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Income Tax Assessment Act 1997

Authoritative Version
  • - C2019C00113
  • In force - Superseded Version
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Act No. 38 of 1997 as amended, taking into account amendments up to Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019
An Act about income tax and related matters
Administered by: Treasury
General Comments: Division 40, Subdivision 40-D, Section 40-340, Subdivision 328-G and Sections 328-430 and 328-450 of this Act have been modified by the operation of the Commissioner’s Remedial Power, click here to see the modification
Registered 21 Mar 2019
Start Date 13 Mar 2019
End Date 31 Mar 2019

Commonwealth Coat of Arms of Australia

Income Tax Assessment Act 1997

No. 38, 1997

Compilation No. 191

Compilation date:                              13 March 2019

Includes amendments up to:            Act No. 16, 2019

Registered:                                         21 March 2019

This compilation is in 12 volumes

Volume 1:       sections 1‑1 to 36‑55

Volume 2:       sections 40‑1 to 67‑30

Volume 3:       sections 70‑1 to 121‑35

Volume 4:       sections 122‑1 to 197‑85

Volume 5:       sections 200‑1 to 253‑15

Volume 6:       sections 275‑1 to 313‑85

Volume 7:       sections 315‑1 to 420‑70

Volume 8:       sections 615‑1 to 721‑40

Volume 9:       sections 723‑1 to 855‑55

Volume 10:     sections 900‑1 to 995‑1

Volume 11:     Endnotes 1 to 3

Volume 12:     Endnotes 4 and 5

Each volume has its own contents

 

About this compilation

This compilation

This is a compilation of the Income Tax Assessment Act 1997 that shows the text of the law as amended and in force on 13 March 2019 (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 2‑25—Trading stock                                                                                                  1

Division 70—Trading stock                                                                                       1

Guide to Division 70                                                                                                  1

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

70‑5....................... The 3 key features of tax accounting for trading stock........ 2

Subdivision 70‑A—What is trading stock                                                            2

70‑10..................... Meaning of trading stock.................................................... 3

70‑12..................... Registered emissions units.................................................. 3

Subdivision 70‑B—Acquiring trading stock                                                        3

70‑15..................... In which income year do you deduct an outgoing for trading stock?       4

70‑20..................... Non‑arm’s length transactions............................................ 4

70‑25..................... Cost of trading stock is not a capital outgoing.................... 5

70‑30..................... Starting to hold as trading stock an item you already own.. 5

Subdivision 70‑C—Accounting for trading stock you hold at the start or end of the income year           8

General rules                                                                                                               8

70‑35..................... You include the value of your trading stock in working out your assessable income and deductions      8

70‑40..................... Value of trading stock at start of income year..................... 9

70‑45..................... Value of trading stock at end of income year...................... 9

Special valuation rules                                                                                            10

70‑50..................... Valuation if trading stock obsolete etc.............................. 10

70‑55..................... Working out the cost of natural increase of live stock....... 11

70‑60..................... Valuation of horse breeding stock.................................... 11

70‑65..................... Working out the horse opening value and the horse reduction amount    12

Subdivision 70‑D—Assessable income arising from disposals of trading stock and certain other assets                13

Guide to Subdivision 70‑D                                                                                      13

70‑75..................... What this Subdivision is about......................................... 13

70‑80..................... Why the rules in this Subdivision are necessary............... 14

Operative provisions                                                                                               14

70‑85..................... Application of this Subdivision to certain other assets...... 14

70‑90..................... Assessable income on disposal of trading stock outside the ordinary course of business        15

70‑95..................... Purchase price is taken to be market value........................ 16

70‑100................... Notional disposal when you stop holding an item as trading stock          16

70‑105................... Death of owner................................................................. 18

70‑110................... You stop holding an item as trading stock but still own it 19

70‑115................... Compensation for lost trading stock................................. 20

Subdivision 70‑E—Miscellaneous                                                                        20

70‑120................... Deducting capital costs of acquiring trees......................... 20

Part 2‑40Rules affecting employees and other taxpayers receiving PAYG withholding payments   23

Division 80General rules                                                                                     23

Guide to Division 80                                                                                                23

80‑1....................... What this Division is about............................................... 23

Operative provisions                                                                                               23

80‑5....................... Holding of an office.......................................................... 23

80‑10..................... Application to the termination of employment.................. 24

80‑15..................... Transfer of property.......................................................... 24

80‑20..................... Payments for your benefit or at your direction or request. 24

Division 82Employment termination payments                                       26

Guide to Division 82                                                                                                26

82‑1....................... What this Division is about............................................... 26

Subdivision 82‑AEmployment termination payments: life benefits       26

Guide to Subdivision 82‑A                                                                                      26

82‑5....................... What this Subdivision is about......................................... 26

Operative provisions                                                                                               27

82‑10..................... Taxation of life benefit termination payments................... 27

Subdivision 82‑BEmployment termination payments: death benefits   30

Guide to Subdivision 82‑B                                                                                      30

82‑60..................... What this Subdivision is about......................................... 30

Operative provisions                                                                                               31

82‑65..................... Death benefits for dependants........................................... 31

82‑70..................... Death benefits for non‑dependants................................... 32

82‑75..................... Death benefits paid to trustee of deceased estate............... 33

Subdivision 82‑CKey concepts                                                                          34

Guide to Subdivision 82‑C                                                                                      34

82‑125................... What this Subdivision is about......................................... 34

Operative provisions                                                                                               35

82‑130................... What is an employment termination payment?.................. 35

82‑135................... Payments that are not employment termination payments. 37

82‑140................... Tax free component of an employment termination payment 38

82‑145................... Taxable component of an employment termination payment 38

82‑150................... What is an invalidity segment of an employment termination payment?   39

82‑155................... What is a pre‑July 83 segment of an employment termination payment? 39

82‑160................... What is the ETP cap amount?........................................... 40

Division 83Other payments on termination of employment             41

Guide to Division 83                                                                                                41

83‑1....................... What this Division is about............................................... 41

Subdivision 83‑AUnused annual leave payments                                         41

Guide to Subdivision 83‑A                                                                                      41

83‑5....................... What this Subdivision is about......................................... 41

Operative provisions                                                                                               42

83‑10..................... Unused annual leave payment is assessable...................... 42

83‑15..................... Entitlement to tax offset.................................................... 43

Subdivision 83‑BUnused long service leave payments                               43

Guide to Subdivision 83‑B                                                                                      43

83‑65..................... What this Subdivision is about......................................... 43

General                                                                                                                       44

83‑70..................... Application—long service leave....................................... 44

83‑75..................... Meaning of unused long service leave payment................ 45

83‑80..................... Taxation of unused long service leave payments.............. 45

83‑85..................... Entitlement to tax offset.................................................... 46

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............................................................................... 46

Employment wholly full‑time or wholly part‑time                                          47

83‑95..................... How to work out amount of payment attributable to each period             47

83‑100................... How to work out unused days of long service leave for each period       48

83‑105................... How to work out long service leave accrued in each period 49

Employment partly full‑time and partly part‑time                                         50

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.......................................................................................... 50

Long service leave taken at less than full pay                                                   50

83‑115................... Working out used days of long service leave if leave taken at less than full pay      50

Subdivision 83‑CGenuine redundancy payments and early retirement scheme payments     51

Guide to Subdivision 83‑C                                                                                      51

83‑165................... What this Subdivision is about......................................... 51

Operative provisions                                                                                               52

83‑170................... Tax‑free treatment of genuine redundancy payments and early retirement scheme payments   52

83‑175................... What is a genuine redundancy payment?.......................... 53

83‑180................... What is an early retirement scheme payment?.................. 54

Subdivision 83‑DForeign termination payments                                         56

Guide to Subdivision 83‑D                                                                                      56

83‑230................... What this Subdivision is about......................................... 56

Operative provisions                                                                                               56

83‑235................... Termination payments tax free—foreign resident period.. 56

83‑240................... Termination payments tax free—Australian resident period 57

Subdivision 83‑EOther payments                                                                    58

Guide to Subdivision 83‑E                                                                                      58

83‑290................... What this Subdivision is about......................................... 58

Operative provisions                                                                                               58

83‑295................... Termination payments made more than 12 months after termination etc. 58

Division 83A—Employee share schemes                                                          59

Guide to Division 83A                                                                                             59

83A‑1.................... What this Division is about............................................... 59

Subdivision 83A‑A—Objects of Division and key concepts                           59

83A‑5.................... Objects of Division........................................................... 60

83A‑10.................. Meaning of ESS interest and employee share scheme...... 60

Subdivision 83A‑B—Immediate inclusion of discount in assessable income  61

Guide to Subdivision 83A‑B                                                                                   61

83A‑15.................. What this Subdivision is about......................................... 61

Operative provisions                                                                                               61

83A‑20.................. Application of Subdivision............................................... 61

83A‑25.................. Discount to be included in assessable income................... 62

83A‑30.................. Amount for which discounted ESS interest acquired........ 62

83A‑33.................. Reducing amounts included in assessable income—start ups  63

83A‑35.................. Reducing amounts included in assessable income—other cases              65

83A‑45.................. Further conditions for reducing amounts included in assessable income 67

Subdivision 83A‑C—Deferred inclusion of gain in assessable income       69

Guide to Subdivision 83A‑C                                                                                   69

83A‑100................ What this Subdivision is about......................................... 69

Main provisions                                                                                                        70

83A‑105................ Application of Subdivision............................................... 70

83A‑110................ Amount to be included in assessable income.................... 73

83A‑115................ ESS deferred taxing point—shares................................... 73

83A‑120................ ESS deferred taxing point—rights to acquire shares......... 74

83A‑125................ Tax treatment of ESS interests held after ESS deferred taxing points      76

Takeovers and restructures                                                                                   76

83A‑130................ Takeovers and restructures............................................... 76

Subdivision 83A‑D—Deduction for employer                                                  79

Guide to Subdivision 83A‑D                                                                                   79

83A‑200................ What this Subdivision is about......................................... 79

Operative provisions                                                                                               80

83A‑205................ Deduction for employer.................................................... 80

83A‑210................ Timing of general deductions............................................ 81

Subdivision 83A‑E—Miscellaneous                                                                     81

83A‑305................ Acquisition by associates.................................................. 82

83A‑310................ Forfeiture etc. of ESS interest........................................... 82

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

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

83A‑325................ Application of Division to relationships similar to employment               84

83A‑330................ Application of Division to ceasing employment............... 85

83A‑335................ Application of Division to stapled securities..................... 86

83A‑340................ Application of Division to indeterminate rights................ 86

Part 2‑42—Personal services income                                                                        87

Division 84—Introduction                                                                                        87

Guide to Part 2‑42                                                                                                    87

84‑1....................... What this Part is about...................................................... 87

Operative provisions                                                                                               88

84‑5....................... Meaning of personal services income.............................. 88

84‑10..................... This Part does not imply that individuals are employees... 88

Division 85—Deductions relating to personal services income            89

Guide to Division 85                                                                                                89

85‑1....................... What this Division is about............................................... 89

Operative provisions                                                                                               89

85‑5....................... Object of this Division...................................................... 89

85‑10..................... Deductions for non‑employees relating to personal services income       90

85‑15..................... Deductions for rent, mortgage interest, rates and land tax. 91

85‑20..................... Deductions for payments to associates etc........................ 91

85‑25..................... Deductions for superannuation for associates................... 92

85‑30..................... Exception: personal services businesses........................... 92

85‑35..................... Exception: employees, office holders and religious practitioners             93

85‑40..................... Application of Subdivision 900‑B to individuals who are not employees                93

Division 86—Alienation of personal services income                                94

Guide to Division 86                                                                                                94

86‑1....................... What this Division is about............................................... 94

86‑5....................... A simple description of what this Division does.............. 94

Subdivision 86‑A—General                                                                                   96

86‑10..................... Object of this Division...................................................... 96

86‑15..................... Effect of obtaining personal services income through a personal services entity      96

86‑20..................... Offsetting the personal services entity’s deductions against personal services income            98

86‑25..................... Apportionment of entity maintenance deductions among several individuals           100

86‑27..................... Deduction for net personal services income loss............ 101

86‑30..................... Assessable income etc. of the personal services entity.... 101

86‑35..................... Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes........................................................................................ 102

86‑40..................... Salary payments shortly after an income year................. 102

Subdivision 86‑B—Entitlement to deductions                                                 103

86‑60..................... General rule for deduction entitlements of personal services entities        104

86‑65..................... Entity maintenance deductions........................................ 104

86‑70..................... Car expenses................................................................... 105

86‑75..................... Superannuation............................................................... 106

86‑80..................... Salary or wages promptly paid....................................... 107

86‑85..................... Deduction entitlements of personal services entities for amounts included in an individual’s assessable income........................................................................................ 107

86‑87..................... Personal services entity cannot deduct net personal services income loss                107

86‑90..................... Application of Divisions 28 and 900 to personal services entities           108

Division 87—Personal services businesses                                                    109

Guide to Division 87                                                                                              109

87‑1....................... What this Division is about............................................. 109

87‑5....................... Diagram showing the operation of this Division............ 110

Subdivision 87‑A—General                                                                                 112

87‑10..................... Object of this Division.................................................... 112

87‑15..................... What is a personal services business?............................. 112

87‑18..................... The results test for a personal services business............. 114

87‑20..................... The unrelated clients test for a personal services business 115

87‑25..................... The employment test for a personal services business.... 116

87‑30..................... The business premises test for a personal services business 117

87‑35..................... Personal services income from Australian government agencies             117

87‑40..................... Application of this Division to certain agents................. 118

Subdivision 87‑B—Personal services business determinations                  120

87‑60..................... Personal services business determinations for individuals 121

87‑65..................... Personal services business determinations for personal services entities 123

87‑70..................... Applying etc. for personal services business determinations 126

87‑75..................... When personal services business determinations have effect 127

87‑80..................... Revoking personal services business determinations...... 127

87‑85..................... Review of decisions........................................................ 128

Chapter 3—Specialist liability rules                                                       129

Part 3‑1—Capital gains and losses: general topics                                         129

Division 100—A Guide to capital gains and losses                                   129

General overview                                                                                                   129

100‑1..................... What this Division is about............................................. 129

100‑5..................... Effect of this Division..................................................... 130

100‑10................... Fundamentals of CGT.................................................... 130

100‑15................... Overview of Steps 1 and 2............................................. 132

Step 1—Have you made a capital gain or a capital loss?                            133

100‑20................... What events attract CGT?............................................... 133

100‑25................... What are CGT assets?..................................................... 134

100‑30................... Does an exception or exemption apply?.......................... 134

100‑33................... Can there be a roll‑over?................................................. 135

Step 2—Work out the amount of the capital gain or loss                             136

100‑35................... What is a capital gain or loss?......................................... 136

100‑40................... What factors come into calculating a capital gain or loss? 136

100‑45................... How to calculate the capital gain or loss for most CGT events                137

Step 3—Work out your net capital gain or loss for the income year        137

100‑50................... How to work out your net capital gain or loss................ 137

100‑55................... How do you comply with CGT?.................................... 138

Keeping records for CGT purposes                                                                   138

100‑60................... Why keep records?......................................................... 138

100‑65................... What records?................................................................. 139

100‑70................... How long you need to keep records............................... 139

Division 102—Assessable income includes net capital gain                 140

Guide to Division 102                                                                                            140

102‑1..................... What this Division is about............................................. 140

102‑3..................... Concessions in working out your net capital gain........... 140

Operative provisions                                                                                             141

102‑5..................... Assessable income includes net capital gain................... 141

102‑10................... How to work out your net capital loss............................ 143

102‑15................... How to apply net capital losses....................................... 144

102‑20................... Ways you can make a capital gain or a capital loss......... 144

102‑22................... Amounts of capital gains and losses............................... 144

102‑23................... CGT event still happens even if gain or loss disregarded 145

102‑25................... Order of application of CGT events................................ 145

102‑30................... Exceptions and modifications......................................... 146

Division 103—General rules                                                                                 149

Guide to Division 103                                                                                            149

103‑1..................... What this Division is about............................................. 149

Operative provisions                                                                                             149

103‑5..................... Giving property as part of a transaction.......................... 149

103‑10................... Entitlement to receive money or property........................ 149

103‑15................... Requirement to pay money or give property................... 150

103‑25................... Choices........................................................................... 150

103‑30................... Reduction of cost base etc. by net input tax credits......... 151

Division 104—CGT events                                                                                    152

Guide to Division 104                                                                                            152

104‑1..................... What this Division is about............................................. 152

104‑5..................... Summary of the CGT events.......................................... 153

Subdivision 104‑A—Disposals                                                                            166

104‑10................... Disposal of a CGT asset: CGT event A1........................ 166

Subdivision 104‑B—Use and enjoyment before title passes                        168

104‑15................... Use and enjoyment before title passes: CGT event B1... 168

Subdivision 104‑C—End of a CGT asset                                                          169

104‑20................... Loss or destruction of a CGT asset: CGT event C1........ 169

104‑25................... Cancellation, surrender and similar endings: CGT event C2 170

104‑30................... End of option to acquire shares etc.: CGT event C3....... 171

Subdivision 104‑D—Bringing into existence a CGT asset                           172

104‑35................... Creating contractual or other rights: CGT event D1........ 172

104‑40................... Granting an option: CGT event D2................................. 174

104‑45................... Granting a right to income from mining: CGT event D3 175

104‑47................... Conservation covenants: CGT event D4......................... 175

Subdivision 104‑E—Trusts                                                                                  177

104‑55................... Creating a trust over a CGT asset: CGT event E1........... 178

104‑60................... Transferring a CGT asset to a trust: CGT event E2........ 179

104‑65................... Converting a trust to a unit trust: CGT event E3............. 180

104‑70................... Capital payment for trust interest: CGT event E4............ 180

104‑71................... Adjustment of non‑assessable part................................. 182

104‑72................... Reducing your capital gain under CGT event E4 if you are a trustee       186

104‑75................... Beneficiary becoming entitled to a trust asset: CGT event E5  187

104‑80................... Disposal to beneficiary to end income right: CGT event E6 188

104‑85................... Disposal to beneficiary to end capital interest: CGT event E7  189

104‑90................... Disposal by beneficiary of capital interest: CGT event E8 191

104‑95................... Making a capital gain...................................................... 191

104‑100................. Making a capital loss...................................................... 194

104‑105................. Creating a trust over future property: CGT event E9...... 196

104‑107A.............. AMIT—cost base reduction exceeds cost base: CGT event E10             197

104‑107B.............. Annual cost base adjustment for member’s unit or interest in AMIT       197

104‑107C.............. AMIT cost base net amount............................................ 198

104‑107D.............. AMIT cost base reduction amount.................................. 198

104‑107E............... AMIT cost base increase amount.................................... 199

104‑107F............... Receipt of money etc. increasing AMIT cost base reduction amount not to be treated as income            200

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.............................................. 201

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............................ 202

Subdivision 104‑F—Leases                                                                                  203

104‑110................. Granting a lease: CGT event F1...................................... 203

104‑115................. Granting a long‑term lease: CGT event F2..................... 204

104‑120................. Lessor pays lessee to get lease changed: CGT event F3. 205

104‑125................. Lessee receives payment for changing lease: CGT event F4 205

104‑130................. Lessor receives payment for changing lease: CGT event F5 206

Subdivision 104‑G—Shares                                                                                 207

104‑135................. Capital payment for shares: CGT event G1.................... 207

104‑145................. Liquidator or administrator declares shares or financial instruments worthless: CGT event G3              209

Subdivision 104‑H—Special capital receipts                                                  210

104‑150................. Forfeiture of deposit: CGT event H1.............................. 210

104‑155................. Receipt for event relating to a CGT asset: CGT event H2 211

Subdivision 104‑I—Australian residency ends                                               213

104‑160................. Individual or company stops being an Australian resident: CGT event I1               213

104‑165................. Exception for individuals................................................ 214

104‑170................. Trust stops being a resident trust: CGT event I2............. 214

Subdivision 104‑J—CGT events relating to roll‑overs                                215

104‑175................. Company ceasing to be member of wholly‑owned group after roll‑over: CGT event J1         216

104‑180................. Sub‑group break‑up........................................................ 218

104‑182................. Consolidated group break‑up.......................................... 219

104‑185................. Change in relation to replacement asset or improved asset after a roll‑over under Subdivision 152‑E: CGT event J2........................................................................... 219

104‑190................. Replacement asset period............................................... 222

104‑195................. Trust failing to cease to exist after roll‑over under Subdivision 124‑N: CGT event J4            222

104‑197................. Failure to acquire replacement asset and to incur fourth element expenditure after a roll‑over under Subdivision 152‑E: CGT event J5.................................. 224

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................. 225

Subdivision 104‑K—Other CGT events                                                            226

104‑205................. Incoming international transfer of emissions unit: CGT event K1            227

104‑210................. Bankrupt pays amount in relation to debt: CGT event K2 228

104‑215................. Asset passing to tax‑advantaged entity: CGT event K3.. 229

104‑220................. CGT asset starts being trading stock: CGT event K4...... 230

104‑225................. Special collectable losses: CGT event K5....................... 230

104‑230................. Pre‑CGT shares or trust interest: CGT event K6............ 232

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

104‑240................. Working out capital gain or loss for CGT event K7: general case            237

104‑245................. Working out capital gain or loss for CGT event K7: pooled assets          238

104‑250................. Direct value shifts: CGT event K8.................................. 240

104‑255................. Carried interests: CGT event K9..................................... 240

104‑260................. Certain short‑term forex realisation gains: CGT event K10 242

104‑265................. Certain short‑term forex realisation losses: CGT event K11 242

104‑270................. Foreign hybrids: CGT event K12................................... 242

Subdivision 104‑L—Consolidated groups and MEC groups                      243

104‑500................. Loss of pre‑CGT status of membership interests in entity becoming subsidiary member: CGT event L1........................................................................................ 243

104‑505................. Where pre‑formation intra‑group roll‑over reduction results in negative allocable cost amount: CGT event L2........................................................................................ 245

104‑510................. Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3................................................................................... 245

104‑515................. Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4       246

104‑520................. Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5         247

104‑525................. Error in calculation of tax cost setting amount for joining entity’s assets: CGT event L6        247

104‑535................. Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8........................................................................................ 249

Division 106—Entity making the gain or loss                                             251

Guide to Division 106                                                                                            251

106‑1..................... What this Division is about............................................. 251

Subdivision 106‑A—Partnerships                                                                      251

106‑5..................... Partnerships.................................................................... 251

Subdivision 106‑B—Bankruptcy and liquidation                                          254

106‑30................... Effect of bankruptcy....................................................... 254

106‑35................... Effect of liquidation........................................................ 254

Subdivision 106‑C—Absolutely entitled beneficiaries                                  255

106‑50................... Absolutely entitled beneficiaries..................................... 255

Subdivision 106‑D—Securities, charges and encumbrances                       255

106‑60................... Securities, charges and encumbrances............................ 256

Division 108—CGT assets                                                                                     257

Guide to Division 108                                                                                            257

108‑1..................... What this Division is about............................................. 257

Subdivision 108‑A—What a CGT asset is                                                        257

108‑5..................... CGT assets..................................................................... 257

108‑7..................... Interest in CGT assets as joint tenants............................ 258

Subdivision 108‑B—Collectables                                                                       258

108‑10................... Losses from collectables to be offset only against gains from collectables               259

108‑15................... Sets of collectables.......................................................... 260

108‑17................... Cost base of a collectable................................................ 260

Subdivision 108‑C—Personal use assets                                                           261

108‑20................... Losses from personal use assets must be disregarded.... 261

108‑25................... Sets of personal use assets.............................................. 261

108‑30................... Cost base of a personal use asset.................................... 262

Subdivision 108‑D—Separate CGT assets                                                       262

Guide to Subdivision 108‑D                                                                                 262

108‑50................... What this Subdivision is about....................................... 262

Operative provisions                                                                                             263

108‑55................... When is a building a separate asset from land?............... 263

108‑60................... Depreciating asset that is part of a building is a separate asset 263

108‑65................... Land adjacent to land acquired before 20 September 1985 264

108‑70................... When is a capital improvement a separate asset?............. 264

108‑75................... Capital improvements to CGT assets for which a roll‑over may be available           266

108‑80................... Deciding if capital improvements are related to each other 268

108‑85................... Meaning of improvement threshold................................ 269

Division 109—Acquisition of CGT assets                                                      270

Guide to Division 109                                                                                            270

109‑1..................... What this Division is about............................................. 270

Subdivision 109‑A—Operative rules                                                                 270

109‑5..................... General acquisition rules................................................. 271

109‑10................... When you acquire a CGT asset without a CGT event.... 273

Subdivision 109‑B—Signposts to other acquisition rules                             274

109‑50................... Effect of this Subdivision............................................... 274

109‑55................... Other acquisition rules.................................................... 274

109‑60................... Acquisition rules outside this Part and Part 3‑3.............. 280

Division 110—Cost base and reduced cost base                                        285

Guide to Division 110                                                                                            285

110‑1..................... What this Division is about............................................. 285

110‑5..................... Modifications to general rules......................................... 285

110‑10................... Rules about cost base not relevant for some CGT events 285

Subdivision 110‑A—Cost base                                                                            287

110‑25................... General rules about cost base......................................... 288

110‑35................... Incidental costs............................................................... 290

110‑36................... Indexation....................................................................... 291

What does not form part of the cost base                                                         292

110‑37................... Expenditure forming part of cost base or element........... 292

110‑38................... Exclusions...................................................................... 293

110‑40................... Assets acquired before 7.30 pm on 13 May 1997.......... 294

110‑43................... Partnership interests acquired before 7.30 pm on 13 May 1997              295

110‑45................... Assets acquired after 7.30 pm on 13 May 1997............. 295

110‑50................... Partnership interests acquired after 7.30 pm on 13 May 1997 298

110‑53................... Exceptions to application of sections 110‑45 and 110‑50 300

110‑54................... Debt deductions disallowed by thin capitalisation rules.. 300

Subdivision 110‑B—Reduced cost base                                                            301

110‑55................... General rules about reduced cost base............................ 301

110‑60................... Reduced cost base for partnership assets........................ 305

Division 112—Modifications to cost base and reduced cost base     307

Guide to Division 112                                                                                            307

112‑1..................... What this Division is about............................................. 307

112‑5..................... Discussion of modifications........................................... 307

Subdivision 112‑A—General modifications                                                    308

112‑15................... General rule for replacement modifications..................... 308

112‑20................... Market value substitution rule......................................... 309

112‑25................... Split, changed or merged assets...................................... 310

112‑30................... Apportionment rules....................................................... 312

112‑35................... Assumption of liability rule............................................ 313

112‑36................... Acquisitions of assets involving look‑through earnout rights  313

112‑37................... Put options...................................................................... 316

Subdivision 112‑B—Finding tables for special rules                                    316

112‑40................... Effect of this Subdivision............................................... 317

112‑45................... CGT events..................................................................... 317

112‑46................... Annual cost base adjustment for member’s unit or interest in AMIT       318

112‑48................... Gifts acquired by associates............................................ 318

112‑50................... Main residence................................................................ 319

112‑53................... Scrip for scrip roll‑over.................................................. 319

112‑53AA............. Statutory licences............................................................ 320

112‑53AB............. Change of incorporation................................................. 320

112‑53A................ MDO roll‑over............................................................... 320

112‑53B................ Exchange of stapled ownership interests for units in a unit trust              321

112‑53C................ Water entitlement roll‑overs............................................ 321

112‑54................... Demergers...................................................................... 321

112‑54A................ Transfer of assets between certain trusts......................... 322

112‑55................... Effect of you dying......................................................... 322

112‑60................... Bonus shares or units..................................................... 323

112‑65................... Rights............................................................................. 323

112‑70................... Convertible interests....................................................... 324

112‑77................... Exchangeable interests.................................................... 324

112‑78................... Exploration investments.................................................. 325

112‑80................... Leases............................................................................. 325

112‑85................... Options........................................................................... 326

112‑87................... Residency....................................................................... 326

112‑90................... An asset stops being a pre‑CGT asset............................ 327

112‑92................... Demutualisation of certain entities.................................. 327

112‑95................... Transfer of tax losses and net capital losses within wholly‑owned groups of companies        327

112‑97................... Modifications outside this Part and Part 3‑3................... 328

Subdivision 112‑C—Replacement‑asset roll‑overs                                        338

112‑100................. Effect of this Subdivision............................................... 338

112‑105................. What is a replacement‑asset roll‑over?............................ 339

112‑110................. How is the cost base of the replacement asset modified? 339

112‑115................. Table of replacement‑asset roll‑overs.............................. 339

Subdivision 112‑D—Same‑asset roll‑overs                                                      341

112‑135................. Effect of this Subdivision............................................... 341

112‑140................. What is a same‑asset roll‑over?....................................... 341

112‑145................. How is the cost base of the asset modified?.................... 341

112‑150................. Table of same‑asset roll‑overs........................................ 342

Division 114—Indexation of cost base                                                            344

114‑1..................... Indexing elements of cost base....................................... 344

114‑5..................... When indexation relevant................................................ 345

114‑10................... Requirement for 12 months ownership........................... 346

114‑15................... Cost base modifications.................................................. 348

114‑20................... When expenditure is incurred for roll‑overs................... 350

Division 115—Discount capital gains and trusts’ net capital gains 351

Guide to Division 115                                                                                            351

115‑1..................... What this Division is about............................................. 351

Subdivision 115‑A—Discount capital gains                                                     352

What is a discount capital gain?                                                                         352

115‑5..................... What is a discount capital gain?..................................... 352

115‑10................... Who can make a discount capital gain?........................... 352

115‑15................... Discount capital gain must be made after 21 September 1999  353

115‑20................... Discount capital gain must not have indexed cost base... 353

115‑25................... Discount capital gain must be on asset acquired at least 12 months before              354

115‑30................... Special rules about time of acquisition............................ 356

115‑32................... Special rule about time of acquisition for certain replacement‑asset roll‑overs         360

115‑34................... Further special rule about time of acquisition for certain replacement‑asset roll‑overs             361

What are not discount capital gains?                                                                362

115‑40................... Capital gain resulting from agreement made within a year of acquisition 362

115‑45................... Capital gain from equity in an entity with newly acquired assets             362

115‑50................... Discount capital gain from equity in certain entities........ 365

115‑55................... Capital gains involving money received from demutualisation of friendly society health or life insurer  367

Subdivision 115‑B—Discount percentage                                                        367

115‑100................. What is the discount percentage for a discount capital gain 367

115‑105................. Foreign or temporary residents—individuals with direct gains                368

115‑110................. Foreign or temporary residents—individuals with trust gains  369

115‑115................. Foreign or temporary residents—percentage for individuals 372

115‑120................. Foreign or temporary residents—trusts with certain gains 375

Subdivision 115‑C—Rules about trusts with net capital gains                    376

Guide to Subdivision 115‑C                                                                                 376

115‑200................. What this Division is about............................................. 376

Operative provisions                                                                                             377

115‑210................. When this Subdivision applies........................................ 377

115‑215................. Assessing presently entitled beneficiaries....................... 377

115‑220................. Assessing trustees under section 98 of the Income Tax Assessment Act 1936         379

115‑222................. Assessing trustees under section 99 or 99A of the Income Tax Assessment Act 1936            380

115‑225................. Attributable gain............................................................. 381

115‑227................. Share of a capital gain..................................................... 381

115‑228................. Specifically entitled to an amount of a capital gain........... 382

115‑230................. Choice for resident trustee to be specifically entitled to capital gain         383

Subdivision 115‑D—Tax relief for shareholders in listed investment companies         384

Guide to Subdivision 115‑D                                                                                 384

115‑275................. What this Subdivision is about....................................... 384

Operative provisions                                                                                             385

115‑280................. Deduction for certain dividends...................................... 385

115‑285................. Meaning of LIC capital gain.......................................... 388

115‑290................. Meaning of listed investment company........................... 389

115‑295................. Maintaining records........................................................ 390

Division 116—Capital proceeds                                                                          391

Guide to Division 116                                                                                            391

116‑1..................... What this Division is about............................................. 391

116‑5..................... General rules................................................................... 392

116‑10................... Modifications to general rules......................................... 392

General rules                                                                                                           393

116‑20................... General rules about capital proceeds.............................. 393

Modifications to general rules                                                                            395

116‑25................... Table of modifications to the general rules...................... 395

116‑30................... Market value substitution rule: modification 1................ 398

116‑35................... Companies and trusts that are not widely held................ 400

116‑40................... Apportionment rule: modification 2................................ 401

116‑45................... Non‑receipt rule: modification 3..................................... 402

116‑50................... Repaid rule: modification 4............................................. 403

116‑55................... Assumption of liability rule: modification 5.................... 403

116‑60................... Misappropriation rule: modification 6............................. 404

Special rules                                                                                                             404

116‑65................... Disposal etc. of a CGT asset the subject of an option..... 404

116‑70................... Option requiring both acquisition and disposal etc......... 405

116‑75................... Special rule for CGT event happening to a lease............. 405

116‑80................... Special rule if CGT asset is shares or an interest in a trust 405

116‑85................... Section 47A of 1936 Act applying to rolled‑over asset.. 406

116‑95................... Company changes residence from an unlisted country... 407

116‑100................. Gifts of property............................................................. 409

116‑105................. Conservation covenants.................................................. 409

116‑110................. Roll‑overs for merging superannuation funds................ 409

116‑115................. Farm‑in farm‑out arrangements...................................... 409

116‑120................. Disposals of assets involving look‑through earnout rights 410

Division 118—Exemptions                                                                                     413

Guide to Division 118                                                                                            413

118‑1..................... What this Division is about............................................. 413

Subdivision 118‑A—General exemptions                                                        414

Exempt assets                                                                                                          415

118‑5..................... Cars, motor cycles and valour decorations...................... 415

118‑10................... Collectables and personal use assets............................... 415

118‑12................... Assets used to produce exempt income etc..................... 417

118‑13................... Shares in a PDF.............................................................. 418

118‑15................... Registered emissions units.............................................. 418

Anti‑overlap provisions                                                                                        418

118‑20................... Reducing capital gains if amount otherwise assessable... 418

118‑21................... Carried interests.............................................................. 421

118‑22................... Superannuation lump sums and employment termination payments        421

118‑24................... Depreciating assets......................................................... 422

118‑25................... Trading stock.................................................................. 422

118‑27................... Division 230 financial arrangements and financial arrangements to which Subdivision 250‑E applies    423

118‑30................... Film copyright................................................................ 424

118‑35................... R&D............................................................................... 424

Exempt or loss‑denying transactions                                                                424

118‑37................... Compensation, damages etc............................................ 424

118‑40................... Expiry of a lease............................................................. 428

118‑42................... Transfer of stratum units................................................. 428

118‑45................... Sale of rights to mine...................................................... 429

118‑55................... Foreign currency hedging gains and losses.................... 429

118‑60................... Certain gifts.................................................................... 429

118‑65................... Later distributions of personal services income.............. 430

118‑70................... Transactions by exempt entities...................................... 430

118‑75................... Marriage or relationship breakdown settlements............. 430

118‑77................... Native title and rights to native title benefits.................... 431

Boat capital gains                                                                                                   432

118‑80................... Reduction of boat capital gain......................................... 432

Special disability trusts                                                                                         432

118‑85................... Special disability trusts................................................... 432

Subdivision 118‑B—Main residence                                                                 432

Guide to Subdivision 118‑B                                                                                 432

118‑100................. What this Subdivision is about....................................... 432

118‑105................. Map of this Subdivision................................................. 435

Basic case and concepts                                                                                        436

118‑110................. Basic case....................................................................... 436

118‑115................. Meaning of dwelling....................................................... 436

118‑120................. Extension to adjacent land etc......................................... 437

118‑125................. Meaning of ownership period........................................ 438

118‑130................. Meaning of ownership interest in land or a dwelling...... 438

Rules that may extend the exemption                                                                439

118‑135................. Moving into a dwelling................................................... 439

118‑140................. Changing main residences.............................................. 439

118‑145................. Absences........................................................................ 440

118‑147................. Absence from dwelling replacing main residence that was compulsorily acquired, destroyed etc.           440

118‑150................. If you build, repair or renovate a dwelling...................... 443

118‑155................. Where individual referred to in section 118‑150 dies...... 444

118‑160................. Destruction of dwelling and sale of land......................... 444

Rules that may limit the exemption                                                                   445

118‑165................. Separate CGT event for adjacent land or other structures 445

118‑170................. Spouse having different main residence.......................... 445

118‑175................. Dependent child having different main residence............ 446

Roll‑overs under Subdivision 126‑A                                                                  446

118‑178................. Previous roll‑over under Subdivision 126‑A.................. 446

118‑180................. Acquisition of dwelling from company or trust on marriage or relationship breakdown—roll‑over provision applying.......................................................................... 447

Partial exemption rules                                                                                        448

118‑185................. Partial exemption where dwelling was your main residence during part only of ownership period         448

118‑190................. Use of dwelling for producing assessable income.......... 449

118‑192................. Special rule for first use to produce income.................... 450

Dwellings acquired from deceased estates                                                       451

118‑195................. Dwelling acquired from a deceased estate....................... 451

118‑197................. Special rule for surviving joint tenant............................. 453

118‑200................. Partial exemption for deceased estate dwellings.............. 453

118‑205................. Adjustment if dwelling inherited from deceased individual 455

118‑210................. Trustee acquiring dwelling under will............................. 456

Special disability trusts                                                                                         457

118‑215................. What the following provisions are about........................ 457

118‑218................. Exemption available to trustee—main case..................... 457

118‑220................. Exemption available to trustee—after the principal beneficiary’s death    459

118‑222................. Exemption available to other beneficiary who acquires the CGT asset after the principal beneficiary’s death........................................................................................ 459

118‑225................. Amount of exemption available after the principal beneficiary’s death—general     459

118‑227................. Amount of exemption available after the principal beneficiary’s death—cost base and reduced cost base........................................................................................ 461

118‑230................. Application of CGT events E5 and E7 in relation to main residence exemption and special disability trusts........................................................................................ 462

Compulsory acquisitions of adjacent land only                                             462

118‑240................. What the following provisions are about........................ 462

118‑245................. CGT events happening only to adjacent land.................. 462

118‑250................. Compulsory acquisitions of adjacent land....................... 464

118‑255................. Maximum exempt area................................................... 466

118‑260................. Partial exemption rules.................................................... 467

118‑265................. Extension to adjacent structures...................................... 467

Subdivision 118‑D—Insurance and superannuation                                     467

118‑300................. Insurance policies........................................................... 468

118‑305................. Superannuation............................................................... 470

118‑310................. RSA’s............................................................................. 470

118‑313................. Superannuation agreements under the Family Law Act.. 471

118‑315................. Segregated exempt assets of life insurance companies.... 471

118‑320................. Segregated current pension assets of a complying superannuation entity 471

Subdivision 118‑E—Units in pooled superannuation trusts                        471

118‑350................. Units in pooled superannuation trusts............................. 471

Subdivision 118‑F—Venture capital investment                                            472

Guide to Subdivision 118‑F                                                                                  472

118‑400................. What this Subdivision is about....................................... 472

Operative provisions                                                                                             474

118‑405................. Exemption for certain foreign venture capital investments through venture capital limited partnerships  474

118‑407................. Exemption for certain venture capital investments through early stage venture capital limited partnerships........................................................................................ 475

118‑408................. Partial exemption for some capital gains otherwise fully exempt under section 118‑407         478

118‑410................. Exemption for certain foreign venture capital investments through Australian venture capital funds of funds........................................................................................ 479

118‑415................. Exemption for certain venture capital investments by foreign residents   482

118‑420................. Meaning of eligible venture capital partner etc.............. 483

118‑425................. Meaning of eligible venture capital investment—investments in companies            486

118‑427................. Meaning of eligible venture capital investment—investments in unit trusts             496

118‑428................. Additional investment requirements for ESVCLPs........ 505

118‑430................. Meaning of at risk.......................................................... 506

118‑432................. Findings of substantially novel applications of technology 507

118‑435................. Special rule relating to investment in foreign resident holding companies                508

118‑440................. Meaning of permitted entity value................................... 509

118‑445................. Meaning of committed capital........................................ 512

118‑450................. Values of assets and investments of entities without auditors  512

118‑455................. Impact Assessment of this Subdivision.......................... 513

Subdivision 118‑G—Venture capital: investment by superannuation funds for foreign residents           514

Guide to Subdivision 118‑G                                                                                 514

118‑500................. What this Subdivision is about....................................... 514

118‑505................. Exemption for certain foreign venture capital.................. 514

118‑510................. Meaning of resident investment vehicle.......................... 515

118‑515................. Meaning of venture capital entity.................................... 516

118‑520................. Meaning of superannuation fund for foreign residents.. 516

118‑525................. Meaning of venture capital equity................................... 517

Subdivision 118‑H—Demutualisation of Tower Corporation                    519

118‑550................. Demutualisation of Tower Corporation.......................... 519

Subdivision 118‑I—Look‑through earnout rights                                         519

118‑560................. Object............................................................................. 520

118‑565................. Look‑through earnout rights.......................................... 520

118‑570................. Extra ways a CGT asset can be an active asset............... 522

118‑575................. Creating and ending look‑through earnout rights............ 523

118‑580................. Temporarily disregard capital losses affected by look‑through earnout rights          523

Division 121—Record keeping                                                                            525

Guide to Division 121                                                                                            525

121‑10................... What this Division is about............................................. 525

Operative provisions                                                                                             525

121‑20................... What records you must keep........................................... 525

121‑25................... How long you must retain the records............................ 527

121‑30................... Exceptions...................................................................... 528

121‑35................... Asset register entries....................................................... 528


Chapter 2Liability rules of general application

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 disposal of the item to you within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936

the item’s *market value when you last acquired it

3

your acquisition of the item involved the item:

(a) devolving to you as someone’s *legal personal representative; or

(b) *passing to you as a beneficiary in someone’s estate;

and, if a *CGT event had happened in relation to the item just before you started holding it as *trading stock, a *capital gain or *capital loss could have resulted that would have been taken into account in working out your *net capital gain or *net capital loss for the income year of the event

(a) if the person died during or after his or her 1998‑99 income year—the dead person’s *cost base for the item just before his or her death; or

(b) if the person died before or during his or her 1997‑98 income year—the dead person’s indexed cost base (within the meaning of former Part IIIA (Capital gains and capital losses) of the Income Tax Assessment Act 1936) for the item just before his or her death (but worked out disregarding former section 160ZG (which affects the indexed cost base for a non‑listed personal use asset) of that Act)

4

any other case where you last acquired the item for no consideration

a nil amount

Exceptions

             (5)  Subsection (1) does not apply if you start holding any of the following as *trading stock because they are severed from land:

                     (a)  standing or growing crops;

                     (b)  crop‑stools;

                     (c)  trees planted and tended for sale.

(This does not prevent subsection (1) from applying to a severed item that you later start holding as trading stock.)

             (6)  Subsection (1) does not apply if:

                     (a)  you start holding an item as *trading stock; and

                     (b)  immediately before you started holding the item as trading stock, you *held the item as a *registered emissions unit.

Note:          A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936:

•       subsection 47A(10) (which treats certain benefits as dividends paid by a CFC)

•       paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year).

Subdivision 70‑CAccounting for trading stock you hold at the start or end of the income year

Table of sections

General rules

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

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

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

Special valuation rules

70‑50        Valuation if trading stock obsolete etc.

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

70‑60        Valuation of horse breeding stock

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

General rules

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

             (1)  If you carry on a *business, you compare:

                     (a)  the *value of all your *trading stock on hand at the start of the income year; and

                     (b)  the *value of all your trading stock on hand at the end of the income year.

Note:          You may not need to do this stocktaking if you are a small business entity: see Division 328.

             (2)  Your assessable income includes any excess of the *value at the end of the income year over the value at the start of the income year.

             (3)  On the other hand, you can deduct any excess of the *value at the start of the income year over the value at the end of the income year.

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

             (1)  The value of an item of *trading stock on hand at the start of an income year is the same amount at which it was taken into account under this Division or Subdivision 328‑E (about trading stock for small business entities) at the end of the last income year.

             (2)  The value of the item is a nil amount if the item was not taken into account under this Division or Subdivision 328‑E (about trading stock for small business entities) at the end of the last income year.

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

             (1)  You must elect to value each item of *trading stock on hand at the end of an income year at:

                     (a)  its *cost; or

                     (b)  its market selling value; or

                     (c)  its replacement value.

Note:          An item’s market selling value at a particular time may not be the same as its market value.

          (1A)  In working out the *cost, market selling value or replacement value of an item of *trading stock (other than an item the *supply of which cannot be a *taxable supply) at the end of an income year, disregard an amount equal to the amount of the *input tax credit (if any) to which you would be entitled if:

                             (a)  you had *acquired the item at that time; and

                             (b)  the acquisition had been solely for a *creditable purpose; and

Note:          Some assets, such as shares, cannot be the subject of a taxable supply.

             (2)  The rest of this Subdivision deals with cases where the normal operation of this section is modified, or where a different valuation method may or must be used. The table sets out other cases where that happens because of provisions outside this Subdivision.

 

Rules about the value of trading stock

Item

For this situation:

See:

2

In working out the attributable income of a non‑resident trust estate, trading stock is taken to be valued at cost.

Section 102AAY of the Income Tax Assessment Act 1936

3

In working out the attributable income of a controlled foreign corporation, the corporation must value at cost.

Section 397 of the Income Tax Assessment Act 1936

4

Some anti‑avoidance provisions reduce the amount that is taken to be the cost of an item of trading stock.

Subsections 52A(7), 82KH(1N), 82KL(6) and 100A(6B) of the Income Tax Assessment Act 1936

5

The value of the item at the end of an income year may be the same as at the start of the year for a small business entity

Subdivision 328‑E of this Act

6

The hybrid mismatch rules disallow an amount of a deduction for an outgoing incurred in connection with acquiring an item of *trading stock

Section 832‑60 of this Act

Special valuation rules

70‑50  Valuation if trading stock obsolete etc.

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

                     (a)  that is warranted because of obsolescence or any other special circumstances relating to that item; and

                     (b)  the value you elect is reasonable.

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

             (1)  The cost of an animal you hold as *live stock that you acquired by natural increase is whichever of these you elect:

                     (a)  the actual cost of the animal;

                     (b)  the cost prescribed by the regulations for each animal in the applicable class of live stock.

             (2)  However, if you incur a service fee for insemination and, as a result, acquire a horse by natural increase, its cost is the greater of:

                     (a)  the amount worked out under subsection (1); and

                     (b)  the part of the service fee that is attributable to your acquiring the horse.

             (3)  An election under this section must be made by the time you lodge your *income tax return for the income year in which you acquired the animal. However, the Commissioner can allow you to make it later.

70‑60  Valuation of horse breeding stock

             (1)  For a horse at least 3 years old that you acquired under a contract and hold for breeding, you can elect a value other than the values in section 70‑45.

             (2)  The value you can elect for the horse at the end of the income year is worked out using the table:

 

Value of horse breeding stock

If the horse is:

... you can value it at this amount:

female 12 years or over

$1

any other horse

the *horse opening value less the *horse reduction amount (see section 70‑65)

             (3)  However, if the value worked out under subsection (2) would be less than $1, you must elect the value of $1.

             (4)  A horse’s age is to be measured in whole years as at the end of the relevant income year. The age of a horse not born on 1 August is determined as if the horse had been born on the last 1 August before it was actually born.

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

             (1)  The horse opening value is:

                     (a)  if the horse has been your *live stock ever since the start of the income year—its *value as *trading stock at the start of the income year; or

                     (b)  otherwise—the horse’s base amount (see subsection (3)).

             (2)  The horse reduction amount is worked out as follows:

                     (a)  for female horses under 12 years of age:

                     (b)  for any male horse:

             (3)  In this section:

base amount is the lesser of:

                     (a)  the horse’s *cost; and

                     (b)  the horse’s *adjustable value when it most recently became your *live stock.

breeding days is the number of whole days in the income year since you most recently began to hold the horse for breeding.

nominated percentage is any percentage, up to 25%, you nominate when you make the election in section 70‑60.

reduction factor is the greater of:

                     (a)  3; and

                     (b)  the difference between 12 and the horse’s age when you most recently began to hold it for breeding.

Subdivision 70‑DAssessable income arising from disposals of trading stock and certain other assets

Guide to Subdivision 70‑D

70‑75  What this Subdivision is about

Your assessable income includes the market value of an item of trading stock if you dispose of it outside the ordinary course of business or it ceases to be trading stock in certain other circumstances.

This Subdivision treats certain other assets in the same way as trading stock.

Table of sections

70‑80        Why the rules in this Subdivision are necessary

Operative provisions

70‑85        Application of this Subdivision to certain other assets

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

70‑95        Purchase price is taken to be market value

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

70‑105      Death of owner

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

70‑115      Compensation for lost trading stock

70‑80  Why the rules in this Subdivision are necessary

             (1)  When you dispose of an item of your trading stock in the ordinary course of business, what you get for it is included in your assessable income (under section 6‑5) as ordinary income.

Note:          An incorporated body is treated as disposing of an item of its trading stock in the ordinary course of business if the body ceases to exist and disposes of the asset to a company that has not significantly different ownership: see Division 620.

             (2)  If an item stops being your trading stock for certain other reasons, an amount is generally included in your assessable income to balance the reduction in trading stock on hand, which is a transaction on revenue account.

             (3)  The other reasons for an item to stop being your trading stock are:

                     (a)  you dispose of it outside the ordinary course of business; or

                     (b)  interests in it change; or

                     (c)  you die; or

                     (d)  you stop holding it as trading stock.

Operative provisions

70‑85  Application of this Subdivision to certain other assets

                   This Subdivision (except section 70‑115) applies to certain assets of a *business as if they were *trading stock on hand of the entity that carries on that business. The assets are:

                     (a)  standing or growing crops; and

                     (b)  crop‑stools; and

                     (c)  trees planted and tended for sale.

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

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

             (1)  If you dispose of an item of your *trading stock outside the ordinary course of a *business:

                     (a)  that you are carrying on; and

                     (b)  of which the item is an asset;

your assessable income includes the *market value of the item on the day of the disposal.

          (1A)  If the disposal is the giving of a gift of property by you for which a valuation under section 30‑212 is obtained, you may choose that the *market value is replaced with the value of the property as determined under the valuation. You can only make this choice if the valuation was made no more than 90 days before or after the disposal.

             (2)  Any amount that you actually receive for the disposal is not included in your assessable income (nor is it *exempt income).

Note 1:       In the case of an asset covered by section 70‑85 (which applies this Subdivision to certain other assets), the disposal will usually involve disposing of the land of which the asset forms part.

Note 2:       For certain disposals of live stock by primary producers, special rules apply: see Subdivision 385‑E.

Note 3:       If the disposal is by way of gift, you may be able to deduct the gift: see Division 30 (Gifts).

Note 4:       If the disposal is of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70‑120.

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

70‑95  Purchase price is taken to be market value

                   If an entity disposes of an item of the entity’s *trading stock outside the ordinary course of *business, the entity acquiring the item is treated as having bought it for the amount included in the disposing entity’s assessable income under section 70‑90.

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

             (1)  An item of *trading stock is treated as having been disposed of outside the ordinary course of *business if it stops being trading stock on hand of an entity (the transferor) and, immediately afterwards:

                     (a)  the transferor is not the item’s sole owner; but

                     (b)  an entity that owned the item (alone or with others) immediately beforehand still has an interest in the item.

Example:    A grocer decides to take her daughters into partnership with her. Her trading stock becomes part of the partnership assets, owned by the partners equally. As a result, it becomes trading stock on hand of the partnership instead of the grocer. This section treats the grocer as having disposed of the trading stock to the partnership outside the ordinary course of her business.

Note:          If the transferor is the item’s sole owner after it stops being trading stock on hand of the transferor, section 70‑110 applies instead of this section.

             (2)  As a result, the transferor’s assessable income includes the *market value of the item on the day it stops being *trading stock on hand of the transferor.

             (3)  The entity or entities (the transferee) that own the item immediately after it stops being *trading stock on hand of the transferor are treated as having bought the item for the same value on that day.

Election to treat item as disposed of at closing value

             (4)  However, an election can be made to treat the item as having been disposed of for what would have been its *value as *trading stock of the transferor on hand at the end of an income year ending on that day.

             (5)  If this election is made, this *value is included in the transferor’s assessable income for the income year that includes that day. The transferee is treated as having bought the item for the same value on that day.

             (6)  This election can only be made if:

                     (a)  immediately after the item stops being *trading stock on hand of the transferor, it is an asset of a *business carried on by the transferee; and

                     (b)  immediately after the item stops being trading stock on hand of the transferor, the entities that owned it immediately beforehand have (between them) interests in the item whose total value is at least 25% of the item’s *market value on that day; and

                     (c)  the *value elected is less than that market value; and

                     (d)  the item is not a thing in action.

             (7)  Also, the election can only be made before 1 September following the end of the *financial year in which the item stops being *trading stock on hand of the transferor. However, the Commissioner can allow the election to be made later.

             (8)  An election must be in writing and signed by or on behalf of each of:

                     (a)  the entities that own the item immediately before it stops being *trading stock on hand of the transferor; and

                     (b)  the entities that own it immediately afterwards.

             (9)  If a person whose signature is required for the election has died, the *legal personal representative of that person’s estate may sign instead.

When election has no effect

           (10)  An election has no effect if:

                     (a)  the item stops being *trading stock on hand of the transferor outside the course of ordinary family or commercial dealing; and

                     (b)  the *consideration receivable by the transferor (or by any of the entities constituting the transferor) substantially exceeds what would reasonably be expected to be the consideration receivable by the entity concerned if the *market value of the item immediately before it stops being trading stock on hand of the transferor were the *value elected under subsection (4).

Note:          Section 960‑255 may be relevant to determining family relationships for the purposes of paragraph (10)(a).

           (11)  Consideration receivable by an entity means so much of the value of any benefit as it is reasonable to expect that the entity will obtain in connection with the item ceasing to be *trading stock on hand of the transferor.

70‑105  Death of owner

             (1)  When you die, your assessable income up to the time of your death includes the *market value at that time of the *trading stock of your *business (if any).

Note:          In the case of trees, you can deduct the relevant portion of your capital costs of acquiring the land carrying the trees or of acquiring a right to fell the trees: see section 70‑120.

             (2)  The entity on which the *trading stock devolves is treated as having bought it for its *market value at that time.

             (3)  However, your *legal personal representative can elect to have included in your assessable income (instead of the *market value) the amount that would have been the *value of the *trading stock at the end of an income year ending on the day of your death.

             (4)  In the case of an asset covered by section 70‑85 (which applies this Subdivision to certain other assets), your *legal personal representative can elect to have a nil amount included in your assessable income (instead of the *market value).

             (5)  Your *legal personal representative can make an election only if:

                     (a)  the *business is carried on after your death; and

                     (b)  the *trading stock continues to be held as trading stock of that business, or the asset continues to be held as an asset of that business, as appropriate.

             (6)  If an election is made, the entity on which the *trading stock devolves is treated as having bought it for the amount referred to in subsection (3) or (4).

             (7)  An election can only be made on or before the day when your *legal personal representative lodges your *income tax return for the period up to your death. However, the Commissioner can allow it to be made later.

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

             (1)  If you stop holding an item as *trading stock, but still own it, you are treated as if:

                     (a)  just before it stopped being trading stock, you had sold it to someone else (at *arm’s length and in the ordinary course of business) for its *cost; and

                     (b)  you had immediately bought it back for the same amount.

Example 1: You are a sheep grazier and take a sheep from your stock to slaughter for personal consumption. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.

                   Although you are also treated as having bought the sheep for the same amount, it would not be deductible because the sheep is for personal consumption.

Example 2: You stop holding an item as trading stock and begin to use it as a depreciating asset for the purpose of producing your assessable income. You are treated as having sold it for its cost. This amount is assessable income, just like the proceeds of sale of any of your trading stock.

                   You are also treated as having bought the item for the same amount, which is relevant to working out the item’s cost for capital allowance purposes (see Subdivision 40‑C) and the item’s cost base for CGT purposes (see Division 110).

             (2)  This section does not apply if:

                     (a)  you stop holding an item as *trading stock; and

                     (b)  immediately after you stopped holding the item as trading stock, you start to *hold the item as a *registered emissions unit.

Note:          A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936:

•       subsection 47A(10) (which treats certain benefits as dividends paid by a CFC)

•       paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year).

70‑115  Compensation for lost trading stock

                   Your assessable income includes an amount that:

                     (a)  you receive by way of insurance or indemnity for a loss of *trading stock; and

                     (b)  is not assessable as *ordinary income under section 6‑5.

Subdivision 70‑EMiscellaneous

Table of sections

70‑120      Deducting capital costs of acquiring trees

70‑120  Deducting capital costs of acquiring trees

             (1)  This section gives you deductions for your capital costs of acquiring land carrying trees or of acquiring a right to fell trees.

Note:          This section is included in this Division because:

•       trees felled for sale, or for use in manufacture, by you will usually become your trading stock; and

•       before they are felled, the trees are covered by sections 70‑90 and 70‑105 because of section 70‑85.

Land carrying trees

             (2)  You can deduct the amount you paid to acquire land carrying trees if:

                     (a)  some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the *purpose of producing assessable income; or

                     (b)  some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of *royalty; or

                     (c)  the *market value of some or all of the trees is included in your assessable income for the income year by section 70‑90 (because you disposed of the trees outside the ordinary course of *business) or section 70‑105 (because of your death).

(It does not matter when you acquired the land.)

Note:          The market value of trees is not included in your assessable income for the income year by section 70‑105 (because of your death) if your legal personal representative elects under subsection 70‑105(4) to have a nil amount included instead.

Right to fell trees

             (3)  You can deduct the amount you paid to acquire a right to fell trees if:

                     (a)  some or all of the trees are felled during the income year for sale, or for use in manufacture, by you for the *purpose of producing assessable income; or

                     (b)  some or all of the trees are felled during the income year under a right you granted to another entity in consideration of payments as or by way of *royalty.

(It does not matter when you acquired the right.)

How much you can deduct for costs of acquiring land or right

             (4)  You can deduct for the income year so much of the amount you paid as is attributable to the trees covered by a paragraph of subsection (2) or (3).

             (5)  If you can deduct an amount because of paragraph (2)(c), you can also deduct for the income year so much of any other capital expenditure you incurred as is attributable to acquiring the trees covered by that paragraph (except so far as you have deducted it, or can deduct it, for any income year under a provision of this Act outside this section).

No deduction for carbon sink forests

          (5A)  You cannot deduct under this section so much of an amount you paid or incurred as is attributable to the establishment of trees for which any entity has deducted, or can deduct, an amount for any income year under Subdivision 40‑J.

Non‑arm’s length transactions

             (6)  If:

                     (a)  you can deduct an amount under this section for expenditure incurred in connection with a transaction; and

                     (b)  the parties to the transaction did not deal with each other at *arm’s length; and

                     (c)  the amount of the expenditure is greater than the *market value of what the expenditure is for;

the amount of the expenditure is instead taken to be that market value. This has effect for the purposes of working out what you can deduct under this section.

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

Division 80General rules

Table of Subdivisions

             Guide to Division 80

Guide to Division 80

80‑1  What this Division is about

This Division sets out rules that apply throughout the Part. The rules are about holding an office, the termination of employment, the transfer of property and receiving and making payments.

Table of sections

Operative provisions

80‑5          Holding of an office

80‑10        Application to the termination of employment

80‑15        Transfer of property

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

Operative provisions

80‑5  Holding of an office

                   If a person holds (or has held) an office, this Part applies to the person in the same way as it would apply if the person were (or had been) employed.

80‑10  Application to the termination of employment

                   For the purposes of this Part, treat the termination of employment as including:

                     (a)  retirement from employment; and

                     (b)  the cessation of employment because of death.

80‑15  Transfer of property

             (1)  Any of the following payments covered by this Part (but no others covered by this Part) can be or include a transfer of property:

                     (a)  an *employment termination payment;

                     (b)  a *genuine redundancy payment;

                     (c)  an *early retirement scheme payment;

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

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

Note:          An unused annual leave payment or an unused long service leave payment cannot include a transfer of property.

             (2)  The amount of the payment is or includes the *market value of the property.

             (3)  The *market value is reduced by the value of any consideration given for the transfer of the property.

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

             (1)  This section applies for the purposes of:

                     (a)  determining whether Division 82 or 83 applies to a payment; and

                     (b)  determining whether a payment mentioned in Division 82 or 83 is made to you, or received by you.

             (2)  A payment is treated as being made to you, or received by you, if it is made:

                     (a)  for your benefit; or

                     (b)  to another person or to an entity at your direction or request.

Division 82Employment termination payments

Table of Subdivisions

             Guide to Division 82

82‑A     Employment termination payments: life benefits

82‑B      Employment termination payments: death benefits

82‑C      Key concepts

Guide to Division 82

82‑1  What this Division is about

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

Subdivision 82‑AEmployment termination payments: life benefits

Guide to Subdivision 82‑A

82‑5  What this Subdivision is about

If you receive a life benefit termination payment, part of the payment may be tax free (the tax free component).

You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.

The extent of your entitlement to the offset depends on your age in the year you receive the offset, on the total amount of payments you receive in the same year, and on the total amount of payments you receive in consequence of the same employment termination.

Table of sections

Operative provisions

82‑10        Taxation of life benefit termination payments

Operative provisions

82‑10  Taxation of life benefit termination payments

Tax free component

             (1)  The *tax free component of a *life benefit termination payment you receive is not assessable income and is not *exempt income.

Taxable component

             (2)  The *taxable component of the payment is assessable income.

             (3)  You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed:

                     (a)  if you are your *preservation age or older on the last day of the income year in which you receive the payment—15%; or

                     (b)  otherwise—30%.

Note:          The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

             (4)  The amount is so much of the *taxable component of the payment as does not exceed the smallest of the following:

                     (a)  the *ETP cap amount reduced (but not below zero) by:

                              (i)  if the payment is a payment of a kind referred to in subsection (6) (an excluded payment)—the amount worked out under this subsection for each *life benefit termination payment you have received earlier in the income year to the extent that it is an excluded payment; or

                             (ii)  if the payment is not an excluded payment—the amount worked out under this subsection for each life benefit termination payment you have received earlier in the income year;

                     (b)  the ETP cap amount reduced (but not below zero) by:

                              (i)  if the payment is an excluded payment—the amount worked out under this subsection for each life benefit termination payment you have received earlier in consequence of the same employment termination (whether in the income year or an earlier income year) to the extent that it is an excluded payment; or

                             (ii)  if the payment is not an excluded payment—the amount worked out under this subsection for each life benefit termination payment you have received earlier in consequence of the same employment termination (whether in the income year or an earlier income year);

                     (c)  if the payment is not an excluded payment—$180,000, reduced (but not below zero) by your taxable income for the income year in which the payment is made.

Note 1:       For the ETP cap amount, see section 82‑160.

Note 2:       If you have also received a death benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to a tax concession for the death benefit termination payment (under section 82‑65 or 82‑70).

Note 3:       Certain other life benefit termination payments made before 1 July 2012 may be treated as earlier payments under paragraph (4)(b): see section 82‑10H of the Income Tax (Transitional Provisions) Act 1997.

             (5)  In working out, for the purposes of paragraph (4)(c), your taxable income for the income year, disregard:

                     (a)  the taxable component of the payment; and

                     (b)  the taxable component of each *life benefit termination payment you receive later in the income year.

             (6)  Paragraph (4)(c) does not apply in relation to *life benefit termination payments:

                     (a)  that are *genuine redundancy payments, or that would be genuine redundancy payments but for paragraph 83‑175(2)(a); or

                     (b)  that are *early retirement scheme payments; or

                     (c)  that include *invalidity segments, or what would be invalidity segments included in such payments but for paragraph 82‑150(1)(c); or

                     (d)  that:

                              (i)  are paid in connection with a genuine dispute; and

                             (ii)  are principally compensation for personal injury, unfair dismissal, harassment, discrimination or a matter prescribed by the regulations; and

                            (iii)  exceed the amount that could, at the time of the termination of your employment, reasonably be expected to be received by you in consequence of the voluntary termination of your employment.

             (7)  If the payment is partly an excluded payment:

                     (a)  subsection (4) applies as if the payment were 2 payments as follows:

                              (i)  first, a payment consisting only of the part of the payment that is an excluded payment;

                             (ii)  second, another payment, made immediately after the first payment, consisting only of the part of the payment that is not an excluded payment; and

                     (b)  subsection (4) applies to the second payment as if a reference in subsection (5) to the taxable component of a payment were a reference to so much of the taxable component as relates to the part of the payment that is not an excluded payment.

             (8)  Despite subsections (4) and (7), the amount mentioned in subsection (4) in relation to the payment must not exceed either of the following:

                     (a)  the *ETP cap amount reduced (but not below zero) by the amount worked out under subsection (4) for each *life benefit termination payment you have received earlier in the income year;

                     (b)  the ETP cap amount reduced (but not below zero) by the amount worked out under subsection (4) for each life benefit termination payment you have received earlier in consequence of the same employment termination (whether in the income year or an earlier income year).

Subdivision 82‑BEmployment termination payments: death benefits

Guide to Subdivision 82‑B

82‑60  What this Subdivision is about

If you receive a death benefit termination payment after the death of a person, part of the payment may be tax free (the tax free component).

You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations.

The extent of your entitlement to the offset depends on whether or not you were a death benefits dependant of the deceased, and on the total amount of payments you receive in consequence of the same employment termination.

If a death benefit termination payment is payable to the trustee of the estate of the deceased for the benefit of another person, the payment is taxed in the hands of the trustee in the same way as it would be taxed if it had been paid directly to the other person.

Table of sections

Operative provisions

82‑65        Death benefits for dependants

82‑70        Death benefits for non‑dependants

82‑75        Death benefits paid to trustee of deceased estate

Operative provisions

82‑65  Death benefits for dependants

Tax free component

             (1)  The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income.

Taxable component

             (2)  If you receive a *death benefit termination payment after the death of a person of whom you are a *death benefits dependant:

                     (a)  the part of the *taxable component of the payment mentioned in subsection (3) is not assessable income and is not *exempt income; and

                     (b)  the remainder of the taxable component (if any) of the payment is assessable income.

Note:          The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

             (3)  The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount.

Note:          For the ETP cap amount, see section 82‑160.

             (4)  The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (3) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

Note 1:       See subsection 82‑75(2) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased.

Note 2:       If you have also received a life benefit termination payment in the same income year, your entitlement to a tax concession under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82‑10).

82‑70  Death benefits for non‑dependants

Tax free component

             (1)  The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are not a *death benefits dependant is not assessable income and is not *exempt income.

Taxable component

             (2)  If you receive a *death benefit termination payment after the death of a person of whom you are not a *death benefits dependant, the *taxable component of the payment is assessable income.

             (3)  You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed 30%.

Note:          The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986.

             (4)  The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount.

Note:          For the ETP cap amount, see section 82‑160.

             (5)  The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (4) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year.

Note 1:       See subsection 82‑75(3) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased.

Note 2:       If you have also received a life benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82‑10).

82‑75  Death benefits paid to trustee of deceased estate

             (1)  This section applies to you if:

                     (a)  you are the trustee of a deceased estate; and

                     (b)  a *death benefit termination payment is made to you in your capacity as trustee.

Note:          See also subsection 101A(3) of the Income Tax Assessment Act 1936.

Dependants of deceased benefit from payment

             (2)  To the extent that 1 or more beneficiaries of the estate who were *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment:

                     (a)  the payment is treated as if it had been made to you as a person who was a death benefits dependant of the deceased; and

                     (b)  the payment is taken to be income to which no beneficiary is presently entitled.

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

Non‑dependants of deceased benefit from payment

             (3)  To the extent that 1 or more beneficiaries of the estate who were not *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment:

                     (a)  the payment is treated as if it had been made to you as a person who was not a death benefits dependant of the deceased; and

                     (b)  the payment is taken to be income to which no beneficiary is presently entitled.

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

Subdivision 82‑CKey concepts

Guide to Subdivision 82‑C

82‑125  What this Subdivision is about

This Subdivision defines an employment termination payment as a payment made in consequence of the termination of a person’s employment that is received no later than 12 months after the termination (though the 12 month restriction is relaxed in some circumstances).

An employment termination payment can be a life benefit termination payment (received by the person whose employment is terminated) or a death benefit termination payment (received by another person after the death of a person whose employment is terminated).

Certain types of payments are declared not to be employment termination payments.

Various other terms used in describing the taxation treatment of employment termination payments are defined in the Subdivision.

Table of sections

Operative provisions

82‑130      What is an employment termination payment?

82‑135      Payments that are not employment termination payments

82‑140      Tax free component of an employment termination payment

82‑145      Taxable component of an employment termination payment

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

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

82‑160      What is the ETP cap amount?

Operative provisions

82‑130  What is an employment termination payment?

             (1)  A payment is an employment termination payment if:

                     (a)  it is received by you:

                              (i)  in consequence of the termination of your employment; or

                             (ii)  after another person’s death, in consequence of the termination of the other person’s employment; and

                     (b)  it is received no later than 12 months after that termination (but see subsection (4)); and

                     (c)  it is not a payment mentioned in section 82‑135.

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

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

Types of employment termination payment

             (2)  A life benefit termination payment is an *employment termination payment to which subparagraph (1)(a)(i) applies.

             (3)  A death benefit termination payment is an *employment termination payment to which subparagraph (1)(a)(ii) applies.

Exemption from 12 month rule

             (4)  Paragraph (1)(b) does not apply to you if:

                     (a)  you are covered by a determination under subsection (5) or (7); or

                     (b)  the payment is a *genuine redundancy payment or an *early retirement scheme payment.

Note:          The part of a genuine redundancy payment or an early retirement scheme payment worked out under section 83‑170 is not an employment termination payment: see section 82‑135.

             (5)  The Commissioner may determine, in writing, that paragraph (1)(b) does not apply to you if the Commissioner considers the time between the employment termination and the payment to be reasonable, having regard to the following:

                     (a)  the circumstances of the employment termination, including any dispute in relation to the termination;

                     (b)  the circumstances of the payment;

                     (c)  the circumstances of the person making the payment;

                     (d)  any other relevant circumstances.

             (6)  A determination under subsection (5) is not a legislative instrument.

             (7)  The Commissioner may, by legislative instrument, determine that paragraph (1)(b) does not apply to either or both of the following, as specified in the determination:

                     (a)  a class of payments;

                     (b)  a class of recipients of payments.

             (8)  A determination under subsection (7) may provide for paragraph (1)(b) not to apply in circumstances relating to any (or all) of the following, as specified in the determination:

                     (a)  a class of employment termination (including a class described by reference to disputes of a specified type);

                     (b)  a class of payments;

                     (c)  a class of persons making payments;

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

                     (e)  any other relevant circumstances.

82‑135  Payments that are not employment termination payments

                   The following payments you receive are not employment termination payments:

                     (a)  a *superannuation benefit (see Divisions 301 to 307);

                     (b)  a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

                     (c)  an *unused annual leave payment (see Subdivision 83‑A);

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

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

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

                    (fa)  a payment (or part of one) made by a company or trust as mentioned in subsection 152‑310(2);

                     (g)  a payment that is an advance or a loan to you on terms and conditions that would apply if you and the payer were dealing at *arm’s length;

                     (h)  a payment that is deemed to be a *dividend under this Act;

                      (i)  a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to *derive income from personal exertion (within the meaning of the definition of income derived from personal exertion in subsection 6(1) of the Income Tax Assessment Act 1936);

                      (j)  a capital payment for, or in respect of, a legally enforceable contract in restraint of trade by you so far as the payment is reasonable having regard to the nature and extent of the restraint;

                     (k)  a payment:

                              (i)  received by you, or to which you are entitled, as the result of the commutation of a pension payable from a *constitutionally protected fund; and

                             (ii)  wholly applied in paying any superannuation contributions surcharge (as defined in section 37 of the Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997);

                      (l)  a payment:

                              (i)  received by you, or to which you are entitled, as the result of the commutation of a pension payable by a superannuation provider (within the meaning of the Superannuation Contributions Tax (Assessment and Collection) Act 1997); and

                             (ii)  wholly applied in paying any superannuation contributions surcharge (as defined in section 43 of that Act);

                    (m)  an amount included in your assessable income under Division 83A of this Act (which deals with employee share schemes).

Note:          For paragraph (e)—the remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in the paragraph) is an employment termination payment if section 82‑130 applies to that part.

82‑140  Tax free component of an employment termination payment

                   The tax free component of an *employment termination payment is so much of the payment as consists of the following:

                     (a)  the *invalidity segment of the payment;

                     (b)  the *pre‑July 83 segment of the payment.

82‑145  Taxable component of an employment termination payment

                   The taxable component of an *employment termination payment is the amount of the payment less the *tax free component of the payment (see section 82‑140).

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

             (1)  An *employment termination payment includes an invalidity segment if:

                     (a)  the payment was made to a person because he or she stops being *gainfully employed; and

                     (b)  the person stopped being gainfully employed because he or she suffered from ill‑health (whether physical or mental); and

                     (c)  the gainful employment stopped before the person’s *last retirement day; and

                     (d)  2 legally qualified medical practitioners have certified that, because of the ill‑health, it is unlikely that the person can ever be gainfully employed in capacity for which he or she is reasonably qualified because of education, experience or training.

             (2)  Work out the amount of the invalidity segment by applying the following formula:

where:

days to retirement is the number of days from the day on which the person’s employment was terminated to the *last retirement day.

employment days is the number of days of employment to which the payment relates.

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

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

             (2)  Work out the amount of the pre‑July 83 segment as follows:

Step 1.   Subtract the *invalidity segment (if any) from the *employment termination payment.

Step 2.   Multiply the amount at step 1 by the fraction:

      

82‑160  What is the ETP cap amount?

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

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

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

Division 83Other payments on termination of employment

Table of Subdivisions

             Guide to Division 83

83‑A     Unused annual leave payments

83‑B      Unused long service leave payments

83‑C      Genuine redundancy payments and early retirement scheme payments

83‑D     Foreign termination payments

83‑E      Other payments

Guide to Division 83

83‑1  What this Division is about

This Division sets out the taxation treatment for a variety of payments, other than employment termination payments, that are made in consequence of the termination of employment.

Subdivision 83‑AUnused annual leave payments

Guide to Subdivision 83‑A

83‑5  What this Subdivision is about

You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused annual leave.

Table of sections

Operative provisions

83‑10        Unused annual leave payment is assessable

83‑15        Entitlement to tax offset

Operative provisions

83‑10  Unused annual leave payment is assessable

Application—annual leave

             (1)  This section applies to leave (annual leave) of the following types (whether it is made available as an entitlement or as a privilege):

                     (a)  leave ordinarily known as annual leave, including recreational leave and annual holidays;

                     (b)  any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available.

Unused annual leave payments

             (2)  Your assessable income includes an *unused annual leave payment that you receive.

             (3)  A payment that you receive in consequence of the termination of your employment is an unused annual leave payment if:

                     (a)  it is for annual leave you have not used; or

                     (b)  it is a bonus or other additional payment for annual leave you have not used; or

                     (c)  it is for annual leave, or is a bonus or other additional payment for annual leave, to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination.

83‑15  Entitlement to tax offset

                         You are entitled to a *tax offset to ensure that the rate of tax on an *unused annual leave payment does not exceed 30%, to the extent that:

                     (a)  the payment was made in connection with a payment that includes, or consists of, any of the following:

                              (i)  a *genuine redundancy payment;

                             (ii)  an *early retirement scheme payment;

                            (iii)  the *invalidity segment of an *employment termination payment or *superannuation benefit; or

                     (b)  the payment was made in respect of employment before 18 August 1993.

Subdivision 83‑BUnused long service leave payments

Guide to Subdivision 83‑B

83‑65  What this Subdivision is about

You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused long service leave.

Table of sections

General

83‑70        Application—long service leave

83‑75        Meaning of unused long service leave payment

83‑80        Taxation of unused long service leave payments

83‑85        Entitlement to tax offset

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

Employment wholly full‑time or wholly part‑time

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

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

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

Employment partly full‑time and partly part‑time

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

Long service leave taken at less than full pay

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

General

83‑70  Application—long service leave

                   This Subdivision applies to leave (long service leave) of the following types (whether it is made available as an entitlement or as a privilege), other than annual leave to which section 83‑10 applies:

                     (a)  leave ordinarily known as long service leave, including long leave, furlough and extended leave;

                     (b)  any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available;

                     (c)  if your employer has entered into a *scheme or *arrangement for leave and, because of the existence and nature of the scheme or arrangement, the employer does not have to comply with the requirements of a law of the Commonwealth, or of a State or Territory, relating to leave mentioned in paragraph (a) or (b)—leave made available under the scheme or arrangement.

83‑75  Meaning of unused long service leave payment

                   A payment that you receive in consequence of the termination of your employment is an unused long service leave payment if:

                     (a)  it is for long service leave you have not used; or

                     (b)  it is for long service leave to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination.

83‑80  Taxation of unused long service leave payments

Assessable and tax‑free parts of unused long service leave payments

             (1)  If you receive an *unused long service leave payment, your assessable income includes the part of the payment shown in this table:

 

*Unused long service leave payments

Item

To the extent the payment is attributable to the …

Your assessable income includes this part of it …

1

*pre‑16/8/78 period

5%

2

*pre‑18/8/93 period

100%

3

*post‑17/8/93 period

100%

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

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

Note 2:       If your employment was partly full‑time and partly part‑time during a period, see section 83‑110 to work out the amount of an unused long service leave payment that is attributable to the period.

83‑85  Entitlement to tax offset

             (1)  You are entitled to a *tax offset on an *unused long service leave payment that ensures that the rate of income tax on the amount of the payment mentioned in subsection (2) does not exceed 30%.

             (2)  The amount is the part of the *unused long service leave payment included in your assessable income under subsection 83‑80(1):

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

                     (b)  to the extent that it is attributable to the *post‑17/8/93 period, if the payment was made in connection with a payment that includes, or consists of, any of the following:

                              (i)  a *genuine redundancy payment; or

                             (ii)  an *early retirement scheme payment; or

                            (iii)  an *invalidity segment of an *employment termination payment or a *superannuation benefit.

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

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

             (2)  The pre‑18/8/93 period consists of each day (if any) in your *long service leave employment period to which the payment relates that occurred after 15 August 1978 and before 18 August 1993.

             (3)  The post‑17/8/93 period consists of each day (if any) in your *long service leave employment period to which the payment relates that occurred after 17 August 1993.

             (4)  Your long service leave employment period, for a period of long service leave, is:

                     (a)  the period of employment to which the long service leave relates; or

                     (b)  if your entitlement to long service leave changes so that it accrues over a shorter period—the period that would apply under paragraph (a) assuming the change had not happened.

Employment wholly full‑time or wholly part‑time

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

             (1)  Work out how much of an *unused long service leave payment is attributable to a period as follows:

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

                     (b)  for the *pre‑16/8/78 period—subtract the sum of the amounts (if any) worked out for paragraph (a) for the other 2 periods from the total amount of the payment.

             (2)  For the *pre‑18/8/93 period or the *post‑17/8/93 period, the formula is:

where:

total unused long service leave days means the total number of unused days of long service leave in the *long service leave employment period for the payment.

unused long service leave days in the relevant period means the number of unused days of long service leave in the *pre‑18/8/93 period or the *post‑17/8/93 period (as applicable), worked out under section 83‑100.

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

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

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

             (1)  The number of unused days of long service leave for each of the *pre‑16/8/78 period, the *pre‑18/8/93 period and the *post‑17/8/93 period is the number of days of long service leave that accrued to you during that period less the number of days of long service leave that you used in the period.

Exception if days used exceed days accrued in the pre‑18/8/93 period and the post‑17/8/93 period

             (2)  To the extent that the number of days of long service leave that you used during the *pre‑18/8/93 period or the *post‑17/8/93 period exceeds the number of days of long service leave that accrued to you during the period, apply the excess days as shown in this table:

 

How to apply excess days

Item

If there are excess days in this period:

Apply the excess days as follows:

If, after you apply the excess days as shown in column 2, excess days remain, apply the remaining days as follows:

1

*pre‑18/8/93 period

Subtract the excess days from the unused days in the *post‑17/8/93 period

Subtract the excess days from the unused days in the *pre‑16/8/78 period

2

*post‑17/8/93 period

Subtract the excess days from the unused days in the *pre‑18/8/93 period

Subtract the excess days from the unused days in the *pre‑16/8/78 period

             (3)  The number of unused days of long service leave in each period is the number of days after applying the table.

Note:          Section 83‑115 explains how to work out the number of days of long service leave you are taken to have used if you took long service leave at less than the full pay rate.

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

             (1)  Work out the number of days of long service leave that accrued to you during each part of your *long service leave employment period as follows:

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

                     (b)  for the *pre‑16/8/78 period—subtract the sum of the number of days (if any) worked out under paragraph (a) for the other 2 periods from the total number of days of long service leave accrued to you during the long service leave employment period.

             (2)  For the *pre‑18/8/93 period or the *post‑17/8/93 period, the formula is:

where:

relevant period means the *pre‑18/8/93 period or the *post 17/8/93 period (as applicable).

How to treat fraction of day

             (3)  If long service leave accrued to you during the *pre‑18/8/93 period and the *post‑17/8/93 period but not during the *pre‑16/8/78 period, and the number of days worked out under subsection (2) for the post‑17/8/93 period includes a fraction, treat the fraction as having accrued during the pre‑18/8/93 period.

             (4)  If long service leave accrued to you during all 3 periods and the number of days worked out under subsection (2) for the *post‑17/8/93 period or the *pre‑18/8/93 period includes a fraction, treat the fraction as having accrued during the *pre‑16/8/78 period.

Employment partly full‑time and partly part‑time

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

             (1)  This section applies if the *long service leave employment period for an *unused long service leave payment includes:

                     (a)  1 or more periods when you were employed on a full‑time basis; and

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

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

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

Long service leave taken at less than full pay

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

                   If you used days of long service leave at a rate of pay that is less than the rate to which you are entitled, the number of days of long service leave you are taken to have used (disregarding fractions of days) is as follows:

Example:    If you took 100 actual days of long service leave at a rate of pay of $30 per hour, while the rate of pay to which you were entitled when taking leave is $40 per hour, you are taken to have used 75 days of long service leave, worked out as follows:

Subdivision 83‑CGenuine redundancy payments and early retirement scheme payments

Guide to Subdivision 83‑C

83‑165  What this Subdivision is about

This Subdivision defines what are genuine redundancy payments and early retirement scheme payments.

If you receive a genuine redundancy payment or an early retirement scheme payment, you do not have to pay income tax on the payment so far as it does not exceed a certain amount worked out under this Subdivision.

A part of a genuine redundancy payment or an early retirement scheme payment that is not tax free under this Subdivision will normally be an employment termination payment.

Table of sections

Operative provisions

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

83‑175      What is a genuine redundancy payment?

83‑180      What is an early retirement scheme payment?

Operative provisions

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

             (1)  This section applies if you receive a *genuine redundancy payment or an *early retirement scheme payment.

Note:          A payment cannot be both a genuine redundancy payment and an early retirement scheme payment, because of the nature of each of these types of payment: see sections 83‑175 and 83‑180.

             (2)  So much of the relevant payment as does not exceed the amount worked out under subsection (3) is not assessable income and is not *exempt income.

             (3)  Work out the amount using the formula:

where:

base amount means:

                     (a)  for the income year 2006‑2007—$6,783; and

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

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

service amount means:

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

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

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

years of service means the number of whole years in the period, or sum of periods, of employment to which the payment relates.

Note:          The remaining part of a genuine redundancy payment or an early retirement scheme payment (apart from the amount mentioned in subsection (3)) is an employment termination payment if section 82‑130 applies to that part.

83‑175  What is a genuine redundancy payment?

             (1)  A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee’s position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal.

             (2)  A genuine redundancy payment must satisfy the following conditions:

                     (a)  the employee is dismissed before the earlier of the following:

                              (i)  the day he or she turned 65;

                             (ii)  if the employee’s employment would have terminated when he or she reached a particular age or completed a particular period of service—the day he or she would reach the age or complete the period of service (as the case may be);

                     (b)  if the dismissal was not at *arm’s length—the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm’s length;

                     (c)  at the time of the dismissal, there was no *arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the dismissal.

             (3)  However, a genuine redundancy payment does not include any part of a payment that was received by the employee in lieu of *superannuation benefits to which the employee may have become entitled at the time the payment was received or at a later time.

Payments not covered

             (4)  A payment is not a genuine redundancy payment if it is a payment mentioned in section 82‑135 (apart from paragraph 82‑135(e)).

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

83‑180  What is an early retirement scheme payment?

             (1)  An early retirement scheme payment is so much of a payment received by an employee because the employee retires under an *early retirement scheme as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the retirement.

             (2)  An early retirement scheme payment must satisfy the following conditions:

                     (a)  the employee retires before the earlier of the following:

                              (i)  the day he or she turned 65;

                             (ii)  if the employee’s employment would have terminated when he or she reached a particular age or completed a particular period of service—the day he or she would reach the age or complete the period of service (as the case may be);

                     (b)  if the retirement is not at *arm’s length—the payment does not exceed the amount that could reasonably be expected to be made if the retirement were at arm’s length;

                     (c)  at the time of the retirement, there was no *arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the retirement.

             (3)  A scheme is an early retirement scheme if:

                     (a)  all the employer’s employees who comprise such a class of employees as the Commissioner approves may participate in the scheme; and

                     (b)  the employer’s purpose in implementing the scheme is to rationalise or re‑organise the employer’s operations by making any change to the employer’s operations, or the nature of the work force, that the Commissioner approves; and

                     (c)  before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.

             (4)  A scheme is also an early retirement scheme if:

                     (a)  paragraph (3)(a) or (b) does not apply; and

                     (b)  the Commissioner is satisfied that special circumstances exist in relation to the scheme that make it reasonable to approve the scheme; and

                     (c)  before the scheme is implemented, the Commissioner, by written instrument, approves the scheme as an early retirement scheme for the purposes of this section.

             (5)  However, an early retirement scheme payment does not include any part of the payment that was paid to the employee in lieu of *superannuation benefits to which the employee may have become entitled at the time the payment was made or at a later time.

Payments not covered

             (6)  A payment is not an early retirement scheme payment if it is a payment mentioned in section 82‑135 (apart from paragraph 82‑135(e)).

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

Subdivision 83‑DForeign termination payments

Guide to Subdivision 83‑D

83‑230  What this Subdivision is about

This Subdivision deals with termination payments that arise out of foreign employment.

These payments are not employment termination payments, and are tax free (except for amounts worked out under this Subdivision).

Table of sections

Operative provisions

83‑235      Termination payments tax free—foreign resident period

83‑240      Termination payments tax free—Australian resident period

Operative provisions

83‑235  Termination payments tax free—foreign resident period

                   A payment received by you is not assessable income and is not *exempt income if:

                     (a)  it was received in consequence of the termination of your employment in a foreign country; and

                     (b)  it is not a *superannuation benefit; and

                     (c)  it is not a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

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

83‑240  Termination payments tax free—Australian resident period

             (1)  A payment received by you is not assessable income and is not *exempt income if:

                     (a)  it was received in consequence of:

                              (i)  the termination of your employment in a foreign country; or

                             (ii)  the termination of your engagement on qualifying service on an approved project (within the meaning of section 23AF of the Income Tax Assessment Act 1936), in relation to a foreign country; and

                     (b)  it relates only to the period of that employment or engagement; and

                     (c)  it is not a *superannuation benefit; and

                     (d)  it is not a payment of a pension or an *annuity (whether or not the payment is a superannuation benefit); and

                     (e)  you were an Australian resident during the period of the employment or engagement; and

                      (f)  the payment is not exempt from income tax under the law of the foreign country; and

                     (g)  for a period of employment—your foreign earnings from the employment are exempt from income tax under section 23AG of the Income Tax Assessment Act 1936; and

                     (h)  for a period of engagement—your *eligible foreign remuneration from the service is exempt from income tax under section 23AF of that Act.

             (2)  For the purposes of subparagraph (1)(a)(ii), treat the termination of engagement on qualifying service on an approved project as including:

                     (a)  retirement from the engagement; and

                     (b)  cessation of the engagement because of the person’s death.

Note:          The termination of a person’s employment is treated in the same way: see section 80‑10.

Subdivision 83‑EOther payments

Guide to Subdivision 83‑E

83‑290  What this Subdivision is about

If a payment you receive in consequence of the termination of your employment is made more than 12 months after the termination of your employment, it does not qualify as an employment termination payment, subject to certain exceptions (see section 82‑130).

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

Table of sections

Operative provisions

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

Operative provisions

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

                   A payment received by you that would be an *employment termination payment but for paragraph 82‑130(1)(b) is assessable income.

Division 83AEmployee share schemes

Table of Subdivisions

             Guide to Division 83A

83A‑A   Objects of Division and key concepts

83A‑B   Immediate inclusion of discount in assessable income

83A‑C   Deferred inclusion of gain in assessable income

83A‑D   Deduction for employer

83A‑E   Miscellaneous

Guide to Division 83A

83A‑1  What this Division is about

Your assessable income includes discounts on shares, rights and stapled securities you (or your associate) acquire under an employee share scheme.

You may be entitled:

               (a)     to have the amount included in your assessable income reduced; or

              (b)     to have the income year in which it is included deferred.

Subdivision 83A‑AObjects of Division and key concepts

Table of sections

83A‑5       Objects of Division

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

83A‑5  Objects of Division

                   The objects of this Division are:

                     (a)  to ensure that benefits provided to employees under *employee share schemes are subject to income tax at the employees’ marginal rates under *income tax law (instead of being subject to *fringe benefits tax law); and

                     (b)  to increase the extent to which the interests of employees are aligned with those of their employers, by providing a tax concession to encourage lower and middle income earners to acquire *shares under such schemes; and

                     (c)  to increase the number of new entrepreneurial companies in Australia by assisting them to attract and retain employees by providing those employees with a tax concession for acquiring shares under such schemes.

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

             (1)  An ESS interest, in a company, is a beneficial interest in:

                     (a)  a *share in the company; or

                     (b)  a right to acquire a beneficial interest in a share in the company.

             (2)  An employee share scheme is a *scheme under which *ESS interests in a company are provided to employees, or *associates of employees, (including past or prospective employees) of:

                     (a)  the company; or

                     (b)  *subsidiaries of the company;

in relation to the employees’ employment.

Note:          See section 83A‑325 for relationships similar to employment.

Subdivision 83A‑BImmediate inclusion of discount in assessable income

Guide to Subdivision 83A‑B

83A‑15  What this Subdivision is about

Generally, a discount you receive on shares, rights or stapled securities you acquire under an employee share scheme is included in your assessable income when you acquire the beneficial interest in those shares, rights or securities.

You may be entitled to reduce the amount included in your assessable income if you meet one of 2 sets of conditions.

If you are a foreign resident, only the part of the discount that relates to your employment in Australia is included in your assessable income.

Table of sections

Operative provisions

83A‑20     Application of Subdivision

83A‑25     Discount to be included in assessable income

83A‑30     Amount for which discounted ESS interest acquired

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

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

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

Operative provisions

83A‑20  Application of Subdivision

             (1)  This Subdivision applies to an *ESS interest if you acquire the interest under an *employee share scheme at a discount.

Note 1:       This Subdivision does not apply if Subdivision 83A‑C applies: see section 83A‑105.

Note 2:       If an associate of yours acquires an interest in relation to your employment, this Division applies as if you, rather than your associate, acquired the interest: see section 83A‑305.

             (2)  However, this Subdivision does not apply if the *ESS interest is a beneficial interest in a *share that you acquire as a result of exercising a right, if you acquired a beneficial interest in the right under an *employee share scheme.

83A‑25  Discount to be included in assessable income

             (1)  Your assessable income for the income year in which you acquire the *ESS interest includes the discount given in relation to the interest.

Note:          Regulations made for section 83A‑315 may be relevant to working out whether you acquire the ESS interest at a discount.

             (2)  Treat an amount included in your assessable income under subsection (1) as being from a source other than an *Australian source to the extent that it relates to your employment outside Australia.

Note:          For the CGT treatment of employee share schemes, see Subdivision 130‑D.

83A‑30  Amount for which discounted ESS interest acquired

             (1)  For the purposes of this Act (other than this Division), the *ESS interest (and the *share or right of which it forms part) is taken to have been acquired for its *market value (rather than for its discounted value).

Note:          Regulations made for the purposes of section 83A‑315 may substitute a different amount for the market value of the ESS interest.

             (2)  Subsection (1) does not apply to an *ESS interest that is a beneficial interest in a right (or to the right of which it forms part), if section 83A‑33 (about start ups) reduces the amount to be included in your assessable income in relation to the interest.

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

             (1)  Reduce the total amount included in your assessable income under subsection 83A‑25(1) for an income year by the total of the amounts included in your assessable income under that subsection, for the income year, for *ESS interests to which all of the following provisions apply:

                     (a)  subsections (2) to (6) of this section;

                     (b)  section 83A‑45 (about further conditions);

                     (c)  for ESS interests that are beneficial interests in *shares—subsection 83A‑105(2) (about broad availability of schemes).

No equity interests listed on a stock exchange

             (2)  This subsection applies to an *ESS interest in a company (the first company) if no *equity interests in any of the following companies are listed for quotation in the official list of any *approved stock exchange at the end of the first company’s most recent income year before you acquired the interest:

                     (a)  the first company;

                     (b)  any *subsidiary of the first company at the end of that income year;

                     (c)  any holding company (within the meaning of the Corporations Act 2001) of the first company at the end of that income year;

                     (d)  any subsidiary of a holding company (within the meaning of that Act) of the first company at the end of that income year.

Note:          For identifying any holding company, see also subsection (7).

Incorporated for less than 10 years

             (3)  This subsection applies to an *ESS interest in a company if:

                     (a)  the company (the first company); and

                     (b)  each of the other companies referred to in subsection (2);

was incorporated by or under an *Australian law or *foreign law less than 10 years before the end of the first company’s most recent income year before you acquired the interest.

Company has aggregated turnover not exceeding $50 million

             (4)  This subsection applies to an *ESS interest in a company if the company has an *aggregated turnover not exceeding $50 million for the company’s most recent income year before the income year in which you acquire the ESS interest.

Note:          For working out aggregated turnover, see also subsection (7).

Conditions relating to market value

             (5)  This subsection applies to an *ESS interest in a company if:

                     (a)  in the case of an ESS interest that is a beneficial interest in a *share—the discount on the ESS interest is no more than 15% of its *market value when you acquire it; or

                     (b)  in the case of an ESS interest that is a beneficial interest in a right—the amount that must be paid to exercise the right is greater than or equal to the market value of an ordinary share in the company when you acquire the ESS interest.

Employer to be an Australian resident company

             (6)  This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, your employer is an Australian resident.

Disregard certain investments

             (7)  For the purposes of subsections (2) and (4), disregard:

                     (a)  *eligible venture capital investments by a *VCLP, *ESVCLP or *AFOF; and

                     (b)  investments by an *exempt entity that is a *deductible gift recipient;

when identifying any holding company (within the meaning of the Corporations Act 2001) or working out *aggregated turnover.

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

Reduction and income test

             (1)  Reduce the total amount included in your assessable income under subsection 83A‑25(1) for an income year by the total of the amounts included in your assessable income under that subsection, for the income year, for *ESS interests to which all of the following provisions apply:

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

                     (b)  section 83A‑45 (about further conditions).

             (2)  However:

                     (a)  do not reduce the total amount by more than $1,000; and

                     (b)  only make the reduction if the sum of the following does not exceed $180,000:

                              (i)  your taxable income for the income year (including any amount that would be included in your taxable income if you disregarded this section, but not including your *assessable FHSS released amount for the income year);

                             (ii)  your *reportable fringe benefits total for the income year;

                            (iii)  your *reportable superannuation contributions (if any) for the income year;

                            (iv)  your *total net investment loss for the income year; and

                     (c)  subsection (1) does not apply if section 83A‑33 (about start ups) reduces the amount to be included in your assessable income for the income year for the *ESS interests.

Scheme must be non‑discriminatory

             (6)  This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, both:

                     (a)  the employee share scheme; and

                     (b)  any scheme for the provision of financial assistance in respect of acquisitions of ESS interests under the employee share scheme;

are operated on a non‑discriminatory basis in relation to at least 75% of the permanent employees of your employer who have completed at least 3 years of service (whether continuous or non‑continuous) with your employer and who are Australian residents.

No risk of losing interest or share under the conditions of the scheme

             (7)  This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest:

                     (a)  if the ESS interest is a beneficial interest in a *share—there is no real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it); or

                     (b)  if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a *share:

                              (i)  there is no real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it, exercising the right or letting the right lapse); and

                             (ii)  there is no real risk that, under the conditions of the scheme, if you exercise the right, you will forfeit or lose the beneficial interest in the share (other than by disposing of it).

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

Employment

             (1)  This subsection applies to an *ESS interest in a company if, when you acquire the interest, you are employed by:

                     (a)  the company; or

                     (b)  a *subsidiary of the company.

Employee share scheme relates only to ordinary shares

             (2)  This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, all the ESS interests available for acquisition under the scheme relate to ordinary *shares.

Integrity rule about share trading and investment companies.

             (3)  This subsection applies to an *ESS interest in a company unless, when you acquire the interest:

                     (a)  the predominant business of the company (whether or not stated in its constituent documents) is the acquisition, sale or holding of *shares, securities or other investments (whether directly or indirectly through one or more companies, partnerships or trusts); and

                     (b)  you are employed by the company; and

                     (c)  you are also employed by any other company that is:

                              (i)  a *subsidiary of the first company; or

                             (ii)  a holding company (within the meaning of the Corporations Act 2001) of the first company; or

                            (iii)  a subsidiary of a holding company (within the meaning of the Corporations Act 2001) of the first company.

Minimum holding period

             (4)  This subsection applies to an *ESS interest you acquire under an *employee share scheme if, at all times during the interest’s *minimum holding period, the scheme is operated so that every acquirer of an ESS interest (the scheme interest) under the scheme is not permitted to dispose of:

                     (a)  the scheme interest; or

                     (b)  a beneficial interest in a *share acquired as a result of the scheme interest;

during the scheme interest’s minimum holding period.

Note:          This subsection is taken to apply in the case of a takeover or restructure: see subsection 83A‑130(3).

             (5)  An *ESS interest’s minimum holding period is the period starting when the interest is acquired under the *employee share scheme and ending at the earlier of:

                     (a)  3 years later, or such earlier time as the Commissioner allows if the Commissioner is satisfied that:

                              (i)  the operators of the scheme intended for subsection (4) to apply to the interest during the 3 years after that acquisition of the interest; and

                             (ii)  at the earlier time that the Commissioner allows, all *membership interests in the relevant company were disposed of under a particular *scheme; and

                     (b)  when the acquirer of the interest ceases being employed by the relevant employer.

10% limit on shareholding and voting power

             (6)  This subsection applies to an *ESS interest in a company if, immediately after you acquire the interest:

                     (a)  you do not hold a beneficial interest in more than 10% of the *shares in the company; and

                     (b)  you are not in a position to cast, or to control the casting of, more than 10% of the maximum number of votes that might be cast at a general meeting of the company.

             (7)  For the purposes of subsection (6), you are taken to:

                     (a)  hold a beneficial interest in any *shares in the company that you can acquire under an *ESS interest that is a beneficial interest in a right to acquire a beneficial interest in such shares; and

                     (b)  be in a position to cast votes as a result of holding that interest in those shares.

Subdivision 83A‑CDeferred inclusion of gain in assessable income

Guide to Subdivision 83A‑C

83A‑100  What this Subdivision is about

If there is a real risk you might forfeit the share, right or stapled security you acquired under an employee share scheme, you don’t include the discount in your assessable income when you acquired it. Instead, in the first income year you are able to dispose of the share, right or security, your assessable income will include any gain you have made to that time. If you cease employment earlier, or if 15 years pass, the gain is included in that income year instead.

This deferred taxing point can also apply to:

       (a)     a share or stapled security you acquire under salary sacrifice arrangements, if you get no more than $5,000 worth of shares under those arrangements; or

      (b)     a right, if the scheme restricted you immediately disposing of the right, and stated that this Subdivision applies.

Table of sections

Main provisions

83A‑105   Application of Subdivision

83A‑110   Amount to be included in assessable income

83A‑115   ESS deferred taxing point—shares

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

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

Takeovers and restructures

83A‑130   Takeovers and restructures

Main provisions

83A‑105  Application of Subdivision

Scope of Subdivision

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

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

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

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

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

                     (c)  if the interest is a beneficial interest in a *share:

                              (i)  subsection (2) of this section applies to the interest; and

                             (ii)  subsection (3) or (4) applies to the interest; and

                     (d)  if the interest is a beneficial interest in a right to acquire a beneficial interest in a share—subsection (3) or (6) applies to the interest.

Note:          Subsections 83A‑45(1), (2), (3) and (6) contain conditions relating to the following:

(a)    your employment;

(b)    the types of shares available under the employee share scheme;

(c)    share trading and investment companies;

(d)    your shareholding and voting power in the company.

Broad availability of schemes

             (2)  This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest, at least 75% of the permanent employees of your employer who have completed at least 3 years of service (whether continuous or non‑continuous) with your employer and who are Australian residents are, or at some earlier time had been, entitled to acquire:

                     (a)  ESS interests under the scheme; or

                     (b)  ESS interests in:

                              (i)  your employer; or

                             (ii)  a holding company (within the meaning of the Corporations Act 2001) of your employer;

                            under another employee share scheme.

Real risk of losing interest or share under the conditions of the scheme

             (3)  This subsection applies to an *ESS interest you acquire under an *employee share scheme if, when you acquire the interest:

                     (a)  if the ESS interest is a beneficial interest in a *share—there is a real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it); or

                     (b)  if the ESS interest is a beneficial interest in a right to acquire a beneficial interest in a share:

                              (i)  there is a real risk that, under the conditions of the scheme, you will forfeit or lose the ESS interest (other than by disposing of it, exercising the right or letting the right lapse); or

                             (ii)  there is a real risk that, under the conditions of the scheme, if you exercise the right, you will forfeit or lose the beneficial interest in the share (other than by disposing of it).

Salary sacrifice arrangement

             (4)  This subsection applies to an *ESS interest you acquire under an *employee share scheme during an income year at a discount if:

                     (a)  the interest is provided:

                              (i)  because you agreed to acquire the interest in return for a reduction in your salary or wages that would not have happened apart from the agreement; or

                             (ii)  as part of your remuneration package, in circumstances where it is reasonable to conclude that your salary or wages would be greater if the interest was not made part of that package; and

                     (b)  at the time you acquire the interest:

                              (i)  the discount equals the *market value of the ESS interest; and

                             (ii)  all of the ESS interests available for acquisition under the scheme are ESS interests to which subsection (3) applies, beneficial interests in *shares, or both; and

                            (iii)  the governing rules of the scheme expressly state that this Subdivision applies to the scheme (subject to the requirements of this Act); and

                     (c)  the total *market value of the *ESS interests in your employer and any holding company (within the meaning of the Corporations Act 2001) of your employer:

                              (i)  that you acquire during the year under any employee share scheme or schemes; and

                             (ii)  to which both this Subdivision and this subsection apply;

                            does not exceed $5,000.

             (5)  For the purposes of paragraph (4)(c), work out the *market value of each *ESS interest as at the time you acquire it.

Note:          Regulations made for the purposes of section 83A‑315 may substitute a different amount for the market value of the ESS interest.

Scheme’s rules state that this Subdivision applies

             (6)  This subsection applies to an *ESS interest you acquire under an *employee share scheme during an income year at a discount if:

                     (a)  the interest is a beneficial interest in a right; and

                     (b)  at the time you acquired the interest:

                              (i)  the scheme genuinely restricted you immediately disposing of the right; and

                             (ii)  the governing rules of the scheme expressly stated that this Subdivision applies to the scheme (subject to the requirements of this Act).

83A‑110  Amount to be included in assessable income

             (1)  Your assessable income for the income year in which the *ESS deferred taxing point for the *ESS interest occurs includes the *market value of the interest at the ESS deferred taxing point, reduced by the *cost base of the interest.

Note:          Regulations made for the purposes of section 83A‑315 may substitute a different amount for the market value of the ESS interest.

             (2)  Treat an amount included in your assessable income under subsection (1) as being from a source other than an *Australian source to the extent that it relates to your employment outside Australia.

Note:          For the CGT treatment of employee share schemes, see Subdivision 130‑D.

83A‑115  ESS deferred taxing point—shares

Scope

             (1)  This section applies if the *ESS interest is a beneficial interest in a *share.

Meaning of ESS deferred taxing point

             (2)  The ESS deferred taxing point for the *ESS interest is the earliest of the times mentioned in subsections (4) to (6).

             (3)  However, the ESS deferred taxing point for the *ESS interest is instead the time you dispose of the interest, if that time occurs within 30 days after the time worked out under subsection (2).

No restrictions on disposing of share

             (4)  The first possible taxing point is the earliest time when:

                     (a)  there is no real risk that, under the conditions of the *employee share scheme, you will forfeit or lose the *ESS interest (other than by disposing of it); and

                     (b)  if, at the time you acquired the interest, the scheme genuinely restricted you immediately disposing of the interest—the scheme no longer so restricts you.

Cessation of employment

             (5)  The 2nd possible taxing point is the time when the employment in respect of which you acquired the interest ends.

Maximum time period for deferral

             (6)  The 3rd possible taxing point is the end of the 15 year period starting when you acquired the interest.

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

Scope

             (1)  This section applies if the *ESS interest is a beneficial interest in a right to acquire a beneficial interest in a *share.

Meaning of ESS deferred taxing point

             (2)  The ESS deferred taxing point for the *ESS interest is the earliest of the times mentioned in subsections (4) to (7).

             (3)  However, the ESS deferred taxing point for the *ESS interest is:

                     (a)  the time you dispose of the ESS interest (other than by exercising the right); or

                     (b)  if you exercise the right—the time you dispose of the beneficial interest in the *share;

if that time occurs within 30 days after the time worked out under subsection (2).

No restrictions on disposing of right

             (4)  The first possible taxing point is the earliest time when:

                     (a)  you have not exercised the right; and

                     (b)  there is no real risk that, under the conditions of the *employee share scheme, you will forfeit or lose the *ESS interest (other than by disposing of it, exercising the right or letting the right lapse); and

                     (c)  if, at the time you acquired the ESS interest, the scheme genuinely restricted you immediately disposing of the ESS interest—the scheme no longer so restricts you.

Cessation of employment

             (5)  The 2nd possible taxing point is the time when the employment in respect of which you acquired the interest ends.

Maximum time period for deferral

             (6)  The 3rd possible taxing point is the end of the 15 year period starting when you acquired the interest.

No restrictions on disposing of a share after exercising the right

             (7)  The 4th possible taxing point is the earliest time when:

                     (a)  you exercise the right; and

                     (c)  there is no real risk that, under the conditions of the scheme, after exercising the right, you will forfeit or lose the beneficial interest in the *share (other than by disposing of it); and

                     (d)  if, at the time you acquired the ESS interest, the scheme genuinely restricted you immediately disposing of the beneficial interest in the share if you exercised the right—the scheme no longer so restricts you.

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

                   For the purposes of this Act (other than this Division), the *ESS interest (and the *share or right of which it forms part) is taken to have been acquired immediately after the *ESS deferred taxing point for the interest for its *market value, unless the ESS deferred taxing point occurs at the time the interest is disposed of.

Note:          Regulations made for the purposes of section 83A‑315 may substitute a different amount for the market value of the ESS interest.

Takeovers and restructures

83A‑130  Takeovers and restructures

Object and scope

             (1)  The object of this section is to allow this Division to continue to apply if:

                     (a)  at least one of the following applies:

                              (i)  an *arrangement (the takeover) is entered into that is intended to result in a company (the old company) becoming a *100% subsidiary of another company;

                             (ii)  *ESS interests in a company (the old company) acquired under *employee share schemes can reasonably be regarded as having been replaced, wholly or partly, by ESS interests in one or more other companies as a result of a change (the restructure) in the ownership (including the structure of the ownership) of the old company or a *demerger subsidiary of the old company; and

                     (b)  just before the takeover or restructure, you held ESS interests (the old interests) in the old company that you acquired under an employee share scheme.

Treat new interests as continuations of old interests

             (2)  For the purposes of this Division, treat any *ESS interests (the new interests) in a company (the new company) that you acquire in connection with the takeover or restructure as a continuation of the old interests, to the extent that:

                     (a)  as a result of the arrangement or change, you stop holding the old interests; and

                     (b)  the new interests can reasonably be regarded as matching any of the old interests.

Note:          In determining to what extent something can reasonably be regarded as matching any of the old interests, one of the factors to consider is the respective market values of that thing and of the old interests.

             (3)  Subsection 83A‑45(4) (about the minimum holding period) is taken to apply to the *ESS interests.

             (4)  Subsections (2) and (3) only apply if the new interests relate to ordinary *shares.

Old interest not matched by new interests

             (5)  For the purposes of this Division, treat yourself as having disposed of the old interests to the extent that, in connection with the takeover or restructure, you acquire anything that:

                     (a)  can reasonably be regarded as matching any of the old interests; but

                     (b)  is not treated by subsection (2) as a continuation of those interests.

Continuation of your employment

             (6)  For the purposes of this Division, treat your employment by:

                     (a)  the new company; or

                     (b)  a *subsidiary of the new company; or

                     (c)  a holding company (within the meaning of the Corporations Act 2001) of the new company; or

                     (d)  a subsidiary of a holding company (within the meaning of the Corporations Act 2001) of the new company;

as a continuation of the employment in respect of which you acquired the old interests.

Apportionment of cost base of old interests

             (7)  Treat yourself as having given, as consideration for the assets mentioned in subsection (8), the amount worked out by apportioning among those assets, according to their respective *market values immediately after the takeover or restructure, the total of:

                     (a)  the *cost bases of the old interests when you stop holding them; and

                     (b)  the cost bases of the assets mentioned in paragraph (8)(b) immediately after the takeover or restructure (ignoring the effect of this subsection).

             (8)  The assets are:

                     (a)  the things that:

                              (i)  you acquired in connection with the takeover or restructure; and

                             (ii)  can reasonably be regarded as matching the old interests;

                            (including all of the new interests); and

                     (b)  in a case covered by subparagraph (1)(a)(ii)—any *ESS interests in the old company that:

                              (i)  you held just before, and continue to hold just after, the restructure; and

                             (ii)  that can reasonably be regarded as matching the old interests.

Exceptions

             (9)  This section only applies if:

                     (a)  at or about the time you acquire the new interests, you are employed as mentioned in subsection (6); and

                     (b)  at the time you acquire the new interests:

                              (i)  you do not hold a beneficial interest in more than 10% of the *shares in the new company; and

                             (ii)  you are not in a position to cast, or to control the casting of, more than 10% of the maximum number of votes that might be cast at a general meeting of the new company.

           (10)  For the purposes of paragraph (9)(b), you are taken to:

                     (a)  hold a beneficial interest in any *shares in the new company that you can acquire under an *ESS interest that is a beneficial interest in a right to acquire a beneficial interest in such shares; and

                     (b)  be in a position to cast votes as a result of holding that interest in those shares.

Subdivision 83A‑DDeduction for employer

Guide to Subdivision 83A‑D

83A‑200  What this Subdivision is about

You can deduct an amount for shares, rights or stapled securities you provide to your employees under an employee share scheme if they are eligible for a reduction in their assessable income under section 83A‑35. The amount you can deduct is equal to that reduction.

You must defer any deduction you are entitled to for amounts you provide to finance your employees acquiring interests in shares, rights or stapled securities under an employee share scheme until the employees have actually acquired those interests.

Table of sections

Operative provisions

83A‑205   Deduction for employer

83A‑210   Timing of general deductions

Operative provisions

83A‑205  Deduction for employer

             (1)  You can deduct an amount for an income year if:

                     (a)  during the year you provided one or more *ESS interests to an individual under an *employee share scheme; and

                     (b)  you did so as:

                              (i)  the employer of the individual; or

                             (ii)  a holding company (within the meaning of the Corporations Act 2001) of the employer of the individual; and

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

             (2)  Disregard paragraph 83A‑35(2)(b) (income test) for the purposes of paragraph (1)(c) of this section.

             (3)  The amount of the deduction is the amount of the reduction mentioned in paragraph (1)(c).

Deduction to be apportioned if interest provided by multiple entities

             (4)  The amount of the deduction worked out under subsection (3) must be apportioned between 2 or more entities on a reasonable basis if the entities jointly provide an *ESS interest for which an amount can be deducted under subsection (1).

83A‑210  Timing of general deductions

                   If:

                     (a)  at a particular time, you provide another entity with money or other property:

                              (i)  under an *arrangement; and

                             (ii)  for the purpose of enabling an individual (the ultimate beneficiary) to acquire, directly or indirectly, an *ESS interest under an *employee share scheme in relation to the ultimate beneficiary’s employment (including past or prospective employment); and

                     (b)  that particular time occurs before the time (the acquisition time) the ultimate beneficiary acquires the *ESS interest;

then, for the purpose of determining the income year (if any) in which you can deduct an amount in respect of the provision of the money or other property, you are taken to have provided the money or other property at the acquisition time.

Subdivision 83A‑EMiscellaneous

Table of sections

83A‑305   Acquisition by associates

83A‑310   Forfeiture etc. of ESS interest

83A‑315   Market value of ESS interest

83A‑320   Interests in a trust

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

83A‑330   Application of Division to ceasing employment

83A‑335   Application of Division to stapled securities

83A‑340   Application of Division to indeterminate rights

83A‑305  Acquisition by associates

             (1)  If an *associate (other than an *employee share trust) of an individual acquires an *ESS interest in relation to the individual’s employment (including past or prospective employment), then, for the purposes of this Division:

                     (a)  treat the interest as having being acquired by the individual (instead of the associate); and

                     (b)  treat any circumstance, right or obligation existing or not existing in relation to the interest in relation to the associate as existing or not existing in relation to the individual; and

                     (c)  treat anything done or not done by or in relation to the associate in relation to the interest as being done or not done by or in relation to the individual.

Example 1: The following are attributed to the employee, rather than to the associate:

(a)    the associate’s voting rights;

(b)    the associate’s ability or inability to dispose of the ESS interest;

(c)    whether there is a real risk that the associate may lose the ESS interest;

(d)    the associate’s cost base for the ESS interest.

Example 2: If the associate disposes of the ESS interest, the employee is taken to have disposed of the ESS interest instead.

             (2)  For the purposes of subsections 83A‑45(6) and (7), subsection (1) of this section also applies if the *associate acquired the *ESS interest otherwise than in relation to the individual’s employment.

83A‑310  Forfeiture etc. of ESS interest

             (1)  This Division (apart from this Subdivision) is taken never to have applied in relation to an *ESS interest acquired by an individual under an *employee share scheme if:

                     (a)  disregarding this section, an amount is included in the individual’s assessable income under this Division in relation to the interest; and

                     (b)  either:

                              (i)  the individual forfeits the interest; or

                             (ii)  in the case of an ESS interest that is a beneficial interest in a right—the individual forfeits or loses the interest (without having disposed of the interest or exercised the right); and

                     (c)  the forfeiture or loss is not the result of:

                              (i)  a choice made by the individual (other than a choice to which subsection (2) applies); or

                             (ii)  a condition of the scheme that has the direct effect of protecting (wholly or partly) the individual against a fall in the *market value of the interest.

             (2)  This subsection applies to the following choices by the individual:

                     (a)  a choice to cease particular employment;

                     (b)  in the case of an *ESS interest that is a beneficial interest in a right:

                              (i)  a choice not to exercise the right before it lapsed; or

                             (ii)  a choice to allow the right to be cancelled.

83A‑315  Market value of ESS interest

             (1)  Whenever this Division (other than section 83A‑20) uses the *market value of an *ESS interest, instead use the amount specified in the regulations for the purposes of this section in relation to the interest, if the regulations specify such an amount.

             (2)  To avoid doubt, apply the rule in subsection (1) to the *market value component of any calculation for the purposes of this Division that involves market value.

Example:    If the regulations specify an amount in relation to an ESS interest, use that amount instead of the market value of the interest in working out:

(a)    whether there is a discount given in relation to interest; and

(b)    if so—the amount of the discount.

83A‑320  Interests in a trust

             (1)  This section applies if, at a time:

                     (a)  you hold an interest in a trust whose assets include *shares; and

                     (b)  that interest corresponds to a particular number of the shares (even if the interest does not correspond to particular shares).

             (2)  For the purposes of this Division, treat yourself as holding at that time a beneficial interest in each of a number of the *shares included in the assets of the trust equal to the number mentioned in paragraph (1)(b).

             (3)  If there are 2 or more classes of *shares included in the assets of the trust, this section operates separately in relation to each class as if the shares in that class were all the shares included in the assets of the trust.

             (4)  This section applies to rights to acquire beneficial interests in *shares in the same way it applies to shares.

Note:          For the CGT treatment of employee share schemes, see Subdivision 130‑D.

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

                   This Division applies to an individual covered by column 1 of an item in the table as if:

                     (a)  he or she were employed by the entity referred to in column 2 of that item; and

                     (b)  the thing referred to column 3 of that item constituted that employment.

 

Application of Division to relationships similar to employment

Item

Column 1

This Division applies to an individual who:

Column 2

as if he or she were employed by:

Column 3

and this constituted that employment:

1

receives, or is entitled to receive, *work and income support withholding payments (otherwise than as an employee)

the entity that pays or provides the work and income support withholding payments (or is liable to do so)

the relationship because of which the entity pays or provides the work and income support withholding payments to the individual (or is liable to do so).

2

is engaged in service in a foreign country as the holder of an office

the entity by whom the individual is so engaged

the holding of the office.

3

provides services to an entity (other than services covered by a previous item in this table and services provided as an employee)

the entity

the *arrangement between the individual and the entity under which those services are provided.

83A‑330  Application of Division to ceasing employment

                   For the purposes of this Division, you are treated as ceasing employment when you are no longer employed by any of the following:

                     (a)  your employer in that employment;

                     (b)  a holding company (within the meaning of the Corporations Act 2001) of your employer;

                     (c)  a *subsidiary of your employer;

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

83A‑335  Application of Division to stapled securities

             (1)  This Division applies in relation to a stapled security in the same way as it applies in relation to a *share in a company, if at least one of the *ownership interests that are stapled together to form the stapled security is a share in the company.

Note:          This means the Division also applies to rights to acquire such a stapled security in the same way it applies to rights to acquire a share.

             (2)  This Division applies in relation to a stapled security in the same way as it applies in relation to an ordinary *share in a company, if at least one of the *ownership interests that are stapled together to form the stapled security is an ordinary share in the company.

             (3)  For the purposes of this Division, in relation to a stapled security or right to acquire a beneficial interest in a stapled security, a company is taken to include (as part of the company) each *stapled entity for the stapled security, if at least one of the *ownership interests that are stapled together to form the stapled security is a *share in the company.

83A‑340  Application of Division to indeterminate rights

             (1)  This section applies if:

                     (a)  you acquire a beneficial interest in a right; and

                     (b)  the right later becomes a right to acquire a beneficial interest in a *share.

Example 1: You acquire a right to acquire, at a future time:

(a)    shares with a specified total value, rather than a specified number of shares; or

(b)    an indeterminate number of shares.

Example 2: You acquire a right under which the provider must provide you with either ESS interests or cash, whichever the provider chooses.

             (2)  This Division applies as if the right had always been a right to acquire the beneficial interest in the *share.

Part 2‑42Personal services income

Division 84Introduction

  

Guide to Part 2‑42

84‑1  What this Part is about

This Part is about 2 issues relating to personal services income.

Division 85 limits the entitlements of individuals to deductions relating to their personal services income.

Division 86 sets out the tax consequences of individuals’ personal services income being diverted to other entities (often called alienation of the income).

These Divisions do not affect individuals or other entities that conduct personal services businesses. Division 87 defines personal services businesses.

Note:          This Part may not apply until the 2002‑03 income year to participants in the prescribed payments system on 13 April 2000: see item 26 of Schedule 1 to the New Business Tax System (Alienation of Personal Services Income) Act 2000.

Table of sections

84‑5          Meaning of personal services income

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

Operative provisions

84‑5  Meaning of personal services income

             (1)  Your *ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).

Example 1: NewIT Pty. Ltd. provides computer programming services, but Ron does all the work involved in providing those services. Ron uses the clients’ equipment and software to do the work. NewIT’s ordinary income from providing the services is Ron’s personal services income because it is a reward for his personal efforts or skills.

Example 2: Trux Pty. Ltd. owns one semi‑trailer, and Tom is the only person who drives it. Trux’s ordinary income from transporting goods is not Tom’s personal services income because it is produced mainly by use of the semi‑trailer, and not mainly as a reward for Tom’s personal efforts or skills.

Example 3: Jim works as an accountant for a large accounting firm that employs many accountants. None of the firm’s ordinary income or statutory income is Jim’s personal services income because it is produced mainly by the firm’s business structure, and not mainly as a reward for Jim’s personal efforts or skills.

             (2)  Only individuals can have personal services income.

             (3)  This section applies whether the income is for doing work or is for producing a resu