)  an individual who had a right to occupy the dwelling under a will; or

                     (d)  an individual to whom an *ownership interest in the dwelling *passed as a beneficiary in, or who *acquired an ownership interest in the dwelling as trustee of, a deceased estate.

118-210  Trustee acquiring dwelling under will

             (1)  This section applies if you are the trustee of a deceased estate and, under the deceased’s will, you *acquire an *ownership interest in a *dwelling for occupation by an individual.

             (2)  If a *CGT event happens to the interest in relation to the individual and you receive no money or property for it:

                     (a)  a *capital gain or *capital loss you make from the event is disregarded; and

                     (b)  the first element of the *dwelling’s *cost base and *reduced cost base in the hands of the individual is its cost base and reduced cost base in your hands at the time of the event; and

                     (c)  the individual is taken to have *acquired it when you did.

             (3)  If:

                     (a)  you receive money or property for the *CGT event happening or the event happens in relation to another entity; and

                     (b)  the dwelling was the main residence of the individual from the time you *acquired the interest until the time of the event;

you do not make a *capital gain or *capital loss from the CGT event.

             (4)  However, if the *dwelling was the main residence of the individual during part only of that period, you make a *capital gain or *capital loss worked out using the formula:

where:

CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision.

non-main residence days is the number of days in that period when the *dwelling was not the individual’s main residence.

             (5)  Only these *CGT events are relevant:

                     (a)  CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and

                     (b)  a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening.

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

Subdivision 118-CGoodwill

Table of sections

118-250    Exempting part of a capital gain attributable to goodwill

118-255    Exception

118-260    Meaning of business exemption threshold and indexation

118-250  Exempting part of a capital gain attributable to goodwill

             (1)  If there is a change in the ownership of a *business of an entity (the primary business) or its interest in it or that business or interest ends, and the entity makes a *capital gain attributable to the goodwill of the primary business, half of the capital gain is disregarded.

             (2)  However, that part of the *capital gain is disregarded only if the sum of:

                     (a)  the *net value of the primary business and the net values of *businesses that are *related businesses at the time the *capital gain is made; or

                     (b)  the values of the entity’s interests in the net value of the primary business and the net values of *businesses that are *related businesses at that time;

is less than the *business exemption threshold for the income year in which the *CGT event occurred.

             (3)  A *business is a related business of the primary business if it is carried on by:

                     (a)  the individual who carries on the primary business; or

                     (b)  the company that carries on the primary business or by a company that is a member of the same *wholly-owned group.

             (4)  If the primary business is carried on by the trustee of a trust (the first trust), a *business is a related business of the primary business if it is carried on by:

                     (a)  the first trust; or

                     (b)  another trust having the same trustee where an entity that benefits or is capable of benefiting under the first trust benefits or is capable of benefiting under the other trust; or

                     (c)  any other trust having the same trustee where:

          &nbs