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Income Tax Assessment Act 1997

Authoritative Version
  • - C2016C00680
  • In force - Superseded Version
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Act No. 38 of 1997 as amended, taking into account amendments up to Tax Laws Amendment (Tax Incentives for Innovation) Act 2016
An Act about income tax and related matters
Administered by: Treasury
General Comments: This compilation is affected by a retrospective amendment. Please see the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Act 2017 (Act No. 15, 2017) for details.
Registered 30 Jun 2016
Start Date 30 Jun 2016
End Date 30 Jun 2016

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 157

Compilation date:                              30 June 2016

Includes amendments up to:            Act No. 54, 2016

Registered:                                         30 June 2016

This compilation is in 11 volumes

Volume 1:       sections 1‑1 to 36‑55

Volume 2:       sections 40‑1 to 55‑10

Volume 3:       sections 58‑1 to 122‑205

Volume 4:       sections 124‑1 to 152‑430

Volume 5:       sections 164‑1 to 220‑800

Volume 6:       sections 230‑1 to 312‑15

Volume 7:       sections 315‑1 to 420‑70

Volume 8:       sections 615‑1 to 727‑910

Volume 9:       sections 768‑1 to 995‑1

Volume 10:     Endnotes 1 to 3

Volume 11:     Endnote 4

Each volume has its own contents

 

This compilation includes a commenced amendment made by Act No. 118, 2009

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 30 June 2016 (the compilation date).

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

Uncommenced amendments

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

Application, saving and transitional provisions for provisions and amendments

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

Editorial changes

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

Modifications

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

Self‑repealing provisions

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

  

  

  


Contents

Chapter 2—Liability rules of general application                      1

Part 2‑15—Non‑assessable income                                                                              1

Division 58—Capital allowances for depreciating assets previously owned by an exempt entity           1

Guide to Division 58                                                                                                  1

58‑1....................... What this Division is about................................................. 1

Subdivision 58‑A—Application                                                                              2

58‑5....................... Application of Division...................................................... 2

58‑10..................... When an asset is acquired in connection with the acquisition of a business             3

Subdivision 58‑B—Calculating decline in value of privatised assets under Division 40             5

58‑60..................... Purpose of rules in this Subdivision................................... 5

58‑65..................... Choice of method to work out cost of privatised asset........ 5

58‑70..................... Application of Division 40................................................. 6

58‑75..................... Meaning of notional written down value............................ 7

58‑80..................... Meaning of undeducted pre‑existing audited book value.... 9

58‑85..................... Pre‑existing audited book value of depreciating asset....... 10

58‑90..................... Method and effective life for transition entity................... 11

Division 59—Particular amounts of non‑assessable non‑exempt income             12

Guide to Division 59                                                                                                12

59‑1....................... What this Division is about............................................... 12

Operative provisions                                                                                               13

59‑10..................... Compensation under firearms surrender arrangements..... 13

59‑15..................... Mining payments.............................................................. 13

59‑20..................... Taxable amounts relating to franchise fees windfall tax.... 14

59‑25..................... Taxable amounts relating to Commonwealth places windfall tax             14

59‑30..................... Amounts you must repay.................................................. 14

59‑35..................... Amounts that would be mutual receipts but for prohibition on distributions to members        14

59‑40..................... Issue of rights................................................................... 15

59‑45..................... Tax bonus for the 2007‑08 income year........................... 15

59‑50..................... Native title benefits........................................................... 16

59‑65..................... Water infrastructure improvement payments..................... 17

59‑67..................... Meaning of SRWUIP program, SRWUIP payment, direct SRWUIP payment and indirect SRWUIP payment.......................................................................................... 19

59‑70..................... List of SRWUIP programs............................................... 20

59‑75..................... Commissioner to be kept informed................................... 21

59‑80..................... Amending assessments..................................................... 21

Part 2‑20—Tax offsets                                                                                                      23

Division 61—Generally applicable tax offsets                                              23

Subdivision 61‑A—Dependant (invalid and carer) tax offset                       23

Guide to Subdivision 61‑A                                                                                      23

61‑1....................... What this Subdivision is about......................................... 23

Object of this Subdivision                                                                                       24

61‑5....................... Object of this Subdivision................................................ 24

Entitlement to the dependant (invalid and carer) tax offset                          24

61‑10..................... Who is entitled to the tax offset......................................... 24

61‑15..................... Cases involving more than one spouse............................. 26

61‑20..................... Exceeding the income limit for family tax benefit (Part B) 26

61‑25..................... Eligibility for family tax benefit (Part B) without shared care  27

Amount of the dependant (invalid and carer) tax offset                                 27

61‑30..................... Amount of the dependant (invalid and carer) tax offset.... 27

61‑35..................... Families with shared care percentages.............................. 28

61‑40..................... Reduced amounts of dependant (invalid and carer) tax offset  29

61‑45..................... Reductions to take account of the other individual’s income 30

Subdivision 61‑G—Private health insurance offset complementary to Part 2‑2 of the Private Health Insurance Act 2007                                                                                                30

Guide to Subdivision 61‑G                                                                                     30

61‑200................... What this Subdivision is about......................................... 30

Operative provisions                                                                                               31

61‑205................... Entitlement to the private health insurance tax offset......... 31

61‑210................... Amount of the private health insurance tax offset............. 31

61‑215................... Reallocation of the private health insurance tax offset between spouses  32

Subdivision 61‑I—First child tax offset (baby bonus)                                     33

Guide to Subdivision 61‑I                                                                                       33

61‑350................... What this Subdivision is about......................................... 33

Entitlement to a first child tax offset                                                                   35

61‑355................... Who is entitled to a tax offset under this section............... 35

61‑360................... What is a child event?....................................................... 35

61‑365................... First child only.................................................................. 36

61‑370................... Another carer with entitlement for another child............... 36

61‑375................... Selection rules................................................................... 36

61‑380................... Special rules for death of first child.................................. 37

Transferring an entitlement                                                                                  38

61‑385................... You may transfer your entitlement to a tax offset............. 38

61‑390................... Transfer is irrevocable...................................................... 38

61‑395................... Transferor is not entitled to tax offset............................... 38

61‑400................... Transferee is entitled to tax offset..................................... 38

Claiming a first child tax offset                                                                            39

61‑405................... How to claim a tax offset for a child................................. 39

61‑410................... Claim is irrevocable.......................................................... 39

Amount of a first child tax offset                                                                         39

61‑415................... Formula for working out amount of tax offset.................. 39

61‑420................... Component of formula—entitlement amount.................... 39

61‑425................... Component of formula—total of the entitlement days....... 40

61‑430................... What is your base year?.................................................... 41

Additional tax offset if a child is in your care before you legally adopt the child         42

61‑440................... Additional tax offset if a child is in your care before you legally adopt the child     42

61‑445................... When a child is first in your care...................................... 43

61‑450................... What is your base year if a child is in your care before you legally adopt the child?                43

61‑455................... Old Subdivision applies if you would be worse off......... 44

Subdivision 61‑IA—Child care tax offset                                                          45

Guide to Subdivision 61‑IA                                                                                    45

61‑460................... What this Subdivision is about......................................... 45

Operative provisions                                                                                               46

61‑465................... Object of this Subdivision................................................ 46

Entitlement to the child care tax offset                                                               46

61‑470................... Who is entitled to the tax offset......................................... 46

61‑475................... Meaning of approved child care....................................... 47

61‑480................... Meaning of entitled to child care benefit and entitlement to child care benefit          48

Amount of the child care tax offset                                                                      50

61‑485................... Amount of the child care tax offset................................... 50

61‑490................... Component of formula—approved child care fees........... 51

61‑495................... Component of formula—child care offset limit................. 51

Transfer of entitlement to unused balance of child care tax offset             52

61‑496................... Entitlement to transfer....................................................... 52

61‑497................... Form of transfer................................................................ 52

Subdivision 61‑L—Tax offset for Medicare levy surcharge (lump sum payments in arrears) 53

Guide to Subdivision 61‑L                                                                                      53

61‑575................... What this Subdivision is about......................................... 53

Operative provisions                                                                                               54

61‑580................... Entitlement to a tax offset.................................................. 54

61‑585................... The amount of a tax offset................................................ 56

61‑590................... Definition of MLS lump sums.......................................... 56

Subdivision 61‑N—Seafarer tax offset                                                               57

Guide to Subdivision 61‑N                                                                                      57

61‑695................... What this Subdivision is about......................................... 57

Operative provisions                                                                                               58

61‑700................... Object of this Subdivision................................................ 58

61‑705................... Who is entitled to the seafarer tax offset........................... 58

61‑710................... Amount of the seafarer tax offset...................................... 60

Division 63—Common rules for tax offsets                                                    61

Guide to Division 63                                                                                                61

63‑1....................... What this Division is about............................................... 61

63‑10..................... Priority rules..................................................................... 61

Division 65—Tax offset carry forward rules                                                64

Guide to Division 65                                                                                                64

65‑10..................... What this Division is about............................................... 64

Operative provisions                                                                                               64

65‑30..................... Amount carried forward................................................... 64

65‑35..................... How to apply carried forward tax offsets......................... 65

65‑40..................... When a company cannot apply a tax offset....................... 66

65‑50..................... Effect of bankruptcy......................................................... 66

65‑55..................... Deduction for amounts paid for debts incurred before bankruptcy          67

Division 67—Refundable tax offset rules                                                         68

Guide to Division 67                                                                                                68

67‑10..................... What this Division is about............................................... 68

Operative provisions                                                                                               68

67‑20..................... Which tax offsets this Division applies to......................... 68

67‑23..................... Refundable tax offsets...................................................... 68

67‑25..................... Refundable tax offsets—franked distributions.................. 70

67‑30..................... Refundable tax offsets—R&D.......................................... 72

Part 2‑25—Trading stock                                                                                                74

Division 70—Trading stock                                                                                     74

Guide to Division 70                                                                                                74

70‑1....................... What this Division is about............................................... 74

70‑5....................... The 3 key features of tax accounting for trading stock...... 75

Subdivision 70‑A—What is trading stock                                                          75

70‑10..................... Meaning of trading stock.................................................. 76

70‑12..................... Registered emissions units................................................ 76

Subdivision 70‑B—Acquiring trading stock                                                      76

70‑15..................... In which income year do you deduct an outgoing for trading stock?       77

70‑20..................... Non‑arm’s length transactions.......................................... 77

70‑25..................... Cost of trading stock is not a capital outgoing.................. 78

70‑30..................... Starting to hold as trading stock an item you already own 78

Subdivision 70‑C—Accounting for trading stock you hold at the start or end of the income year           81

General rules                                                                                                             81

70‑35..................... You include the value of your trading stock in working out your assessable income and deductions      81

70‑40..................... Value of trading stock at start of income year................... 82

70‑45..................... Value of trading stock at end of income year.................... 82

Special valuation rules                                                                                            83

70‑50..................... Valuation if trading stock obsolete etc.............................. 83

70‑55..................... Working out the cost of natural increase of live stock....... 84

70‑60..................... Valuation of horse breeding stock.................................... 84

70‑65..................... Working out the horse opening value and the horse reduction amount    85

Subdivision 70‑D—Assessable income arising from disposals of trading stock and certain other assets                86

Guide to Subdivision 70‑D                                                                                      86

70‑75..................... What this Subdivision is about......................................... 86

70‑80..................... Why the rules in this Subdivision are necessary............... 86

Operative provisions                                                                                               87

70‑85..................... Application of this Subdivision to certain other assets...... 87

70‑90..................... Assessable income on disposal of trading stock outside the ordinary course of business        87

70‑95..................... Purchase price is taken to be market value........................ 88

70‑100................... Notional disposal when you stop holding an item as trading stock          89

70‑105................... Death of owner................................................................. 91

70‑110................... You stop holding an item as trading stock but still own it 92

70‑115................... Compensation for lost trading stock................................. 93

Subdivision 70‑E—Miscellaneous                                                                        93

70‑120................... Deducting capital costs of acquiring trees......................... 93

Part 2‑40Rules affecting employees and other taxpayers receiving PAYG withholding payments   96

Division 80General rules                                                                                     96

Guide to Division 80                                                                                                96

80‑1....................... What this Division is about............................................... 96

Operative provisions                                                                                               96

80‑5....................... Holding of an office.......................................................... 96

80‑10..................... Application to the termination of employment.................. 97

80‑15..................... Transfer of property.......................................................... 97

80‑20..................... Payments for your benefit or at your direction or request. 97

Division 82Employment termination payments                                       99

Guide to Division 82                                                                                                99

82‑1....................... What this Division is about............................................... 99

Subdivision 82‑AEmployment termination payments: life benefits       99

Guide to Subdivision 82‑A                                                                                      99

82‑5....................... What this Subdivision is about......................................... 99

Operative provisions                                                                                             100

82‑10..................... Taxation of life benefit termination payments................. 100

Subdivision 82‑BEmployment termination payments: death benefits 103

Guide to Subdivision 82‑B                                                                                    103

82‑60..................... What this Subdivision is about....................................... 103

Operative provisions                                                                                             104

82‑65..................... Death benefits for dependants......................................... 104

82‑70..................... Death benefits for non‑dependants................................. 105

82‑75..................... Death benefits paid to trustee of deceased estate............. 106

Subdivision 82‑CKey concepts                                                                        107

Guide to Subdivision 82‑C                                                                                    107

82‑125................... What this Subdivision is about....................................... 107

Operative provisions                                                                                             108

82‑130................... What is an employment termination payment?................ 108

82‑135................... Payments that are not employment termination payments 110

82‑140................... Tax free component of an employment termination payment 111

82‑145................... Taxable component of an employment termination payment 111

82‑150................... What is an invalidity segment of an employment termination payment?   112

82‑155................... What is a pre‑July 83 segment of an employment termination payment? 112

82‑160................... What is the ETP cap amount?......................................... 113

Division 83Other payments on termination of employment           114

Guide to Division 83                                                                                              114

83‑1....................... What this Division is about............................................. 114

Subdivision 83‑AUnused annual leave payments                                       114

Guide to Subdivision 83‑A                                                                                    114

83‑5....................... What this Subdivision is about....................................... 114

Operative provisions                                                                                             115

83‑10..................... Unused annual leave payment is assessable.................... 115

83‑15..................... Entitlement to tax offset.................................................. 116

Subdivision 83‑BUnused long service leave payments                             116

Guide to Subdivision 83‑B                                                                                    116

83‑65..................... What this Subdivision is about....................................... 116

General                                                                                                                     117

83‑70..................... Application—long service leave..................................... 117

83‑75..................... Meaning of unused long service leave payment.............. 118

83‑80..................... Taxation of unused long service leave payments............ 118

83‑85..................... Entitlement to tax offset.................................................. 119

83‑90..................... Meaning of pre‑16/8/78 period, pre‑18/8/93 period, post‑17/8/93 period and long service leave employment period............................................................................. 119

Employment wholly full‑time or wholly part‑time                                        120

83‑95..................... How to work out amount of payment attributable to each period             120

83‑100................... How to work out unused days of long service leave for each period       121

83‑105................... How to work out long service leave accrued in each period 122

Employment partly full‑time and partly part‑time                                       123

83‑110................... Leave accrued in pre‑16/8/78, pre‑18/8/93 and post‑17/8/93 periods—employment full‑time and part‑time........................................................................................ 123

Long service leave taken at less than full pay                                                 123

83‑115................... Working out used days of long service leave if leave taken at less than full pay      123

Subdivision 83‑CGenuine redundancy payments and early retirement scheme payments     124

Guide to Subdivision 83‑C                                                                                    124

83‑165................... What this Subdivision is about....................................... 124

Operative provisions                                                                                             125

83‑170................... Tax‑free treatment of genuine redundancy payments and early retirement scheme payments   125

83‑175................... What is a genuine redundancy payment?........................ 126

83‑180................... What is an early retirement scheme payment?................ 127

Subdivision 83‑DForeign termination payments                                       129

Guide to Subdivision 83‑D                                                                                    129

83‑230................... What this Subdivision is about....................................... 129

Operative provisions                                                                                             129

83‑235................... Termination payments tax free—foreign resident period 129

83‑240................... Termination payments tax free—Australian resident period 130

Subdivision 83‑EOther payments                                                                  131

Guide to Subdivision 83‑E                                                                                    131

83‑290................... What this Subdivision is about....................................... 131

Operative provisions                                                                                             131

83‑295................... Termination payments made more than 12 months after termination etc. 131

Division 83A—Employee share schemes                                                        132

Guide to Division 83A                                                                                           132

83A‑1.................... What this Division is about............................................. 132

Subdivision 83A‑A—Objects of Division and key concepts                         132

83A‑5.................... Objects of Division......................................................... 133

83A‑10.................. Meaning of ESS interest and employee share scheme.... 133

Subdivision 83A‑B—Immediate inclusion of discount in assessable income  134

Guide to Subdivision 83A‑B                                                                                 134

83A‑15.................. What this Subdivision is about....................................... 134

Operative provisions                                                                                             134

83A‑20.................. Application of Subdivision............................................. 134

83A‑25.................. Discount to be included in assessable income................. 135

83A‑30.................. Amount for which discounted ESS interest acquired...... 135

83A‑33.................. Reducing amounts included in assessable income—start ups  136

83A‑35.................. Reducing amounts included in assessable income—other cases              138

83A‑45.................. Further conditions for reducing amounts included in assessable income 139

Subdivision 83A‑C—Deferred inclusion of gain in assessable income     142

Guide to Subdivision 83A‑C                                                                                 142

83A‑100................ What this Subdivision is about....................................... 142

Main provisions                                                                                                      143

83A‑105................ Application of Subdivision............................................. 143

83A‑110................ Amount to be included in assessable income.................. 146

83A‑115................ ESS deferred taxing point—shares................................. 146

83A‑120................ ESS deferred taxing point—rights to acquire shares....... 147

83A‑125................ Tax treatment of ESS interests held after ESS deferred taxing points      149

Takeovers and restructures                                                                                 149

83A‑130................ Takeovers and restructures............................................. 149

Subdivision 83A‑D—Deduction for employer                                                152

Guide to Subdivision 83A‑D                                                                                 152

83A‑200................ What this Subdivision is about....................................... 152

Operative provisions                                                                                             153

83A‑205................ Deduction for employer.................................................. 153

83A‑210................ Timing of general deductions.......................................... 154

Subdivision 83A‑E—Miscellaneous                                                                   154

83A‑305................ Acquisition by associates................................................ 154

83A‑310................ Forfeiture etc. of ESS interest......................................... 155

83A‑315................ Market value of ESS interest.......................................... 156

83A‑320................ Interests in a trust............................................................ 156

83A‑325................ Application of Division to relationships similar to employment               157

83A‑330................ Application of Division to ceasing employment............. 158

83A‑335................ Application of Division to stapled securities................... 158

83A‑340................ Application of Division to indeterminate rights.............. 159

Part 2‑42—Personal services income                                                                      160

Division 84—Introduction                                                                                      160

Guide to Part 2‑42                                                                                                  160

84‑1....................... What this Part is about.................................................... 160

Operative provisions                                                                                             161

84‑5....................... Meaning of personal services income............................ 161

84‑10..................... This Part does not imply that individuals are employees. 161

Division 85—Deductions relating to personal services income          162

Guide to Division 85                                                                                              162

85‑1....................... What this Division is about............................................. 162

Operative provisions                                                                                             162

85‑5....................... Object of this Division.................................................... 162

85‑10..................... Deductions for non‑employees relating to personal services income       163

85‑15..................... Deductions for rent, mortgage interest, rates and land tax 164

85‑20..................... Deductions for payments to associates etc...................... 164

85‑25..................... Deductions for superannuation for associates................. 165

85‑30..................... Exception: personal services businesses......................... 165

85‑35..................... Exception: employees, office holders and religious practitioners             166

85‑40..................... Application of Subdivision 900‑B to individuals who are not employees                166

Division 86—Alienation of personal services income                              167

Guide to Division 86                                                                                              167

86‑1....................... What this Division is about............................................. 167

86‑5....................... A simple description of what this Division does............ 167

Subdivision 86‑A—General                                                                                 169

86‑10..................... Object of this Division.................................................... 169

86‑15..................... Effect of obtaining personal services income through a personal services entity      169

86‑20..................... Offsetting the personal services entity’s deductions against personal services income            171

86‑25..................... Apportionment of entity maintenance deductions among several individuals           173

86‑27..................... Deduction for net personal services income loss............ 174

86‑30..................... Assessable income etc. of the personal services entity.... 174

86‑35..................... Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes........................................................................................ 175

86‑40..................... Salary payments shortly after an income year................. 175

Subdivision 86‑B—Entitlement to deductions                                                 176

86‑60..................... General rule for deduction entitlements of personal services entities        177

86‑65..................... Entity maintenance deductions........................................ 177

86‑70..................... Car expenses................................................................... 178

86‑75..................... Superannuation............................................................... 179

86‑80..................... Salary or wages promptly paid....................................... 180

86‑85..................... Deduction entitlements of personal services entities for amounts included in an individual’s assessable income........................................................................................ 180

86‑87..................... Personal services entity cannot deduct net personal services income loss                180

86‑90..................... Application of Divisions 28 and 900 to personal services entities           181

Division 87—Personal services businesses                                                    182

Guide to Division 87                                                                                              182

87‑1....................... What this Division is about............................................. 182

87‑5....................... Diagram showing the operation of this Division............ 183

Subdivision 87‑A—General                                                                                 185

87‑10..................... Object of this Division.................................................... 185

87‑15..................... What is a personal services business?............................. 185

87‑18..................... The results test for a personal services business............. 187

87‑20..................... The unrelated clients test for a personal services business 188

87‑25..................... The employment test for a personal services business.... 189

87‑30..................... The business premises test for a personal services business 190

87‑35..................... Personal services income from Australian government agencies             190

87‑40..................... Application of this Division to certain agents................. 191

Subdivision 87‑B—Personal services business determinations                  193

87‑60..................... Personal services business determinations for individuals 194

87‑65..................... Personal services business determinations for personal services entities 196

87‑70..................... Applying etc. for personal services business determinations 199

87‑75..................... When personal services business determinations have effect 200

87‑80..................... Revoking personal services business determinations...... 200

87‑85..................... Review of decisions........................................................ 201

Chapter 3—Specialist liability rules                                                       202

Part 3‑1—Capital gains and losses: general topics                                         202

Division 100—A Guide to capital gains and losses                                   202

General overview                                                                                                   202

100‑1..................... What this Division is about............................................. 202

100‑5..................... Effect of this Division..................................................... 203

100‑10................... Fundamentals of CGT.................................................... 203

100‑15................... Overview of Steps 1 and 2............................................. 205

Step 1—Have you made a capital gain or a capital loss?                            206

100‑20................... What events attract CGT?............................................... 206

100‑25................... What are CGT assets?..................................................... 207

100‑30................... Does an exception or exemption apply?.......................... 207

100‑33................... Can there be a roll‑over?................................................. 208

Step 2—Work out the amount of the capital gain or loss                             209

100‑35................... What is a capital gain or loss?......................................... 209

100‑40................... What factors come into calculating a capital gain or loss? 209

100‑45................... How to calculate the capital gain or loss for most CGT events                210

Step 3—Work out your net capital gain or loss for the income year        210

100‑50................... How to work out your net capital gain or loss................ 210

100‑55................... How do you comply with CGT?.................................... 211

Keeping records for CGT purposes                                                                   211

100‑60................... Why keep records?......................................................... 211

100‑65................... What records?................................................................. 212

100‑70................... How long you need to keep records............................... 212

Division 102—Assessable income includes net capital gain                 213

Guide to Division 102                                                                                            213

102‑1..................... What this Division is about............................................. 213

102‑3..................... Concessions in working out your net capital gain........... 213

Operative provisions                                                                                             214

102‑5..................... Assessable income includes net capital gain................... 214

102‑10................... How to work out your net capital loss............................ 216

102‑15................... How to apply net capital losses....................................... 217

102‑20................... Ways you can make a capital gain or a capital loss......... 217

102‑22................... Amounts of capital gains and losses............................... 217

102‑23................... CGT event still happens even if gain or loss disregarded 218

102‑25................... Order of application of CGT events................................ 218

102‑30................... Exceptions and modifications......................................... 219

Division 103—General rules                                                                                 222

Guide to Division 103                                                                                            222

103‑1..................... What this Division is about............................................. 222

Operative provisions                                                                                             222

103‑5..................... Giving property as part of a transaction.......................... 222

103‑10................... Entitlement to receive money or property........................ 222

103‑15................... Requirement to pay money or give property................... 223

103‑25................... Choices........................................................................... 223

103‑30................... Reduction of cost base etc. by net input tax credits......... 224

Division 104—CGT events                                                                                    225

Guide to Division 104                                                                                            225

104‑1..................... What this Division is about............................................. 225

104‑5..................... Summary of the CGT events.......................................... 226

Subdivision 104‑A—Disposals                                                                            239

104‑10................... Disposal of a CGT asset: CGT event A1........................ 239

Subdivision 104‑B—Use and enjoyment before title passes                        241

104‑15................... Use and enjoyment before title passes: CGT event B1... 241

Subdivision 104‑C—End of a CGT asset                                                          242

104‑20................... Loss or destruction of a CGT asset: CGT event C1........ 242

104‑25................... Cancellation, surrender and similar endings: CGT event C2 243

104‑30................... End of option to acquire shares etc.: CGT event C3....... 244

Subdivision 104‑D—Bringing into existence a CGT asset                           245

104‑35................... Creating contractual or other rights: CGT event D1........ 245

104‑40................... Granting an option: CGT event D2................................. 247

104‑45................... Granting a right to income from mining: CGT event D3 248

104‑47................... Conservation covenants: CGT event D4......................... 248

Subdivision 104‑E—Trusts                                                                                  250

104‑55................... Creating a trust over a CGT asset: CGT event E1........... 251

104‑60................... Transferring a CGT asset to a trust: CGT event E2........ 252

104‑65................... Converting a trust to a unit trust: CGT event E3............. 253

104‑70................... Capital payment for trust interest: CGT event E4............ 253

104‑71................... Adjustment of non‑assessable part................................. 255

104‑72................... Reducing your capital gain under CGT event E4 if you are a trustee       259

104‑75................... Beneficiary becoming entitled to a trust asset: CGT event E5  260

104‑80................... Disposal to beneficiary to end income right: CGT event E6 261

104‑85................... Disposal to beneficiary to end capital interest: CGT event E7  262

104‑90................... Disposal by beneficiary of capital interest: CGT event E8 264

104‑95................... Making a capital gain...................................................... 264

104‑100................. Making a capital loss...................................................... 267

104‑105................. Creating a trust over future property: CGT event E9...... 269

104‑107A.............. AMIT—cost base reduction exceeds cost base: CGT event E10             270

104‑107B.............. Annual cost base adjustment for member’s unit or interest in AMIT       270

104‑107C.............. AMIT cost base net amount............................................ 271

104‑107D.............. AMIT cost base reduction amount.................................. 271

104‑107E............... AMIT cost base increase amount.................................... 272

104‑107F............... Receipt of money etc. increasing AMIT cost base reduction amount not to be treated as income            273

104‑107G.............. Effect of AMIT cost base net amount on cost of AMIT membership interest or unit that is a revenue asset—adjustment of cost of asset.............................................. 274

104‑107H.............. Effect of AMIT cost base net amount on cost of AMIT membership interest or unit that is a revenue asset—amount included in assessable income............................ 275

Subdivision 104‑F—Leases                                                                                  276

104‑110................. Granting a lease: CGT event F1...................................... 276

104‑115................. Granting a long‑term lease: CGT event F2..................... 277

104‑120................. Lessor pays lessee to get lease changed: CGT event F3. 278

104‑125................. Lessee receives payment for changing lease: CGT event F4 278

104‑130................. Lessor receives payment for changing lease: CGT event F5 279

Subdivision 104‑G—Shares                                                                                 280

104‑135................. Capital payment for shares: CGT event G1.................... 280

104‑145................. Liquidator or administrator declares shares or financial instruments worthless: CGT event G3              282

Subdivision 104‑H—Special capital receipts                                                  283

104‑150................. Forfeiture of deposit: CGT event H1.............................. 283

104‑155................. Receipt for event relating to a CGT asset: CGT event H2 284

Subdivision 104‑I—Australian residency ends                                               286

104‑160................. Individual or company stops being an Australian resident: CGT event I1               286

104‑165................. Exception for individuals................................................ 287

104‑170................. Trust stops being a resident trust: CGT event I2............. 287

Subdivision 104‑J—CGT events relating to roll‑overs                                288

104‑175................. Company ceasing to be member of wholly‑owned group after roll‑over: CGT event J1         289

104‑180................. Sub‑group break‑up........................................................ 291

104‑182................. Consolidated group break‑up.......................................... 292

104‑185................. Change in relation to replacement asset or improved asset after a roll‑over under Subdivision 152‑E: CGT event J2........................................................................... 292

104‑190................. Replacement asset period............................................... 295

104‑195................. Trust failing to cease to exist after roll‑over under Subdivision 124‑N: CGT event J4            295

104‑197................. Failure to acquire replacement asset and to incur fourth element expenditure after a roll‑over under Subdivision 152‑E: CGT event J5.................................. 297

104‑198................. Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6................. 298

Subdivision 104‑K—Other CGT events                                                            299

104‑205................. Incoming international transfer of emissions unit: CGT event K1            300

104‑210................. Bankrupt pays amount in relation to debt: CGT event K2 301

104‑215................. Asset passing to tax‑advantaged entity: CGT event K3.. 302

104‑220................. CGT asset starts being trading stock: CGT event K4...... 303

104‑225................. Special collectable losses: CGT event K5....................... 303

104‑230................. Pre‑CGT shares or trust interest: CGT event K6............ 305

104‑235................. Balancing adjustment events for depreciating assets and certain assets used for R&D: CGT event K7   308

104‑240................. Working out capital gain or loss for CGT event K7: general case            310

104‑245................. Working out capital gain or loss for CGT event K7: pooled assets          311

104‑250................. Direct value shifts: CGT event K8.................................. 313

104‑255................. Carried interests: CGT event K9..................................... 313

104‑260................. Certain short‑term forex realisation gains: CGT event K10 315

104‑265................. Certain short‑term forex realisation losses: CGT event K11 315

104‑270................. Foreign hybrids: CGT event K12................................... 315

Subdivision 104‑L—Consolidated groups and MEC groups                      316

104‑500................. Loss of pre‑CGT status of membership interests in entity becoming subsidiary member: CGT event L1........................................................................................ 316

104‑505................. Where pre‑formation intra‑group roll‑over reduction results in negative allocable cost amount: CGT event L2........................................................................................ 318

104‑510................. Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3................................................................................... 318

104‑515................. Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4       319

104‑520................. Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5         320

104‑525................. Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6        320

104‑535................. Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8........................................................................................ 322

Division 106—Entity making the gain or loss                                             324

Guide to Division 106                                                                                            324

106‑1..................... What this Division is about............................................. 324

Subdivision 106‑A—Partnerships                                                                      324

106‑5..................... Partnerships.................................................................... 324

Subdivision 106‑B—Bankruptcy and liquidation                                          327

106‑30................... Effect of bankruptcy....................................................... 327

106‑35................... Effect of liquidation........................................................ 327

Subdivision 106‑C—Absolutely entitled beneficiaries                                  328

106‑50................... Absolutely entitled beneficiaries..................................... 328

Subdivision 106‑D—Securities, charges and encumbrances                       328

106‑60................... Securities, charges and encumbrances............................ 329

Division 108—CGT assets                                                                                     330

Guide to Division 108                                                                                            330

108‑1..................... What this Division is about............................................. 330

Subdivision 108‑A—What a CGT asset is                                                        330

108‑5..................... CGT assets..................................................................... 330

108‑7..................... Interest in CGT assets as joint tenants............................ 331

Subdivision 108‑B—Collectables                                                                       331

108‑10................... Losses from collectables to be offset only against gains from collectables               332

108‑15................... Sets of collectables.......................................................... 333

108‑17................... Cost base of a collectable................................................ 333

Subdivision 108‑C—Personal use assets                                                           334

108‑20................... Losses from personal use assets must be disregarded.... 334

108‑25................... Sets of personal use assets.............................................. 334

108‑30................... Cost base of a personal use asset.................................... 335

Subdivision 108‑D—Separate CGT assets                                                       335

Guide to Subdivision 108‑D                                                                                 335

108‑50................... What this Subdivision is about....................................... 335

Operative provisions                                                                                             336

108‑55................... When is a building a separate asset from land?............... 336

108‑60................... Depreciating asset that is part of a building is a separate asset 336

108‑65................... Land adjacent to land acquired before 20 September 1985 337

108‑70................... When is a capital improvement a separate asset?............. 337

108‑75................... Capital improvements to CGT assets for which a roll‑over may be available           339

108‑80................... Deciding if capital improvements are related to each other 341

108‑85................... Meaning of improvement threshold................................ 342

Division 109—Acquisition of CGT assets                                                      343

Guide to Division 109                                                                                            343

109‑1..................... What this Division is about............................................. 343

Subdivision 109‑A—Operative rules                                                                 343

109‑5..................... General acquisition rules................................................. 344

109‑10................... When you acquire a CGT asset without a CGT event.... 346

Subdivision 109‑B—Signposts to other acquisition rules                             347

109‑50................... Effect of this Subdivision............................................... 347

109‑55................... Other acquisition rules.................................................... 347

109‑60................... Acquisition rules outside this Part and Part 3‑3.............. 353

Division 110—Cost base and reduced cost base                                        358

Guide to Division 110                                                                                            358

110‑1..................... What this Division is about............................................. 358

110‑5..................... Modifications to general rules......................................... 358

110‑10................... Rules about cost base not relevant for some CGT events 358

Subdivision 110‑A—Cost base                                                                            360

110‑25................... General rules about cost base......................................... 361

110‑35................... Incidental costs............................................................... 363

110‑36................... Indexation....................................................................... 364

What does not form part of the cost base                                                         365

110‑37................... Expenditure forming part of cost base or element........... 365

110‑38................... Exclusions...................................................................... 366

110‑40................... Assets acquired before 7.30 pm on 13 May 1997.......... 367

110‑43................... Partnership interests acquired before 7.30 pm on 13 May 1997              368

110‑45................... Assets acquired after 7.30 pm on 13 May 1997............. 368

110‑50................... Partnership interests acquired after 7.30 pm on 13 May 1997 370

110‑53................... Exceptions to application of sections 110‑45 and 110‑50 373

110‑54................... Debt deductions disallowed by thin capitalisation rules.. 373

Subdivision 110‑B—Reduced cost base                                                            373

110‑55................... General rules about reduced cost base............................ 373

110‑60................... Reduced cost base for partnership assets........................ 377

Division 112—Modifications to cost base and reduced cost base     379

Guide to Division 112                                                                                            379

112‑1..................... What this Division is about............................................. 379

112‑5..................... Discussion of modifications........................................... 379

Subdivision 112‑A—General modifications                                                    380

112‑15................... General rule for replacement modifications..................... 380

112‑20................... Market value substitution rule......................................... 381

112‑25................... Split, changed or merged assets...................................... 382

112‑30................... Apportionment rules....................................................... 384

112‑35................... Assumption of liability rule............................................ 385

112‑36................... Acquisitions of assets involving look‑through earnout rights  385

112‑37................... Put options...................................................................... 388

Subdivision 112‑B—Finding tables for special rules                                    388

112‑40................... Effect of this Subdivision............................................... 389

112‑45................... CGT events..................................................................... 389

112‑46................... Annual cost base adjustment for member’s unit or interest in AMIT       390

112‑48................... Gifts acquired by associates............................................ 390

112‑50................... Main residence................................................................ 391

112‑53................... Scrip for scrip roll‑over.................................................. 391

112‑53AA............. Statutory licences............................................................ 392

112‑53AB............. Change of incorporation................................................. 392

112‑53A................ MDO roll‑over............................................................... 392

112‑53B................ Exchange of stapled ownership interests for units in a unit trust              393

112‑53C................ Water entitlement roll‑overs............................................ 393

112‑54................... Demergers...................................................................... 393

112‑54A................ Transfer of assets between certain trusts......................... 394

112‑55................... Effect of you dying......................................................... 394

112‑60................... Bonus shares or units..................................................... 395

112‑65................... Rights............................................................................. 395

112‑70................... Convertible interests....................................................... 396

112‑77................... Exchangeable interests.................................................... 396

112‑80................... Leases............................................................................. 397

112‑85................... Options........................................................................... 397

112‑87................... Residency....................................................................... 398

112‑90................... An asset stops being a pre‑CGT asset............................ 398

112‑92................... Demutualisation of certain entities.................................. 399

112‑95................... Transfer of tax losses and net capital losses within wholly‑owned groups of companies        399

112‑97................... Modifications outside this Part and Part 3‑3................... 400

Subdivision 112‑C—Replacement‑asset roll‑overs                                        410

112‑100................. Effect of this Subdivision............................................... 410

112‑105................. What is a replacement‑asset roll‑over?............................ 410

112‑110................. How is the cost base of the replacement asset modified? 411

112‑115................. Table of replacement‑asset roll‑overs.............................. 411

Subdivision 112‑D—Same‑asset roll‑overs                                                      412

112‑135................. Effect of this Subdivision............................................... 413

112‑140................. What is a same‑asset roll‑over?....................................... 413

112‑145................. How is the cost base of the asset modified?.................... 413

112‑150................. Table of same‑asset roll‑overs........................................ 413

Division 114—Indexation of cost base                                                            415

114‑1..................... Indexing elements of cost base....................................... 415

114‑5..................... When indexation relevant................................................ 416

114‑10................... Requirement for 12 months ownership........................... 417

114‑15................... Cost base modifications.................................................. 419

114‑20................... When expenditure is incurred for roll‑overs................... 421

Division 115—Discount capital gains and trusts’ net capital gains 422

Guide to Division 115                                                                                            422

115‑1..................... What this Division is about............................................. 422

Subdivision 115‑A—Discount capital gains                                                     423

What is a discount capital gain?                                                                         423

115‑5..................... What is a discount capital gain?..................................... 423

115‑10................... Who can make a discount capital gain?........................... 423

115‑15................... Discount capital gain must be made after 21 September 1999  424

115‑20................... Discount capital gain must not have indexed cost base... 424

115‑25................... Discount capital gain must be on asset acquired at least 12 months before              425

115‑30................... Special rules about time of acquisition............................ 427

115‑32................... Special rule about time of acquisition for certain replacement‑asset roll‑overs         431

115‑34................... Further special rule about time of acquisition for certain replacement‑asset roll‑overs             432

What are not discount capital gains?                                                                433

115‑40................... Capital gain resulting from agreement made within a year of acquisition 433

115‑45................... Capital gain from equity in an entity with newly acquired assets             433

115‑50................... Discount capital gain from equity in certain entities........ 436

115‑55................... Capital gains involving money received from demutualisation of friendly society health or life insurer  438

Subdivision 115‑B—Discount percentage                                                        438

115‑100................. What is the discount percentage for a discount capital gain 438

115‑105................. Foreign or temporary residents—individuals with direct gains                439

115‑110................. Foreign or temporary residents—individuals with trust gains  440

115‑115................. Foreign or temporary residents—percentage for individuals 443

115‑120................. Foreign or temporary residents—trusts with certain gains 446

Subdivision 115‑C—Rules about trusts with net capital gains                    447

Guide to Subdivision 115‑C                                                                                 447

115‑200................. What this Division is about............................................. 447

Operative provisions                                                                                             448

115‑210................. When this Subdivision applies........................................ 448

115‑215................. Assessing presently entitled beneficiaries....................... 448

115‑220................. Assessing trustees under section 98 of the Income Tax Assessment Act 1936         450

115‑222................. Assessing trustees under section 99 or 99A of the Income Tax Assessment Act 1936            451

115‑225................. Attributable gain............................................................. 452

115‑227................. Share of a capital gain..................................................... 452

115‑228................. Specifically entitled to an amount of a capital gain........... 453

115‑230................. Choice for resident trustee to be specifically entitled to capital gain         454

Subdivision 115‑D—Tax relief for shareholders in listed investment companies         455

Guide to Subdivision 115‑D                                                                                 455

115‑275................. What this Subdivision is about....................................... 455

Operative provisions                                                                                             456

115‑280................. Deduction for certain dividends...................................... 456

115‑285................. Meaning of LIC capital gain.......................................... 459

115‑290................. Meaning of listed investment company........................... 460

115‑295................. Maintaining records........................................................ 461

Division 116—Capital proceeds                                                                          462

Guide to Division 116                                                                                            462

116‑1..................... What this Division is about............................................. 462

116‑5..................... General rules................................................................... 463

116‑10................... Modifications to general rules......................................... 463

General rules                                                                                                           464

116‑20................... General rules about capital proceeds.............................. 464

Modifications to general rules                                                                            466

116‑25................... Table of modifications to the general rules...................... 466

116‑30................... Market value substitution rule: modification 1................ 469

116‑35................... Companies and trusts that are not widely held................ 471

116‑40................... Apportionment rule: modification 2................................ 472

116‑45................... Non‑receipt rule: modification 3..................................... 473

116‑50................... Repaid rule: modification 4............................................. 474

116‑55................... Assumption of liability rule: modification 5.................... 474

116‑60................... Misappropriation rule: modification 6............................. 475

Special rules                                                                                                             475

116‑65................... Disposal etc. of a CGT asset the subject of an option..... 475

116‑70................... Option requiring both acquisition and disposal etc......... 476

116‑75................... Special rule for CGT event happening to a lease............. 476

116‑80................... Special rule if CGT asset is shares or an interest in a trust 476

116‑85................... Section 47A of 1936 Act applying to rolled‑over asset.. 477

116‑95................... Company changes residence from an unlisted country... 478

116‑100................. Gifts of property............................................................. 480

116‑105................. Conservation covenants.................................................. 480

116‑110................. Roll‑overs for merging superannuation funds................ 480

116‑115................. Farm‑in farm‑out arrangements...................................... 480

116‑120................. Disposals of assets involving look‑through earnout rights 481

Division 118—Exemptions                                                                                     484

Guide to Division 118                                                                                            484

118‑1..................... What this Division is about............................................. 484

Subdivision 118‑A—General exemptions                                                        485

Exempt assets                                                                                                          486

118‑5..................... Cars, motor cycles and valour decorations...................... 486

118‑10................... Collectables and personal use assets............................... 486

118‑12................... Assets used to produce exempt income etc..................... 488

118‑13................... Shares in a PDF.............................................................. 489

118‑15................... Registered emissions units.............................................. 489

Anti‑overlap provisions                                                                                        489

118‑20................... Reducing capital gains if amount otherwise assessable... 489

118‑21................... Carried interests.............................................................. 492

118‑22................... Superannuation lump sums and employment termination payments        492

118‑24................... Depreciating assets......................................................... 493

118‑25................... Trading stock.................................................................. 493

118‑27................... Division 230 financial arrangements and financial arrangements to which Subdivision 250‑E applies    494

118‑30................... Film copyright................................................................ 495

118‑35................... R&D............................................................................... 495

Exempt or loss‑denying transactions                                                                495

118‑37................... Compensation, damages etc............................................ 495

118‑40................... Expiry of a lease............................................................. 499

118‑42................... Transfer of stratum units................................................. 499

118‑45................... Sale of rights to mine...................................................... 500

118‑55................... Foreign currency hedging gains and losses.................... 500

118‑60................... Certain gifts.................................................................... 500

118‑65................... Later distributions of personal services income.............. 501

118‑70................... Transactions by exempt entities...................................... 501

118‑75................... Marriage or relationship breakdown settlements............. 501

118‑77................... Native title and rights to native title benefits.................... 502

Boat capital gains                                                                                                   503

118‑80................... Reduction of boat capital gain......................................... 503

Special disability trusts                                                                                         503

118‑85................... Special disability trusts................................................... 503

Subdivision 118‑B—Main residence                                                                 503

Guide to Subdivision 118‑B                                                                                 503

118‑100................. What this Subdivision is about....................................... 503

118‑105................. Map of this Subdivision................................................. 506

Basic case and concepts                                                                                        507

118‑110................. Basic case....................................................................... 507

118‑115................. Meaning of dwelling....................................................... 507

118‑120................. Extension to adjacent land etc......................................... 508

118‑125................. Meaning of ownership period........................................ 509

118‑130................. Meaning of ownership interest in land or a dwelling...... 509

Rules that may extend the exemption                                                                510

118‑135................. Moving into a dwelling................................................... 510

118‑140................. Changing main residences.............................................. 510

118‑145................. Absences........................................................................ 511

118‑147................. Absence from dwelling replacing main residence that was compulsorily acquired, destroyed etc.           511

118‑150................. If you build, repair or renovate a dwelling...................... 514

118‑155................. Where individual referred to in section 118‑150 dies...... 515

118‑160................. Destruction of dwelling and sale of land......................... 515

Rules that may limit the exemption                                                                   516

118‑165................. Separate CGT event for adjacent land or other structures 516

118‑170................. Spouse having different main residence.......................... 516

118‑175................. Dependent child having different main residence............ 517

Roll‑overs under Subdivision 126‑A                                                                  517

118‑178................. Previous roll‑over under Subdivision 126‑A.................. 517

118‑180................. Acquisition of dwelling from company or trust on marriage or relationship breakdown—roll‑over provision applying.......................................................................... 518

Partial exemption rules                                                                                        519

118‑185................. Partial exemption where dwelling was your main residence during part only of ownership period         519

118‑190................. Use of dwelling for producing assessable income.......... 520

118‑192................. Special rule for first use to produce income.................... 521

Dwellings acquired from deceased estates                                                       522

118‑195................. Dwelling acquired from a deceased estate....................... 522

118‑197................. Special rule for surviving joint tenant............................. 524

118‑200................. Partial exemption for deceased estate dwellings.............. 524

118‑205................. Adjustment if dwelling inherited from deceased individual 526

118‑210................. Trustee acquiring dwelling under will............................. 527

Special disability trusts                                                                                         528

118‑215................. What the following provisions are about........................ 528

118‑218................. Exemption available to trustee—main case..................... 528

118‑220................. Exemption available to trustee—after the principal beneficiary’s death    530

118‑222................. Exemption available to other beneficiary who acquires the CGT asset after the principal beneficiary’s death........................................................................................ 530

118‑225................. Amount of exemption available after the principal beneficiary’s death—general     530

118‑227................. Amount of exemption available after the principal beneficiary’s death—cost base and reduced cost base........................................................................................ 532

118‑230................. Application of CGT events E5 and E7 in relation to main residence exemption and special disability trusts........................................................................................ 533

Compulsory acquisitions of adjacent land only                                             533

118‑240................. What the following provisions are about........................ 533

118‑245................. CGT events happening only to adjacent land.................. 533

118‑250................. Compulsory acquisitions of adjacent land....................... 535

118‑255................. Maximum exempt area................................................... 537

118‑260................. Partial exemption rules.................................................... 538

118‑265................. Extension to adjacent structures...................................... 538

Subdivision 118‑D—Insurance and superannuation                                     538

118‑300................. Insurance policies........................................................... 539

118‑305................. Superannuation............................................................... 541

118‑310................. RSA’s............................................................................. 541

118‑313................. Superannuation agreements under the Family Law Act.. 542

118‑315................. Segregated exempt assets of life insurance companies.... 542

118‑320................. Segregated current pension assets of a complying superannuation entity 542

Subdivision 118‑E—Units in pooled superannuation trusts                        542

118‑350................. Units in pooled superannuation trusts............................. 542

Subdivision 118‑F—Venture capital investment                                            543

Guide to Subdivision 118‑F                                                                                  543

118‑400................. What this Subdivision is about....................................... 543

Operative provisions                                                                                             544

118‑405................. Exemption for certain foreign venture capital investments through venture capital limited partnerships  544

118‑407................. Exemption for certain venture capital investments through early stage venture capital limited partnerships........................................................................................ 546

118‑410................. Exemption for certain foreign venture capital investments through Australian venture capital funds of funds........................................................................................ 549

118‑415................. Exemption for certain venture capital investments by foreign residents   552

118‑420................. Meaning of eligible venture capital partner etc.............. 553

118‑425................. Meaning of eligible venture capital investment—investments in companies            555

118‑427................. Meaning of eligible venture capital investment—investments in unit trusts             562

118‑428................. Additional investment requirements for ESVCLPs........ 569

118‑430................. Meaning of at risk.......................................................... 571

118‑435................. Special rule relating to investment in foreign resident holding companies                571

118‑440................. Meaning of permitted entity value................................... 572

118‑445................. Meaning of committed capital........................................ 575

Subdivision 118‑G—Venture capital: investment by superannuation funds for foreign residents           575

Guide to Subdivision 118‑G                                                                                 575

118‑500................. What this Subdivision is about....................................... 575

118‑505................. Exemption for certain foreign venture capital.................. 576

118‑510................. Meaning of resident investment vehicle.......................... 576

118‑515................. Meaning of venture capital entity.................................... 577

118‑520................. Meaning of superannuation fund for foreign residents.. 578

118‑525................. Meaning of venture capital equity................................... 579

Subdivision 118‑H—Demutualisation of Tower Corporation                    580

118‑550................. Demutualisation of Tower Corporation.......................... 580

Subdivision 118‑I—Look‑through earnout rights                                         581

118‑560................. Object............................................................................. 581

118‑565................. Look‑through earnout rights.......................................... 582

118‑570................. Extra ways a CGT asset can be an active asset............... 584

118‑575................. Creating and ending look‑through earnout rights............ 585

118‑580................. Temporarily disregard capital losses affected by look‑through earnout rights          585

Division 121—Record keeping                                                                            587

Guide to Division 121                                                                                            587

121‑10................... What this Division is about............................................. 587

Operative provisions                                                                                             587

121‑20................... What records you must keep........................................... 587

121‑25................... How long you must retain the records............................ 589

121‑30................... Exceptions...................................................................... 590

121‑35................... Asset register entries....................................................... 590

Part 3‑3—Capital gains and losses: special topics                                          592

Division 122—Roll‑over for the disposal of assets to, or the creation of assets in, a wholly‑owned company                                                                                                592

Guide to Division 122                                                                                            592

122‑1..................... What this Division is about............................................. 592

Subdivision 122‑A—Disposal or creation of assets by an individual or trustee to a wholly‑owned company        593

Guide to Subdivision 122‑A                                                                                 593

122‑5..................... What this Subdivision is about....................................... 593

When is a roll‑over available                                                                              594

122‑15................... Disposal or creation of assets—wholly‑owned company 594

122‑20................... What you receive for the trigger event............................ 594

122‑25................... Other requirements to be satisfied................................... 595

122‑35................... What if the company undertakes to discharge a liability (disposal case)   598

122‑37................... Rules for working out what a liability in respect of an asset is 599

Replacement‑asset roll‑over if you dispose of a CGT asset                         600

122‑40................... Disposal of a CGT asset................................................. 600

Replacement‑asset roll‑over if you dispose of all the assets of a business 600

122‑45................... Disposal of all the assets of a business........................... 600

122‑50................... All assets acquired on or after 20 September 1985......... 601

122‑55................... All assets acquired before 20 September 1985............... 602

122‑60................... Assets acquired before and after 20 September 1985..... 603

Replacement‑asset roll‑over for a creation case                                            604

122‑65................... Creation of asset............................................................. 604

Same‑asset roll‑over consequences for the company (disposal case)        604

122‑70................... Consequences for the company (disposal case).............. 604

Same‑asset roll‑over consequences for the company (creation case)        605

122‑75................... Consequences for the company (creation case)............... 605

Subdivision 122‑B—Disposal or creation of assets by partners to a wholly‑owned company    606

Guide to Subdivision 122‑B                                                                                 606

122‑120................. What this Subdivision is about....................................... 606

When is a roll‑over available                                                                              607

122‑125................. Disposal or creation of assets—wholly‑owned company 607

122‑130................. What the partners receive for the trigger event................ 608

122‑135................. Other requirements to be satisfied................................... 608

122‑140................. What if the company undertakes to discharge a liability (disposal case)   610

122‑145................. Rules for working out what a liability in respect of an interest in an asset is            612

Replacement‑asset roll‑over if partners dispose of a CGT asset                613

122‑150................. Capital gain or loss disregarded...................................... 613

122‑155................. Disposal of post‑CGT or pre‑CGT interests................... 613

122‑160................. Disposal of both post‑CGT and pre‑CGT interests........ 613

Replacement‑asset roll‑over if the partners dispose of all the assets of a business        614

122‑170................. Capital gain or loss disregarded...................................... 614

122‑175................. Other consequences........................................................ 615

122‑180................. All interests acquired on or after 20 September 1985..... 615

122‑185................. All interests acquired before 20 September 1985............ 616

122‑190................. Interests acquired before and after 20 September 1985... 617

Replacement‑asset roll‑over for a creation case                                            618

122‑195................. Creation of asset............................................................. 618

Same‑asset roll‑over consequences for the company (disposal case)        618

122‑200................. Consequences for the company (disposal case).............. 618

Same‑asset roll‑over consequences for the company (creation case)        620

122‑205................. Consequences for the company (creation case)............... 620


Chapter 2Liability rules of general application

Part 2‑15Non‑assessable income

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

Table of Subdivisions

             Guide to Division 58

58‑A     Application

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

Guide to Division 58

58‑1  What this Division is about

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

·         continue to be owned by that entity after the entity becomes taxable; or

·         are acquired from that entity, in connection with the acquisition of a business, by a purchaser that is a taxable entity.

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

·         the notional written down value method; and

·         the undeducted pre‑existing audited book value method.

Subdivision 58‑AApplication

Table of sections

58‑5          Application of Division

58‑10        When an asset is acquired in connection with the acquisition of a business

58‑5  Application of Division

             (1)  This Division applies in 2 situations.

Entity sale

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

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

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

             (3)  In an entity sale situation:

                     (a)  the entity is a transition entity; and

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

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

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

Asset sale

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

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

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

             (5)  In an asset sale situation:

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

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

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

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

58‑10  When an asset is acquired in connection with the acquisition of a business

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

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

                     (b)  subsection (2) applies.

             (2)  This subsection applies if:

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

                     (b)  all of these subparagraphs apply:

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

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

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

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

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

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

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

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

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

Table of sections

58‑60        Purpose of rules in this Subdivision

58‑65        Choice of method to work out cost of privatised asset

58‑70        Application of Division 40

58‑75        Meaning of notional written down value

58‑80        Meaning of undeducted pre‑existing audited book value

58‑85        Pre‑existing audited book value of depreciating asset

58‑90        Method and effective life for transition entity

58‑60  Purpose of rules in this Subdivision

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

58‑65  Choice of method to work out cost of privatised asset

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

             (2)  The choice is to use either:

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

                     (b)  the *undeducted pre‑existing audited book value (if any) of the asset.

             (3)  The choice must be made:

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

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

or within a further period allowed by the Commissioner.

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

58‑70  Application of Division 40

Application of Division 40

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

Entity sale situation

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

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

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

Asset sale situation

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

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

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

58‑75  Meaning of notional written down value

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

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

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

worked out using the assumptions in this section.

Application of Division 40

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

Use for taxable purposes

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

Cost and acquisition time: exempt Australian government agency

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

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

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

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

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

Effective life

             (5)  Assume that:

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

                     (b)  subsection 40‑95(2) did not apply.

          (5A)  Assume that section 40‑102 did not apply to a *privatised asset unless all of the following are satisfied:

                     (a)  it is an entity sale situation within the meaning of section 58‑5;

                     (b)  a *capped life applies to the asset under subsection 40‑102(4) or (5) at both the asset’s *start time and the *transition time;

                     (c)  the *transition entity chooses, for the purposes of this section, to have section 40‑102 apply to the asset.

If section 40‑102 is to be applied to the asset, disregard paragraphs 40‑102(2)(a) and (b) and assume that the relevant time for the purposes of the application of that section to the asset were the transition time.

             (6)  Assume also that section 40‑110 (about recalculating effective life) did not apply.

58‑80  Meaning of undeducted pre‑existing audited book value

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

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

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

worked out using the assumptions in this section.

Application of Division 40

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

Use for taxable purposes

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

Cost

             (4)  Assume that:

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

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

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

Acquisition time

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

Effective life

             (6)  Assume that:

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

                     (b)  subsection 40‑95(2) did not apply.

Note:          Section 40‑102 does not apply to a privatised asset for the purposes of this section.

             (7)  Assume also that section 40‑110 (about recalculating effective life) did not apply.

58‑85  Pre‑existing audited book value of depreciating asset

             (1)  A *privatised asset has a pre‑existing audited book value if:

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

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

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

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

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

58‑90  Method and effective life for transition entity

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

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

                     (a)  if section 40‑102 applied to the asset for the purposes of subsection 58‑75(5A)—section 40‑102 applies to the asset and applies as if the relevant time for the asset for the purposes of that section were the *transition time; or

                     (b)  if section 40‑102 did not apply to the asset for the purposes of subsection 58‑75(5A) or section 58‑80—section 40‑102 does not apply to the asset.

Division 59Particular amounts of non‑assessable non‑exempt income

  

Guide to Division 59

59‑1  What this Division is about

This Division details particular amounts that are non‑assessable non‑exempt income.

Table of sections

Operative provisions

59‑10        Compensation under firearms surrender arrangements

59‑15        Mining payments

59‑20        Taxable amounts relating to franchise fees windfall tax

59‑25        Taxable amounts relating to Commonwealth places windfall tax

59‑30        Amounts you must repay

59‑35        Amounts that would be mutual receipts but for prohibition on distributions to members

59‑40        Issue of rights

59‑45        Tax bonus for the 2007‑08 income year

59‑50        Native title benefits

59‑65        Water infrastructure improvement payments

59‑67        Meaning of SRWUIP program, SRWUIP payment, direct SRWUIP payment and indirect SRWUIP payment

59‑70        List of SRWUIP programs

59‑75        Commissioner to be kept informed

59‑80        Amending assessments

Operative provisions

59‑10  Compensation under firearms surrender arrangements

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

59‑15  Mining payments

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

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

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

             (2)  A payment:

                     (a)  made to a *distributing body; or

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

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

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

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

                     (b)  any further applications of this subsection.

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

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

59‑20  Taxable amounts relating to franchise fees windfall tax

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

59‑25  Taxable amounts relating to Commonwealth places windfall tax

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

59‑30  Amounts you must repay

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

                     (a)  you must repay it; and

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

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

             (2)  It does not matter if:

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

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

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

59‑35  Amounts that would be mutual receipts but for prohibition on distributions to members

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

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

                     (b)  apart from this section, the amount would be assessable income only because of section 6‑5.

59‑40  Issue of rights

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

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

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

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

             (2)  The conditions are as follows:

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

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

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

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

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

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

59‑45  Tax bonus for the 2007‑08 income year

                   A tax bonus paid in accordance with the Tax Bonus for Working Australians Act (No. 2) 2009 is not assessable income and is not *exempt income.

59‑50  Native title benefits

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

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

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

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

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

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

                     (a)  from so much of:

                              (i)  the *native title benefit; or

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

                            as is not *non‑assessable non‑exempt income of an entity because of this section; or

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

                              (i)  the native title benefit; or

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

             (5)  A native title benefit is an amount, or *non‑cash benefit, that:

                     (a)  arises under:

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

                             (ii)  an ancillary agreement to such an agreement;

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

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

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

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

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

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

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

             (6)  An Indigenous holding entity is:

                     (a)  a *distributing body; or

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

                     (c)  a *registered charity.

59‑65  Water infrastructure improvement payments

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

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

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

Note:          One of the requirements for a SRWUIP payment is for the SRWUIP program to be on the published list of SRWUIP programs for the day the payment is made (see subsection 59‑67(5)).

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

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

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

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

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

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

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

Disregard subsection 26‑100(3) (about expenditure that is never SRWUIP expenditure) for the purposes of this subsection.

             (3)  The choice must be:

                     (a)  made in the *approved form; and

                     (b)  made:

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

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

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

The choice cannot be revoked.

Integrity rule

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

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

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

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

59‑67  Meaning of SRWUIP program, SRWUIP payment, direct SRWUIP payment and indirect SRWUIP payment

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

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

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

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

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

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

             (5)  For the purposes of subsections (3) and (4), treat a payment as being made under a *SRWUIP program only if that SRWUIP program is on the published list of SRWUIP programs (see section 59‑70) for the day the payment is made.

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

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

59‑70  List of SRWUIP programs

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

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

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

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

Entering SRWUIP programs on the list

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

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

                     (a)  is a *SRWUIP program; and

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

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

Changing the days for which a SRWUIP program is listed

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

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

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

The *Water Secretary must change the list accordingly.

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

Giving directions

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

59‑75  Commissioner to be kept informed

                   The *Water Secretary must notify the Commissioner about each payment described in subsection 59‑67(6) that the Commonwealth seeks to recover.

59‑80  Amending assessments

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

                     (a)  the inclusion of a *SRWUIP program on the published list of SRWUIP programs (see section 59‑70);

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

                     (c)  the Commonwealth seeking to recover a payment described in subsection 59‑67(6);

                     (d)  the making of a choice under subsection 59‑65(2);

                     (e)  the event that causes subsection 26‑100(3) to treat expenditure as if it had never been *SRWUIP expenditure;

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

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

Part 2‑20Tax offsets

Division 61Generally applicable tax offsets

Table of Subdivisions

61‑A     Dependant (invalid and carer) tax offset

61‑G     Private health insurance offset complementary to Part 2–2 of the Private Health Insurance Act 2007

61‑I       First child tax offset (baby bonus)

61‑IA    Child care tax offset

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

61‑N     Seafarer tax offset

Subdivision 61‑ADependant (invalid and carer) tax offset

Guide to Subdivision 61‑A

61‑1  What this Subdivision is about

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

Table of sections

Object of this Subdivision

61‑5          Object of this Subdivision

Entitlement to the dependant (invalid and carer) tax offset

61‑10        Who is entitled to the tax offset

61‑15        Cases involving more than one spouse

61‑20        Exceeding the income limit for family tax benefit (Part B)

61‑25        Eligibility for family tax benefit (Part B) without shared care

Amount of the dependant (invalid and carer) tax offset

61‑30        Amount of the dependant (invalid and carer) tax offset

61‑35        Families with shared care percentages

61‑40        Reduced amounts of dependant (invalid and carer) tax offset

61‑45        Reductions to take account of the other individual’s income

Object of this Subdivision

61‑5  Object of this Subdivision

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

Entitlement to the dependant (invalid and carer) tax offset

61‑10  Who is entitled to the tax offset

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

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

                              (i)  is your *spouse; or

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

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

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

                     (c)  during the year:

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

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

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

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

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

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

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

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

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

                             (ii)  is aged 16 years or over.

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

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

                     (b)  is aged 16 years or over; and

                     (c)  is being paid:

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

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

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

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

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

Note 1:       If paragraph (b) applies, the amount of the tax offset in relation to each spouse would be only part of the full amount: see section 61‑40.

Note 2:       Section 960‑255 may be relevant to determining relationships for the purposes of this section.

61‑15  Cases involving more than one spouse

             (1)  Despite paragraph 61‑10(1)(a), if, during a period comprising some or all of the year, there are 2 or more individuals who are your *spouse, you are taken, for the purposes of section 61‑10, only to contribute to the maintenance of the spouse with whom you reside during that period.

             (2)  Despite paragraph 61‑10(1)(a) and subsection (1) of this section, if, during a period comprising some or all of the year:

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

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

you are taken, for the purposes of section 61‑10, only to contribute to the maintenance of whichever of those individuals in relation to whom you are entitled to the smaller, or smallest, amount (including a nil amount) of tax offset under this Subdivision in relation to that period.

61‑20  Exceeding the income limit for family tax benefit (Part B)

             (1)  Despite section 61‑10, you are not entitled to a *tax offset for an income year if the sum of:

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

                     (b)  if you had a *spouse for the whole or part of the year, and your spouse was not the other individual referred to in subsection 61‑10(1)—the spouse’s adjusted taxable income for offsets for the year;

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

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

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

61‑25  Eligibility for family tax benefit (Part B) without shared care

                   Despite section 61‑10, you are not entitled to a *tax offset in relation to another individual for an income year if:

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

                     (b)  during the whole of the year:

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

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

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

Amount of the dependant (invalid and carer) tax offset

61‑30  Amount of the dependant (invalid and carer) tax offset

                   The amount of the *tax offset to which you are entitled in relation to another individual under section 61‑10 for an income year is $2,423. The amount is indexed annually.

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

Note 2:       The amount of the tax offset may be reduced by the application, in order, of sections 61‑35 to 61‑45.

61‑35  Families with shared care percentages

             (1)  The amount of the *tax offset under section 61‑30 in relation to the other individual for the year is reduced by the amount worked out under subsection (2) of this section if:

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

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

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

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

             (2)  The reduction is worked out as follows:

where:

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

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

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

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

unaltered offset amount is what would, but for this section, be the amount of your *tax offset in relation to the other individual under section 61‑10 for the year.

61‑40  Reduced amounts of dependant (invalid and carer) tax offset

             (1)  The amount of the *tax offset under sections 61‑30 and 61‑35 in relation to the other individual for the year is reduced by the amount in accordance with subsection (2) of this section if one or more of the following applies:

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

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

                     (c)  the other individual is an individual of a kind referred to in subparagraph 61‑10(1)(a)(i), (ii) or (iii) during part only of the year;

                     (d)  paragraph 61‑10(1)(b) applies to the other individual during part only of the year;

                     (e)  paragraph 61‑10(1)(c) applies during part only of the year;

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

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

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

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

             (2)  The amount of the tax offset under sections 61‑30 and 61‑35 is reduced to an amount that, in the Commissioner’s opinion, is a reasonable apportionment in the circumstances, having regard to the applicable matters referred to in paragraphs (1)(a) to (g).

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

61‑45  Reductions to take account of the other individual’s income

                   The amount of the *tax offset under sections 61‑30 to 61‑40 in relation to the other individual for the year is reduced by $1 for every $4 by which the following exceeds $282:

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

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

Subdivision 61‑GPrivate health insurance offset complementary to Part 2‑2 of the Private Health Insurance Act 2007

Guide to Subdivision 61‑G

61‑200  What this Subdivision is about

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

Table of sections

Operative provisions

61‑205      Entitlement to the private health insurance tax offset

61‑210      Amount of the private health insurance tax offset

61‑215      Reallocation of the private health insurance tax offset between spouses

Operative provisions

61‑205  Entitlement to the private health insurance tax offset

             (1)  You are entitled to a *tax offset for the 2012‑13 income year or a later income year if:

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

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

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

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

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

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

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

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

61‑210  Amount of the private health insurance tax offset

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

Reduction because PHII benefit received in another form

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

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

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

Note:          If the amount worked out under subsection (3) exceeds your share of the PHII benefit, you are liable to pay the excess to the Commonwealth. See section 282‑18 of the Private Health Insurance Act 2007 (Liability for excess private health insurance premium reduction or refund).

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

61‑215  Reallocation of the private health insurance tax offset between spouses

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

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

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

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

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

Note:          If you make a choice under this section, you might be liable to pay an amount under section 282‑18 of the Private Health Insurance Act 2007 (Liability for excess private health insurance premium reduction or refund).

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

                     (a)  the amount (if any) of the *tax offset for the income year under section 61‑205 in respect of the premium or amount of the individual to whom you are married is reduced to nil; and

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

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

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

Subdivision 61‑IFirst child tax offset (baby bonus)

Guide to Subdivision 61‑I

61‑350  What this Subdivision is about

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

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

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

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

Table of sections

Entitlement to a first child tax offset

61‑355      Who is entitled to a tax offset under this section

61‑360      What is a child event?

61‑365      First child only

61‑370      Another carer with entitlement for another child

61‑375      Selection rules

61‑380      Special rules for death of first child

Transferring an entitlement

61‑385      You may transfer your entitlement to a tax offset

61‑390      Transfer is irrevocable

61‑395      Transferor is not entitled to tax offset

61‑400      Transferee is entitled to tax offset

Claiming a first child tax offset

61‑405      How to claim a tax offset for a child

61‑410      Claim is irrevocable

Amount of a first child tax offset

61‑415      Formula for working out amount of tax offset

61‑420      Component of formula—entitlement amount

61‑425      Component of formula—total of the entitlement days

61‑430      What is your base year?

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

61‑440      Additional tax offset if a child is in your care before you legally adopt the child

61‑445      When a child is first in your care

61‑450      What is your base year if a child is in your care before you legally adopt the child?

61‑455      Old Subdivision applies if you would be worse off

Entitlement to a first child tax offset

61‑355  Who is entitled to a tax offset under this section

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

Note:          If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption (see section 61‑440).

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

             (3)  The conditions are that:

                     (a)  you have had a *child event (see section 61‑360) in relation to the child (whether or not in the income year); and

                     (b)  section 61‑365 (first child only) does not prevent you from having a *primary entitlement to the offset for the child; and

                     (c)  at the time:

                              (i)  the child is less than 5; and

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

                            (iii)  the child is in your care; and

                            (iv)  you are an Australian resident; and

                             (v)  section 61‑370 (another carer) does not prevent you from having a primary entitlement to the offset for the child; and

                            (vi)  if section 61‑375 (selection rules) applies—you are selected by subsection (3) of that section.

61‑360  What is a child event?

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

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

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

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

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

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

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

61‑365  First child only

                   You cannot have a *primary entitlement to a *tax offset under section 61‑355 for a child if:

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

                     (b)  you meet, or met at any time, the conditions in subparagraphs 61‑355(3)(c)(i) to (iv) for that other child.

61‑370  Another carer with entitlement for another child

                   You cannot have a *primary entitlement to a *tax offset under section 61‑355 for a child at a time if:

                     (a)  at that time:

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

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

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

61‑375  Selection rules

             (1)  This section applies if the conditions in subsection 61‑355(3) (other than subparagraph (c)(vi)) are met by more than one person at the same time in relation to the same child.

             (2)  Only one of those persons can have a *primary entitlement to a *tax offset under section 61‑355 for the child at that time.

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

                     (a)  the natural mother;

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

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

                     (d)  the natural father;

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

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

                              (i)  any agreement between the persons; and

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

61‑380  Special rules for death of first child

Child dies aged less than 5

             (1)  This section applies if your *primary entitlement to a *tax offset under section 61‑355 for a child ends because the child dies aged less than 5.

Special extension of time in year of death

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

Limit on application of first child only rule

             (3)  Section 61‑365 does not prevent you from having a *primary entitlement to a *tax offset for another child after the end of the income year in which the death occurred.

Transferring an entitlement

61‑385  You may transfer your entitlement to a tax offset

             (1)  If you are entitled to a *tax offset for a child for an income year under section 61‑355 or 61‑440, you may transfer that entitlement to another person.

          (1A)  However, if you are entitled to a *tax offset for a child for a particular income year under both of sections 61‑355 and 61‑440, you may only transfer one of those entitlements to another person if you also transfer the other entitlement to the same person.

             (2)  A transfer has effect only if:

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

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

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

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

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

61‑390  Transfer is irrevocable

                   A transfer cannot be changed or revoked.

61‑395  Transferor is not entitled to tax offset

                   You are no longer yourself entitled to a *tax offset for a child for an income year if you transfer the entitlement under section 61‑385 for that income year.

61‑400  Transferee is entitled to tax offset

                   If an entitlement to a *tax offset is transferred under section 61‑385, the transferee is entitled to the offset for the income year.

Claiming a first child tax offset

61‑405  How to claim a tax offset for a child

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

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

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

61‑410  Claim is irrevocable

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

Amount of a first child tax offset

61‑415  Formula for working out amount of tax offset

                   The amount of your *tax offset under sections 61‑355 and 61‑440 for an income year is the amount (rounded up to the nearest whole dollar) worked out using the formula:

where:

entitlement amount has the meaning given by section 61‑420.

total of the entitlement days has the meaning given by section 61‑425.

61‑420  Component of formula—entitlement amount

             (1)  In section 61‑415, the entitlement amount is the amount (rounded up to the nearest whole dollar) worked out using the formula:

where:

base amount is the lesser of:

                     (a)  one‑fifth of your basic income tax liability for your *base year (as worked out in step 2 of the method statement in subsection 4‑10(3)); and

                     (b)  $2,500.

             (2)  However, if:

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

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

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

then the entitlement amount is $500.

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

61‑425  Component of formula—total of the entitlement days

             (1)  In section 61‑415, the total of the entitlement days is the total number of days for which the primary person (see subsection (3)) had a *primary entitlement to a *tax offset under either or both of sections 61‑355 and 61‑440 for the child for the income year.

             (2)  In addition, if:

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

                     (b)  the primary person did not transfer the entitlement under section 61‑385 for the primary person’s base year; and

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

the total of the entitlement days also includes the number of days in the base year for which the primary person had a primary entitlement to a *tax offset under either or both of sections 61‑355 and 61‑440 for the child.

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

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

                     (b)  if you are claiming the offset as a transferee under section 61‑400—the transferor.

61‑430  What is your base year?

Primary entitlement

             (1)  Your base year for an entitlement to a *tax offset for a child under section 61‑355 is:

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

                     (b)  otherwise—the event year.

Note:          If a child is in your care before you adopt the child, your base year can instead be the year the child was first in your care or the year before that (see section 61‑450).

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

             (3)  A choice cannot be made:

                     (a)  after you have claimed the *tax offset under section 61‑355 for any income year; or

                     (b)  after you have transferred your entitlement to the tax offset under section 61‑355 for any income year.

Transferred entitlement

             (4)  Your base year for an entitlement transferred to you under section 61‑385 is the income year before the first income year for which the entitlement for the child was transferred to you.

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

61‑440  Additional tax offset if a child is in your care before you legally adopt the child

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

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

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

Note:          You are not entitled to a tax offset under this section if section 61‑455 applies to you.

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

             (3)  The conditions are that:

                     (a)  at the time:

                              (i)  the child is less than 5; and

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

                            (iii)  you are an Australian resident; and

                     (b)  you meet the conditions in subsection 61‑355(3) in relation to the child in that year or a later income year; and

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

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

Note:          See section 61‑445 for when a child is first in your care.

61‑445  When a child is first in your care

                   For the purposes of sections 61‑440 and 61‑450, a child is first in your care on the date evidenced in writing by a court or relevant department of the relevant State or Territory.

61‑450  What is your base year if a child is in your care before you legally adopt the child?

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

             (1)  This section defines your base year if you are entitled to a *tax offset for a child under section 61‑440 (which is where a child is in your care before you legally adopt the child).

Primary entitlement

             (2)  Your base year for a *tax offset under sections 61‑355 and 61‑440 is:

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

                              (i)  the previous income year;

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

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

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

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

Note:          See section 61‑445 for when a child is first in your care.

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

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

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

A choice cannot be revoked.

             (4)  A choice cannot be made:

                     (a)  after you have claimed the *tax offset under section 61‑440 for any income year; or

                     (b)  after you have transferred your entitlement to the tax offset under section 61‑440 for any income year.

Transferred entitlement

             (5)  Your base year for an entitlement transferred to you under section 61‑385 is the income year before the first income year for which the entitlement for the child was transferred to you.

61‑455  Old Subdivision applies if you would be worse off

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

Note:          The effect of this is that:

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

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

Subdivision 61‑IAChild care tax offset

Guide to Subdivision 61‑IA

61‑460  What this Subdivision is about

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

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

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

Table of sections

Operative provisions

61‑465      Object of this Subdivision

Entitlement to the child care tax offset

61‑470      Who is entitled to the tax offset

61‑475      Meaning of approved child care

61‑480      Meaning of entitled to child care benefit and entitlement to child care benefit

Amount of the child care tax offset

61‑485      Amount of the child care tax offset

61‑490      Component of formula—approved child care fees

61‑495      Component of formula—child care offset limit

Transfer of entitlement to unused balance of child care tax offset

61‑496      Entitlement to transfer

61‑497      Form of transfer

Operative provisions

61‑465  Object of this Subdivision

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

Entitlement to the child care tax offset

61‑470  Who is entitled to the tax offset

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

                     (a)  you are an individual; and

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

Example:    If there is at least 1 child care base week for you and a child in the 2004‑2005 income year (the child care base year), you are entitled to a tax offset for the child for the 2005‑2006 income year (the child care offset year).

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

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

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

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

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

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

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

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

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

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

61‑475  Meaning of approved child care

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

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

Note:          If a child is absent from care during a period for which child care fees are incurred for the child, but neither of sections 10 or 10A of the A New Tax System (Family Assistance) Act 1999 apply to the period of absence, approved child care would not be taken to have been provided for the child. As a result, child care fees incurred for the child during the period would not count as approved child care fees for which the child care tax offset is payable (see sections 61‑485 and 61‑490).

61‑480  Meaning of entitled to child care benefit and entitlement to child care benefit

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

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

General rule—actual determination of entitlement must have been made

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

Entitlement based on fee reductions under a determination of conditional entitlement

             (3)  However, if:

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

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

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

             (4)  Despite subsection (3), if:

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

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

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

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

Entitlement does not end with receipt

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

Later determinations, variations and substitutions to be taken into account

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

Amount of the child care tax offset

61‑485  Amount of the child care tax offset

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

Method statement

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

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

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

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

               (a)     the amount worked out using the formula:

                              

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

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

61‑490  Component of formula—approved child care fees

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

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

                     (a)  you; or

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

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

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

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

If fee reduction applies, count unreduced amount of fees

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

61‑495  Component of formula—child care offset limit

             (1)  The child care offset limit for the 2004‑2005 child care base year is $4,000. The limit is indexed annually.

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

             (2)  In applying the indexation formula in subsection 960‑275(1) to determine the child care offset limit for the 2005‑2006 child care base year or a later child care base year, the relevant financial year is the child care base year rather than the child care offset year for which the offset is being calculated.

Transfer of entitlement to unused balance of child care tax offset

61‑496  Entitlement to transfer

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

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

             (2)  If you make a transfer:

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

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

             (3)  A transfer cannot be revoked.

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

61‑497  Form of transfer

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

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

                     (a)  your *tax file number; and

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

                     (c)  the transferee’s signed consent to:

                              (i)  the transfer; and

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

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

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

Guide to Subdivision 61‑L

61‑575  What this Subdivision is about

You may get a tax offset under this Subdivision if:

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

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

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

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

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

Table of sections

Operative provisions

61‑580      Entitlement to a tax offset

61‑585      The amount of a tax offset

61‑590      Definition of MLS lump sums

Operative provisions

61‑580  Entitlement to a tax offset

Tax offset for MLS lump sums paid to you

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

                     (a)  you are an individual; and

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

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

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

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

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

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

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

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

                            (iv)  the amounts that would be included in your assessable income for the current year if, and only if, subsection 271‑105(1) (family trust distribution tax) in Schedule 2F to the Income Tax Assessment Act 1936 were ignored;

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

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

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

Tax offset for MLS lump sums paid to your spouse

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

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

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

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

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

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

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

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

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

61‑585  The amount of a tax offset

             (1)  The amount of a *tax offset under subsection 61‑580(1) is the amount worked out using the following formula:

where:

total Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61‑580(1)(b) that is payable by you for the *current year.

total non‑arrears Medicare levy surcharge means the amount that would be the total Medicare levy surcharge if the *MLS lump sums paid to you (and the MLS lump sums paid to the individual referred to in paragraph 61‑580(2)(a)) were disregarded.

             (2)  The amount of a *tax offset under subsection 61‑580(2) is the amount worked out using the following formula:

where:

total family Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61‑580(2)(c) that is payable by you for the *current year.

total non‑arrears family Medicare levy surcharge means the amount that would be the total family Medicare levy surcharge if the *MLS lump sums referred to in paragraph 61‑580(2)(e) were disregarded.

61‑590  Definition of MLS lump sums

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

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

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

Subdivision 61‑NSeafarer tax offset

Guide to Subdivision 61‑N

61‑695  What this Subdivision is about

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

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

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

Table of sections

Operative provisions

61‑700      Object of this Subdivision

61‑705      Who is entitled to the seafarer tax offset

61‑710      Amount of the seafarer tax offset

Operative provisions

61‑700  Object of this Subdivision

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

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

                     (b)  acquire maritime skills.

61‑705  Who is entitled to the seafarer tax offset

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

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

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

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

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

                              (i)  is employed by the company; or

                             (ii)  performs work or services under an *arrangement under which the company makes, at any time, a payment that is a *withholding payment covered by subsection 12‑60(1) in Schedule 1 to the Taxation Administration Act 1953 (about labour hire arrangements); and

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

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

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

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

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

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

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

                             (v)  ports outside Australia; or

                            (vi)  places beyond the continental shelf of Australia;

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

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

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

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

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

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

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

                            (iii)  the voyage begins; and

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

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

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

                            (iii)  the voyage ends.

61‑710  Amount of the seafarer tax offset

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

where:

gross payment amounts means the total amount of *withholding payments covered by section 12‑35 or subsection 12‑60(1) in Schedule 1 to the Taxation Administration Act 1953 payable by the company in the income year:

                     (a)  to individuals in respect of whom the company has 91 days or more in the income year that qualify for the offset as mentioned in subsection 61‑705(2); and

                     (b)  in respect of any of the following:

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

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

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

Division 63Common rules for tax offsets

Guide to Division 63

63‑1  What this Division is about

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

Table of sections

63‑10        Priority rules

63‑10  Priority rules

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

 

Order of applying tax offsets

Item

Tax offset

What happens to any excess

5

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

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

10

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

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

15

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

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

17

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

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

20

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

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

22

*Tax offset for *foreign income tax under Division 770

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

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

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

25

Child care *tax offset under Subdivision 61‑IA

You may transfer your entitlement to it to your *spouse (under sections 61‑496 and 61‑497)

30

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

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

35

A *tax offset under Division 355 (about R&D) that is not covered by section 67‑30

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

40

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

You can get a refund of the remaining amount

45

*Tax offset arising from payment of *franking deficit tax (see section 205‑70)

You may carry it forward to a later income year (under section 205‑70)

Note 1:       Section 13‑1 lists tax offsets.

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

Note 4:       The remaining amount of a carry forward tax offset may be reduced by section 65‑30 or 65‑35 to take account of net exempt income.

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

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

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

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

Division 65Tax offset carry forward rules

Guide to Division 65

65‑10  What this Division is about

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

You can only carry forward certain tax offsets.

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

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

Table of sections

Operative provisions

65‑30        Amount carried forward

65‑35        How to apply carried forward tax offsets

65‑40        When a company cannot apply a tax offset

65‑50        Effect of bankruptcy

65‑55        Deduction for amounts paid for debts incurred before bankruptcy

Operative provisions

65‑30  Amount carried forward

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

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

                     (a)  if you are a *small business entity for the income year—0.285; or

                     (b)  otherwise—0.3;

if you have a taxable income for the income year.

65‑35  How to apply carried forward tax offsets

             (1)  A *tax offset that you have carried forward decreases the amount of income tax that you would otherwise have to pay under section 4‑10 in a later income year.

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

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

                     (a)  that later income year; or

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

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

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

                     (a)  if you were a *small business entity for the year—each 28.5 cents of *tax offset reduces the net exempt income by $1; or

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

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

Note:          Section 65‑40 contains special restrictions on applying carried forward tax offsets.

65‑40  When a company cannot apply a tax offset

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

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

                     (b)  section 165‑20 (deducting part of a tax loss) were disregarded;

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

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

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

65‑50  Effect of bankruptcy

             (1)  If during the *current year:

                     (a)  you became bankrupt; or

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

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

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

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

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

65‑55  Deduction for amounts paid for debts incurred before bankruptcy

             (1)  If:

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

                     (b)  you have a *tax offset referred to in section 65‑50 for that earlier income year;

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

             (2)  The total of the following amounts cannot exceed the total of the expenditure that the Commissioner is satisfied was taken into account in calculating the amount of the *tax offset that you are unable to apply because of section 66‑50:

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

                     (b)  the expenditure that the Commissioner is satisfied was taken into account in calculating any amounts of the tax offset that, apart from section 65‑50, would have been applied in reducing your *net exempt income for the current year or earlier income years.

Division 67Refundable tax offset rules

  

Guide to Division 67

67‑10  What this Division is about

If your total tax offsets exceed your basic income tax liability, and some of those offsets are subject to the refundable tax offset rules, you may get a refund instead of paying income tax (see section 63‑10). This Division tells you which tax offsets are subject to the refundable tax offset rules.

Table of sections

Operative provisions

67‑20        Which tax offsets this Division applies to

67‑23        Refundable tax offsets

67‑25        Refundable tax offsets—franked distributions

67‑30        Refundable tax offsets—R&D

Operative provisions

67‑20  Which tax offsets this Division applies to

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

67‑23  Refundable tax offsets

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

 

Refundable tax offsets

Item

Subject matter

Tax offset

3

*principal beneficiary of a *special disability trust

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

5

private health insurance

private health insurance tax offsets under Subdivision 61‑G, other than those arising under subsection 61‑205(2)

10

children

first child tax offsets under Subdivision 61‑I

13

seafarers

the *tax offset available under Subdivision 61‑N

14A

attribution managed investment trusts—foreign resident member

the *tax offset available under section 276‑110

15

no‑TFN contributions income

the *tax offset available under Subdivision 295‑J

20

films

the *tax offsets available under Division 376

23

National Rental Affordability Scheme

the *tax offsets available under Division 380

27

exploration development incentive

the *tax offset available under Subdivision 418‑B

30

life insurance company’s subsidiary joining consolidated group

the *tax offset available under subsection 713‑545(5)

Note 1:       Subsection 61‑205(2) of this Act deals with tax offsets for trustees who are assessed and liable to pay tax under section 98 of the Income Tax Assessment Act 1936.

Note 2:       For the tax offsets available under Division 207 and Subdivision 210‑H (franked distributions), see section 67‑25.

Note 3:       For the tax offsets available under Division 355 (about R&D), see section 67‑30.

67‑25  Refundable tax offsets—franked distributions

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

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

          (1B)  If:

                     (a)  the trustee of a trust to whom a *franked distribution *flows indirectly under subsection 207‑50(4) is entitled to a *tax offset under Division 207 for an income year because of the distribution; and

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

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

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

                     (a)  the entity is an *exempt institution that is eligible for a refund; or

                     (b)  the entity is a *life insurance company and the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:

                              (i)  starting at the beginning of the income year of the company in which the distribution is made; and

                             (ii)  ending when the distribution is made.

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

                     (a)  the entity is an *exempt institution that is eligible for a refund; or

                     (b)  the entity is a *life insurance company and the company’s interest in the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:

                              (i)  starting at the beginning of the income year of the company in which the distribution is made; and

                             (ii)  ending when the distribution is made.

       (1DA)  A *tax offset is not subject to the refundable tax offset rules if:

                     (a)  an entity is entitled to the tax offset under Division 207 because a *franked distribution is made, or *flows indirectly, to the entity; and

                     (b)  the entity is a foreign resident and carries on business in Australia at or through a permanent establishment of the entity in Australia, being a permanent establishment within the meaning of:

                              (i)  a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936) that relates to a foreign country and affects the entity; or

                             (ii)  subsection 6(1) of that Act, if there is no such agreement; and

                     (c)  the distribution is attributable to the permanent establishment.

          (1E)  Where a *corporate tax entity is entitled to a *tax offset under Subdivision 210‑H because a *distribution *franked with a venture capital credit is made to the entity, the tax offset is not subject to the refundable tax offset rules unless:

                     (a)  the entity is a *life insurance company; and

                     (b)  the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period:

                              (i)  starting at the beginning of the income year of the company in which the distribution is made; and

                             (ii)  ending when the distribution is made.

67‑30  Refundable tax offsets—R&D

             (1)  A *tax offset to which an *R&D entity is entitled under section 355‑100 (about R&D) for an income year is subject to the refundable tax offset rules if all or part of the amount of the tax offset is worked out using the percentage in item 1 of the table in subsection 355‑100(1).

Note 1:       Otherwise, the tax offset will be a non‑refundable tax offset (see item 35 of the table in subsection 63‑10(1)).

Note 2:       This subsection can apply to an entitlement under any subsection of section 355‑100.

             (2)  Without limiting its effect apart from this subsection, subsection (1) also has the effect it would have if:

                     (a)  subsection (3) had not been enacted; and

                     (b)  the reference in subsection (1) to an *R&D entity were, by express provision, confined to an R&D entity that:

                              (i)  is a *constitutional corporation; or

                             (ii)  has its registered office (within the meaning of the Corporations Act 2001) or principal place of business (within the meaning of that Act) located in a Territory.

             (3)  Without limiting its effect apart from this subsection, subsection (1) also has the effect it would have if:

                     (a)  subsection (2) had not been enacted; and

                     (b)  this Act applied so that *tax offsets under section 355‑100 could only be worked out in respect of *R&D activities conducted or to be conducted:

                              (i)  solely in a Territory; or

                             (ii)  solely outside of Australia; or

                            (iii)  solely in a Territory and outside of Australia; or

                            (iv)  for the dominant purpose of supporting *core R&D activities conducted, or to be conducted, solely in a Territory.

Part 2‑25Trading stock

Division 70Trading stock

Table of Subdivisions

             Guide to Division 70

70‑A     What is trading stock

70‑B      Acquiring trading stock

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

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

70‑E      Miscellaneous

Guide to Division 70

70‑1  What this Division is about

This Division deals with amounts you can deduct, and amounts included in your assessable income, because of these situations:

•      you acquire an item of trading stock;

•      you carry on a business and hold trading stock at the start or the end of the income year;

•      you dispose of an item of trading stock outside the ordinary course of business, or it ceases to be trading stock in certain other circumstances.

Table of sections

70‑5          The 3 key features of tax accounting for trading stock

70‑5  The 3 key features of tax accounting for trading stock

                   The purpose of income tax accounting for trading stock is to produce an overall result that (apart from concessions) properly reflects your activities with your trading stock during the income year.

                   There are 3 key features:

                     (1)  You bring your gross outgoings and earnings to account, not your net profits and losses on disposal of trading stock.

                     (2)  Those outgoings and earnings are on revenue account, not capital account. As a result:

                             (a)  the gross outgoings are usually deductible as general deductions under section 8‑1 (when the trading stock becomes trading stock on hand); and

                             (b)  the gross earnings are usually assessable as ordinary income under section 6‑5 (when the trading stock stops being trading stock on hand).

                     (3)  You must bring to account any difference between the value of your trading stock on hand at the start and at the end of the income year. This is done in such a way that, in effect:

                             (a)  you account for the value of your trading stock as assessable income; and

                             (b)  you carry that value over as a corresponding deduction for the next income year.

Note:          You may not have to bring to account that difference if you are a small business entity: see Division 328.

Subdivision 70‑AWhat is trading stock

Table of sections

70‑10        Meaning of trading stock

70‑12        Registered emissions units

70‑10  Meaning of trading stock

             (1)  Trading stock includes:

                     (a)  anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a *business; and

                     (b)  *live stock.

             (2)  Trading stock does not include:

                     (a)  a *Division 230 financial arrangement; or

                     (b)  a *CGT asset covered by section 275‑105 that:

                              (i)  is owned by a *complying superannuation fund, a *complying approved deposit fund or a *pooled superannuation trust; or

                             (ii)  is a *complying superannuation asset of a *life insurance company.

Note 1:       Shares in a PDF are not trading stock. See section 124ZO of the Income Tax Assessment Act 1936.

Note 2:       If a company becomes a PDF, its shares are taken not to have been trading stock before it became a PDF. See section 124ZQ of the Income Tax Assessment Act 1936.

70‑12  Registered emissions units

                   A *registered emissions unit is not *trading stock.

Subdivision 70‑BAcquiring trading stock

Table of sections

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

70‑20        Non‑arm’s length transactions

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

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

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

             (1)  This section tells you in which income year to deduct under section 8‑1 (about general deductions) an outgoing incurred in connection with acquiring an item of *trading stock. (The outgoing must be deductible under that section.)

             (2)  If the item becomes part of your *trading stock on hand before or during the income year in which you incur the outgoing, deduct it in that income year.

             (3)  Otherwise, deduct the outgoing in the first income year:

                     (a)  during which the item becomes part of your *trading stock on hand; or

                     (b)  for which an amount is included in your assessable income in connection with the disposal of that item.

Note           You can deduct your capital costs of acquiring land carrying trees or of acquiring a right to fell trees, to the extent that the trees are felled for sale, or for use in manufacture, by you. (This is because the trees will then usually become your trading stock.) See section 70‑120.

70‑20  Non‑arm’s length transactions

                   If:

                     (a)  you incur an outgoing that is directly attributable to your buying or obtaining delivery of an item of your *trading stock; and

                     (b)  you and the seller of the item did not deal with each other at *arm’s length; and

                     (c)  the amount of the outgoing is greater than the *market value of what the outgoing is for;

the amount of the outgoing is instead taken to be that market value. This has effect for the purposes of applying this Act to you and also to the seller.

Note:          This section also affects the value of the item of trading stock at the end of an income year if you value it at its cost under section 70‑45 (Value of trading stock at end of income year).

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

                   An outgoing you incur in connection with acquiring an item of *trading stock is not an outgoing of capital or of a capital nature.

Note:          This means that paragraph 8‑1(2)(a) does not prevent the outgoing from being a general deduction under section 8‑1.

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

             (1)  If you start holding as *trading stock an item you already own, but do not hold as trading stock, you are treated as if:.

                     (a)  just before it became trading stock, you had sold the item to someone else (at *arm’s length) for whichever of these amounts you elect:

•    its cost (as worked out under subsection (3) or (4));

•    its *market value just before it became trading stock; and

                     (b)  you had immediately bought it back for the same amount.

Example:    You start holding a depreciating asset as part of your trading stock. You are treated as having sold it just before that time, and immediately bought it back, for its cost or market value, whichever you elect. (Subdivision 40‑D provides for the consequences of selling depreciating assets.)

                   The same amount is normally a general deduction under section 8‑1 as an outgoing in connection with acquiring trading stock. The amount is also taken into account in working out the item’s cost for the purposes of section 70‑45 (about valuing trading stock at the end of the income year).

Note:          Depending on how you elect under paragraph (1)(a), the sale may or may not give rise to a capital gain or a capital loss for the purposes of Parts 3‑1 and 3‑3 (about CGT). It does not if you elect to be treated as having sold the item for what would have been its cost: see subsection 118‑25(2). However, it can if you elect market value.

When you must make the election

             (2)  You must make the election by the time you lodge your *income tax return for the income year in which you start holding the item as *trading stock. (If you do not make the election by then because you do not realise until later that you started to hold the item as trading stock, you must make the election as soon as is reasonable after realising that.)

                   However, the Commissioner can allow you to make it later (in either case).

How to work out the item’s cost

             (3)  The item’s cost is what would have been its cost for the purposes of section 70‑45 (about valuing trading stock at the end of the income year) if it had been your *trading stock ever since you last acquired it. In working that out, disregard section 70‑55 (about acquiring live stock by natural increase).

             (4)  However, if you last acquired the item for no consideration, its cost is worked out using this table:

 

Cost of item acquired for no consideration

Item

In this case:

The cost is:

1

you acquired the item during or after the 1998‑99 income year, and the acquisition involved a *CGT event

the item’s *market value when you last acquired it

2

you acquired the item before or during the 1997‑98 income year, and the acquisition involved a d