Commonwealth: Tax Law Improvement Act (No. 1) 1998 (Cth)

Tax Law Improvement Act (No. 1) 1998 Act No. 46 of 1998 as amended This compilation was prepared on 28 October 2003 [This Act was amended by Act No. 57 of 2002 and Act No. 101 of 2003] Amendments from Act No. 57 of 2002 [Schedule 12 (item 66) amended Item 373 of Schedule 2 Schedule 12 (item 67) amended Item 374 of Schedule 2 Schedule 12 (item 68) amended Heading to Item 519 of Schedule 2 Schedule 12 (item 84) repealed Items 95 and 466 of Schedule 2 Schedule 12 (item 85) repealed Items 3 and 18 of Schedule 3 Schedule 12 (items 66‑68) commenced on 22 June 1998 Schedule 12 (items 84 and 85) commenced on 3 July 2002] Amendments from Act No. 101 of 2003 [Schedule 6 (item 44) repealed Item 94 of Schedule 2 Schedule 6 (item 45) repealed Item 11 of Schedule 6 Schedule 6 (items 44 and 45) commenced on 22 June 1998] Prepared by the Office of Legislative Drafting, Attorney‑General's Department, Canberra Contents 1 Short title 2 Commencement 3 Schedules 4 Application of amendments Schedule 1—Amendment of the Income Tax Assessment Act 1997 Schedule 2—CGT (new Parts 3‑1, 3‑3 and 3‑5) Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendment of other Acts Australian Industry Development Corporation Act 1970 Bank Integration Act 1991 Civil Aviation Legislation Amendment Act 1995 Commonwealth Serum Laboratories Act 1961 Defence Act 1903 Federal Airports Corporation Act 1986 Financial Corporations (Transfer of Assets and Liabilities) Act 1993 Income Tax Rates Act 1986 Industry Research and Development Act 1986 Transport Legislation Amendment (Search and Rescue Service) Act 1997 Schedule 3—Company bad debts Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendment of other Acts Commonwealth Bank Sale Act 1995 Financial Corporations (Transfer of Assets and Liabilities) Act 1993 Schedule 4—Intellectual property (new Division 373) Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Schedule 5—Horticultural plants (new Subdivision 387‑C) Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Schedule 6—Averaging primary producers' tax liability (new Division 392) Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Consequential amendment of the Income Tax Rates Act 1986 Schedule 7—Environment (new Division 400) Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Schedule 8—Above‑average special professional income (new Division 405) Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1936 Part 3—Consequential amendment of the Income Tax Rates Act 1986 Schedule 9—Consequential amendments relating to indexation Part 1—Amendment of the Income Tax (Transitional Provisions) Act 1997 Part 2—Consequential amendment of the Income Tax Assessment Act 1997 Part 3—Consequential amendment of the Income Tax Assessment Act 1936 Part 4—Application Schedule 10—Amendment of Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997 An Act to amend the law about income tax, and for related purposes [Assented to 22 June 1998] The Parliament of Australia enacts: 1 Short title This Act may be cited as the Tax Law Improvement Act (No. 1) 1998. 2 Commencement (1) Subject to this section, this Act commences on the day on which it receives the Royal Assent. (2) Schedule 2 (except item 3 of it) commences immediately after the commencement of Schedule 1. (3) Schedule 3 commences immediately after the commencement of Schedule 2 (except item 4 of it). (4) Each of Schedules 4 to 8 commences immediately after the commencement of the immediately preceding Schedule. (5) Item 3 of Schedule 2 commences immediately after the commencement of Schedule 8. 3 Schedules Subject to section 2, each Act specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned. Any other item in a Schedule to this Act has effect according to its terms. 4 Application of amendments An amendment made by an item in a Schedule (except an item in Schedule 1 or in Part 1 of any of Schedules 2 to 8) applies to assessments for the 1998‑99 income year and later income years, unless otherwise indicated in the Schedule in which the item appears. Schedule 1—Amendment of the Income Tax Assessment Act 1997 1 Before Part 3‑5 Insert: Part 3‑1—Capital gains and losses: general topics Division 100—A Guide to capital gains and losses General overview 100‑1 What this Division is about This Division is a simplified outline of the capital gains and capital losses provisions, commonly referred to as capital gains tax (CGT). It will help you to understand your current liabilities, and to factor CGT into your on‑going financial affairs. Table of sections 100‑5 Effect of this Division 100‑10 Fundamentals of CGT 100‑15 Overview of Steps 1 and 2 Step 1—Have you made a capital gain or a capital loss? 100‑20 What events attract CGT? 100‑25 What are CGT assets? 100‑30 Does an exception or exemption apply? 100‑33 Can there be a roll‑over? Step 2—Work out the amount of the capital gain or loss 100‑35 What is a capital gain or loss? 100‑40 What factors come into calculating a capital gain or loss? 100‑45 How to calculate the capital gain or loss for most CGT events Step 3—Work out your net capital gain or loss for the income year 100‑50 How to work out your net capital gain or loss 100‑55 How do you comply with CGT? Keeping records for CGT purposes 100‑60 Why keep records? 100‑65 What records? 100‑70 How long you need to keep records 100‑5 Effect of this Division This Division is a *Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950‑150. 100‑10 Fundamentals of CGT (1) CGT affects your income tax liability because your assessable income includes your net capital gain for the income year. Your net capital gain is the total of your capital gains for the income year, reduced by certain capital losses you have made. See later in this Guide (section 100‑50) for more detail. (2) When you prepare your income tax return, you need to check whether you have made any capital gains for the income year. You also need to check whether you have made any capital losses. You cannot deduct a capital loss from your assessable income, but it will reduce your capital gain in the current income year or later income years. (3) You will also need to consider the impact of CGT when doing your financial planning. In particular, you will need adequate record‑keeping to deal most effectively with any immediate or future CGT liability. To give you a sense of the range of things affected by CGT, if you are involved with any of the following, you may have a CGT liability now or at some time in the future: * leases * marriage breakdown * inheritance * working from home * subdividing land * shares * goodwill * a civil court case * contracts * trusts * options * bankruptcy * a company liquidation * incorporating a company * leaving Australia 100‑15 Overview of Steps 1 and 2 Step 1—Have you made a capital gain or a capital loss? 100‑20 What events attract CGT? (1) You can make a capital gain or loss only if a CGT event happens. (2) There are a wide range of CGT events. Some happen often and affect many different taxpayers. Others are rare and affect only a few. Some examples of CGT events Situation Event Which CGT event? You own shares you acquired on or after 20 September 1985 You sell them CGT event A1 You sell a business You agree with the purchaser not to operate a similar business in the same area CGT event D1 You are a lessor You receive a payment for changing the lease CGT event F5 You own shares in a company The company makes a payment (not a dividend) to you as a shareholder CGT event G1 A summary of all the CGT events is in section 104‑5. Identifying the time of a CGT event (3) The specific time when a CGT event happens is important for various reasons: in particular, for working out whether a capital gain or loss from the event affects your income tax for the current or another income year. If a CGT event involves a contract, the time of the event will often be when the contract is made, not when it is completed. The time of each CGT event is explained early in the relevant section in Division 104. 100‑25 What are CGT assets? (1) Most CGT events involve a CGT asset. (For many, there is an exception if the CGT asset was acquired before 20 September 1985.) However, many CGT events are concerned directly with capital receipts and do not involve a CGT asset. See the summary of the CGT events in section 104‑5. (2) Some CGT assets are reasonably well‑known: • land and buildings, for example, a weekender; • shares; • units in a unit trust; • collectables which cost over $500, for example, jewellery or an artwork; • personal use assets which cost over $10,000, for example, a boat. (3) Other CGT assets are not so well‑known. For example: • your home; • contractual rights; • goodwill; • foreign currency. For a full explanation of what things are CGT assets: see Division 108. 100‑30 Does an exception or exemption apply? (1) Once you identify a CGT event which applies to you, you need to know if there is an exception or exemption that would reduce the capital gain or loss or allow you to disregard it. (2) There are 4 categories of exemptions: 1. exempt assets: for example, cars; 2. exempt receipts: for example, compensation for personal injury; 3. exempt transactions: for example, your tenancy comes to an end; 4. anti‑overlap provisions (that reduce your capital gain by the amount that is otherwise assessable). Note: Most of the exceptions are in Division 104. You will find a full explanation of the possible exemptions in Division 118. Some exemptions are limited (3) Take the family home for example. Generally, you are exempt from CGT when you make a capital gain on disposing of your main residence. But this can change depending on how you came to own the house and what you have done with it. For example, if you rent it out, you may be liable to CGT when you sell it. For the limits on the general exemption of your main residence: see Subdivision 118‑B. 100‑33 Can there be a roll‑over? (1) Roll‑overs allow you to defer or disregard a capital gain or loss from a CGT event. They apply in specific situations. Some require a choice (for example, where an asset is compulsorily acquired: see Subdivision 124‑B) and some are automatic (for example, where an asset is transferred because of marriage breakdown: see Subdivision 126‑A). (2) There are 2 types of roll‑over: 1. a replacement‑asset roll‑over allows you to defer a capital gain or loss from one CGT event until a later CGT event happens where a CGT asset is replaced with another one; 2. a same‑asset roll‑over allows you to disregard a capital gain or loss from a CGT event where the same CGT asset is involved. Note: The replacement‑asset roll‑overs are listed in section 112‑115, and the same‑asset roll‑overs are listed in section 112‑150. Step 2—Work out the amount of the capital gain or loss 100‑35 What is a capital gain or loss? For most CGT events: • You make a capital gain if you receive (or are entitled to receive) capital amounts from the CGT event which exceed your total costs associated with that event. • You make a capital loss if your total costs associated with the CGT event exceed the capital amounts you receive (or are entitled to receive) from the event. 100‑40 What factors come into calculating a capital gain or loss? Capital proceeds (1) For most CGT events, the capital amounts you receive (or are entitled to receive) from the event are called the capital proceeds. To work out the capital proceeds: see Division 116. Cost base and reduced cost base (2) For most CGT events, your total costs associated with the event are worked out in 2 different ways: • For the purpose of working out a capital gain, those costs are called the cost base of the CGT asset. • For the purpose of working out a capital loss, those costs are called the reduced cost base of the asset. One of the main differences is that the costs are indexed for inflation in working out a capital gain (which reduces the size of the gain), but not in working out a capital loss. To work out the cost base and reduced cost base: see Division 110. 100‑45 How to calculate the capital gain or loss for most CGT events 1. Work out your capital proceeds from the CGT event. 2. Work out the cost base for the CGT asset. 3. Subtract the cost base from the capital proceeds. 4. If the proceeds exceed the cost base, the difference is your capital gain. 5. If not, work out the reduced cost base for the asset. 6. If the reduced cost base exceeds the capital proceeds, the difference is your capital loss. 7. If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss. Step 3—Work out your net capital gain or loss for the income year 100‑50 How to work out your net capital gain or loss 1. Add up your capital gains for the income year. Then add up your capital losses for the income year. 2. Subtract the total losses from the total gains. 3. If the gains exceed the losses, then also subtract any unapplied net capital losses for previous income years. If the result is still more than zero, then this is your net capital gain. 4. If the capital losses for the income year exceed the capital gains, the difference is your net capital loss. (You cannot deduct a net capital loss from your assessable income.) For the rules on working out your net capital gain or loss: see Division 102. 100‑55 How do you comply with CGT? Declare any net capital gain as assessable income in your income tax return. Defer any net capital loss to the next income year for which you have capital gains that exceed the capital losses for that income year. Keeping records for CGT purposes 100‑60 Why keep records? 1. To ensure you do not disadvantage yourself. 2. To comply as easily as possible. 3. To plan for your CGT position in future income years. 4. The law requires you to: see Division 121. 100‑65 What records? Keeping full records will make it easier for you to comply. For example, keep records of: • receipts of purchase or transfer; • interest on money you borrowed; • costs of agents, accountants, legal, advertising etc.; • insurance costs and land rates or taxes; • any market valuations; • costs of maintenance, repairs or modifications; • brokerage on shares; • legal costs. 100‑70 How long you need to keep records The law requires you to keep records for 5 years after a CGT event has happened. Division 102—Assessable income includes net capital gain Guide to Division 102 102‑1 What this Division is about This Division tells you how to work out if you have made a net capital gain or a net capital loss for the income year. A net capital gain is included in your assessable income. However, you cannot deduct a net capital loss. (Amounts otherwise included in your assessable income do not form part of a net capital gain.) Table of sections Operative provisions 102‑5 Assessable income includes net capital gain 102‑10 How to work out your net capital loss 102‑15 How to apply net capital losses 102‑20 Ways you can make a capital gain or a capital loss 102‑22 Amounts of capital gains and losses 102‑23 CGT event still happens even if gain or loss disregarded 102‑25 Order of application of CGT events 102‑30 Exceptions and modifications Operative provisions 102‑5 Assessable income includes net capital gain (1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way: Working out your net capital gain Step 1. Add up the *capital gains you made during the income year. Also add up the *capital losses you made. Step 2. Subtract your *capital losses from your *capital gains. (If your capital losses exceed your capital gains, you have no net capital gain for the income year.) Note: You do have a net capital loss if your capital losses exceed your capital gains: see section 102‑10. Step 3. If the Step 2 amount is more than zero, reduce it by applying any unapplied *net capital losses from previous income years. (If this reduces it to zero, you have no net capital gain for the income year.) Note: To apply net capital losses: see section 102‑15. Step 4. If the Step 3 amount is more than zero, it is your net capital gain for the income year. Note: For exceptions and modifications to these rules: see section 102‑30. (2) However, if during the income year: (a) you became bankrupt; or (b) you were released from debts under a law relating to bankruptcy; any *net capital loss you made for an earlier income year must be disregarded in working out whether you made a *net capital gain for the income year or a later one. (3) Subsection (2) applies even though your bankruptcy is annulled if: (a) the annulment happens under section 74 of the Bankruptcy Act 1966; and (b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy. 102‑10 How to work out your net capital loss (1) You work out if you have a net capital loss for the income year in this way: Working out your net capital loss Step 1. Add up the *capital losses you made during the income year. Also add up the *capital gains you made. Step 2. Subtract your *capital gains from your *capital losses. Step 3. If the Step 2 amount is more than zero, it is your net capital loss for the income year. Note: For exceptions and modifications to these rules: see section 102‑30. (2) You cannot deduct from your assessable income a *net capital loss for any income year. Note: However, it can be applied against your capital gains for a later income year: see section 102‑5 and subsection 102‑15(3). 102‑15 How to apply net capital losses (1) In working out if you have a *net capital gain, your *net capital losses are applied in the order in which you made them. (2) A *net capital loss can be applied only to the extent that it has not already been applied. (3) To the extent that a *net capital loss cannot be applied in an income year, it can be carried forward to a later income year. Example: You have capital gains for the income year of $1,000 and capital losses for the income year of $600. Your capital losses are subtracted from your capital gains to leave a balance of $400. You have available net capital losses of $300 (for last year) and $200 (for the year before that). The $400 is reduced to zero by applying the available net capital losses in the order in which you made them. This leaves $100 of the $300 to be carried forward and extinguishes the $200. Note: For applying a net capital loss for the 1997‑98 income year or an earlier income year: see section 102‑15 of the Income Tax (Transitional Provisions) Act 1997. 102‑20 Ways you can make a capital gain or a capital loss You can make a *capital gain or *capital loss if and only if a *CGT event happens. The gain or loss is made at the time of the event. Note 1: The full list of CGT events is in section 104‑5. Note 2: These Divisions of Part IIIA of the Income Tax Assessment Act 1936 continue to have effect for the purposes of working out capital gains and capital losses under this Part and Part 3‑3: * Division 17A (about roll‑over relief on certain disposals of assets of small businesses); * Division 17B (about disposal of small business assets where the proceeds are used for retirement); * Division 19A (about transfers of assets between companies under common ownership). See sections 160ZZPJA, 160ZZPZAA and 160ZZRAAAA of that Act. 102‑22 Amounts of capital gains and losses Most *CGT events provide for calculating a *capital gain or *capital loss by comparing 2 different amounts. The amount of the gain or loss is the difference between those amounts. 102‑23 CGT event still happens even if gain or loss disregarded A *CGT event still happens even if: (a) it does not result in a *capital gain or *capital loss; or (b) a capital gain or capital loss from the event is disregarded. Example: Lindy sells a car. Section 118‑5 says that any capital gain or loss from a CGT event happening to a car is disregarded. However, the sale is still an example of CGT event A1. 102‑25 Order of application of CGT events (1) Work out if a *CGT event (except *CGT events D1 and H2) happens to your situation. If more than one event can happen, the one you use is the one that is the most specific to your situation. (2) However, there is an exception for *CGT event K5 (which depends on CGT event A1, C2 or E8 happening). In that case, CGT event K5 happens in addition to the other event. (3) If no *CGT event (except *CGT events D1 and H2) happens: (a) work out if CGT event D1 happens and use that event if it does; and (b) if it does not, work out if CGT event H2 happens and use that event if it does. Note: The full list of CGT events is in section 104‑5. 102‑30 Exceptions and modifications Provisions of this Act are in normal text, the other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Special rules affecting capital gains and capital losses For this kind of entity: Item There are these special rules: See: 1 All entities You can subtract capital losses from collectables only from your capital gains from collectables. section 108‑10 2 All entities Disregard capital losses you make from personal use assets. section 108‑20 3 All entities If any of your commercial debts have been forgiven in the income year, your net capital losses (including net capital losses from collectables) may be reduced. sections 245‑130 and 245‑135 of Schedule 2C to the Income Tax Assessment Act 1936 4 A company If it has a change of ownership or control during the income year, and has not carried on the same business, it works out its net capital gain and net capital loss in a special way. Subdivision 165‑CB 5 A company It cannot apply a net capital loss unless: Subdivision 165‑CA  the same people owned the company during both the loss year and the income year; and  no person controlled the company's voting power at any time during the income year who did not also control it during the whole of the loss year; or the company has carried on the same business and commenced no additional business or new transactions. 6 A company If one or more of these things happen: Division 175  a capital gain or loss is injected into it;  a tax benefit is obtained from its available net capital losses or current year capital losses;  a tax benefit is obtained because of its available capital gains; the Commissioner can disallow its net capital losses or current year capital losses, and it may have to work out its net capital loss in a special way. 7 A company A company can transfer a surplus amount of its net capital loss to another company so that the other company can apply the amount in the income year of the transfer. (Both companies must be members of the same wholly‑owned group.) Subdivision 170‑B 8 A PDF If it is a PDF at the end of an income year for which it has a net capital loss, it can apply the loss in a later income year only if it is a PDF throughout the last day of the later income year. section 195‑25 9 A PDF If it becomes a PDF during an income year, it works out its net capital gain and net capital loss for the income year in a special way. section 195‑35 10 Body that has ceased to be an STB Net capital losses made before cessation disregarded. Special rules apply in cessation year where net capital gain before cessation and net capital loss after cessation. section 24AX 11 A life assurance company Sections 102‑5 and 102‑10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income. section 116CD 12 A registered organisation Sections 102‑5 and 102‑10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income. section 116GB 13 A PDF Sections 102‑5 and 102‑10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income. Subdivision C of Division 10E of Part III 14 A CFC In calculating the CFC's attributable income, pre‑1 July 1990 capital losses are disregarded. section 409 Division 103—General rules Guide to Division 103 103‑1 What this Division is about This Division sets out some general rules that apply to the provisions dealing with capital gains and capital losses. Table of sections Operative provisions 103‑5 Giving property as part of a transaction 103‑10 Entitlement to receive money or property 103‑15 Requirement to pay money or give property 103‑20 Amounts to be expressed in Australian currency 103‑25 Choices Operative provisions 103‑5 Giving property as part of a transaction There are a number of provisions in this Part and Part 3‑3 that say that a payment, cost or expenditure can include giving property. To the extent that one does, use the market value of the property in working out the amount of the payment, cost or expenditure. 103‑10 Entitlement to receive money or property (1) This Part and Part 3‑3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct. (2) Those Parts apply to you as if you are entitled to receive money or other property: (a) if you are entitled to have it so applied; or (b) if: (i) you will not receive it until a later time; or (ii) the money is payable by instalments. 103‑15 Requirement to pay money or give property This Part and Part 3‑3 apply to you as if you are required to pay money or give other property even if: (a) you do not have to pay or give it until a later time; or (b) the money is payable by instalments. 103‑20 Amounts to be expressed in Australian currency If an amount of money or the market value of other property: (a) is to be taken into account at a particular time under this Part or Part 3‑3; and (b) is in a foreign currency; it is to be converted into the equivalent amount of Australian currency at that time. 103‑25 Choices (1) A choice you can make under this Part or Part 3‑3 must be made: (a) by the day you lodge your *income tax return for the income year in which the relevant *CGT event happened; or (b) within a further time allowed by the Commissioner. (2) The way you (and any other entity making the choice) prepare your *income tax returns is sufficient evidence of the making of the choice. (3) However, there are 2 exceptions: see subsections 124‑380(5) and 124‑465(5). These relate to *replacement‑asset roll‑over events where there is an interposed company. The company is required to make the choice at an earlier time specified in that subsection. Note: This section is modified in calculating the attributable income of a CFC: see section 421 of the Income Tax Assessment Act 1936. Division 104—CGT events Table of Subdivisions Guide to Division 104 104‑A Disposals 104‑B Use and enjoyment before title passes 104‑C End of a CGT asset 104‑D Bringing into existence a CGT asset 104‑E Trusts 104‑F Leases 104‑G Shares 104‑H Special capital receipts 104‑I Australian residency ends 104‑J Reversals of roll‑overs 104‑K Other CGT events Guide to Division 104 104‑1 What this Division is about This Division sets out all the CGT events for which you can make a capital gain or loss. It tells you how to work out if you have made a gain or loss from each event and the time of each event. It also contains exceptions for gains and losses for many events (such as the exception for CGT assets acquired before 20 September 1985) and some cost base adjustment rules. 104‑5 Summary of the CGT events CGT events Event number and description Time of event is: Capital gain is: Capital loss is: A1 Disposal of a CGT asset when disposal contract is entered into or, if none, when entity stops being asset's owner capital proceeds from disposal less asset's cost base asset's reduced cost base less capital proceeds [See section 104‑10] B1 Use and enjoyment before title passes when use of CGT asset passes capital proceeds less asset's cost base asset's reduced cost base less capital proceeds [See section 104‑15] C1 Loss or destruction of a CGT asset when compensation is first received or, if none, when loss discovered or destruction occurred capital proceeds less asset's cost base asset's reduced cost base less capital proceeds [See section 104‑20] C2 Cancellation, surrender and similar endings when contract ending asset is entered into or, if none, when asset ends capital proceeds from ending less asset's cost base asset's reduced cost base less capital proceeds [See section 104‑25] C3 End of option to acquire shares etc. when option ends capital proceeds from granting option less expenditure in granting it expenditure in granting option less capital proceeds [See section 104‑30] D1 Creating contractual or other rights when contract is entered into or right is created capital proceeds from creating right less incidental costs of creating it incidental costs of creating right less capital proceeds [See section 104‑35] D2 Granting an option when option is granted capital proceeds from grant less expenditure to grant it expenditure to grant option less capital proceeds [See section 104‑40] D3 Granting a right to income from mining when contract is entered into or, if none, when right is granted capital proceeds from grant of right less expenditure to grant it expenditure to grant right less capital proceeds [See section 104‑45] E1 Creating a trust over a CGT asset when trust is created capital proceeds from creating trust less asset's cost base asset's reduced cost base less capital proceeds [See section 104‑55] E2 Transferring a CGT asset to a trust when asset transferred capital proceeds from transfer less asset's cost base asset's reduced cost base less capital proceeds [See section 104‑60] E3 Converting a trust to a unit trust when trust is converted market value of asset at that time less its cost base asset's reduced cost base less that market value [See section 104‑65] E4 Capital payment for trust interest when trustee makes payment non‑assessable part of the payment less cost base of the trust interest no capital loss [See section 104‑70] E5 Beneficiary becoming entitled to a trust asset when beneficiary becomes absolutely entitled for trustee—market value of CGT asset at that time less its cost base; for trustee—reduced cost base of CGT asset at that time less that market value; for beneficiary—that market value less cost base of beneficiary's capital interest for beneficiary—reduced cost base of beneficiary's capital interest less that market value [See section 104‑75] E6 Disposal to beneficiary to end income right the time of the disposal for trustee—market value of CGT asset at that time less its cost base; for trustee—reduced cost base of CGT asset at that time less that market value; for beneficiary—that market value less cost base of beneficiary's right to income for beneficiary—reduced cost base of beneficiary's right to income less that market value [See section 104‑80] E7 Disposal to beneficiary to end capital interest the time of the disposal for trustee—market value of CGT asset at that time less its cost base; for trustee—reduced cost base of CGT asset at that time less that market value; for beneficiary—that market value less cost base of beneficiary's capital interest for beneficiary—reduced cost base of beneficiary's capital interest less that market value [See section 104‑85] E8 Disposal by beneficiary of capital interest when disposal contract entered into or, if none, when beneficiary ceases to own CGT asset capital proceeds less appropriate proportion of the trust's net assets appropriate proportion of the trust's net assets less capital proceeds [See section 104‑90] E9 Creating a trust over future property when entity makes agreement market value of the property (as if it existed when agreement made) less incidental costs in making agreement incidental costs in making agreement less market value of the property (as if it existed when agreement made) [See section 104‑105] F1 Granting a lease for grant of lease—when entity enters into lease contract or, if none, at start of lease; capital proceeds less expenditure on grant, renewal or extension expenditure on grant, renewal or extension less capital proceeds for lease renewal or extension—at start of renewal or extension [See section 104‑110] F2 Granting a long term lease for grant of lease—when lessor grants lease; capital proceeds from grant, renewal or extension less cost base of leased property reduced cost base of leased property less capital proceeds from grant, renewal or extension for lease renewal or extension—at start of renewal or extension [See section 104‑115] F3 Lessor pays lessee to get lease changed when lease term is varied or waived no capital gain amount of expenditure to get lessee's agreement [See section 104‑120] F4 Lessee receives payment for changing lease when lease term is varied or waived capital proceeds less cost base of lease no capital loss [See section 104‑125] F5 Lessor receives payment for changing lease when lease term is varied or waived capital proceeds less expenditure in relation to variation or waiver expenditure in relation to variation or waiver less capital proceeds [See section 104‑130] G1 Capital payment for shares when company pays non‑assessable amount payment less cost base of shares no capital loss [See section 104‑135] G2 Shifts in share values when the shift happens the decrease in the shares' market value (so far as it has shifted into certain other shares) less the corresponding proportion of the shares' cost base no capital loss [See section 104‑140 and Division 140] G3 Liquidator declares shares worthless when liquidator makes declaration no capital gain shares' reduced cost base [See section 104‑145] H1 Forfeiture of a deposit when deposit is forfeited deposit less expenditure in connection with prospective sale expenditure in connection with prospective sale less deposit [See section 104‑150] H2 Receipt for event relating to a CGT asset when act, transaction or event occurred capital proceeds less incidental costs incidental costs less capital proceeds [See section 104‑155] I1 Individual or company stops being a resident when individual or company stops being Australian resident for each CGT asset the person owns, its market value less its cost base for each CGT asset the person owns, its reduced cost base less its market value [See section 104‑160] I2 Trust stops being a resident trust when trust ceases to be resident trust for CGT purposes for each CGT asset the trustee owns, its market value of asset less its cost base for each CGT asset the trustee owns, its reduced cost base less its market value [See section 104‑170] J1 Company stops being member of wholly‑owned group after roll‑over when the company stops market value of asset at time of event less its cost base reduced cost base of asset less that market value [See section 104‑175] K1 Partial realisation of intellectual property right when contract is entered into or, if none, when partial realisation happens capital proceeds from partial realisation less cost base of the item of intellectual property no capital loss [See section 104‑205] K2 Bankrupt pays amount in relation to debt when payment is made no capital gain so much of payment as relates to denied part of a net capital loss [See section 104‑210] K3 Asset passing to tax‑advantaged entity when individual dies market value of asset at death less its cost base reduced cost base of asset less that market value [See section 104‑215] K4 CGT asset starts being trading stock when asset starts being trading stock market value of asset less its cost base reduced cost base of asset less its market value [See section 104‑220] K5 Special capital loss from collectable that has fallen in market value when CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable no capital gain market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8 [See section 104‑225] K6 Pre‑CGT shares or trust interest when another CGT event involving the shares or interest happens capital proceeds from the shares or trust interest (so far as attributable to post‑CGT assets owned by the company or trust) less the assets' cost bases no capital loss [See section 104‑230] [This is the end of the Guide] Subdivision 104‑A—Disposals 104‑10 Disposal of a CGT asset: CGT event A1 (1) CGT event A1 happens if you *dispose of a *CGT asset. (2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur: (a) if you stop being the legal owner of the asset but continue to be its beneficial owner; or (b) merely because of a change of trustee. (3) The time of the event is: (a) when you enter into the contract for the *disposal; or (b) if there is no contract—when the change of ownership occurs. Example: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000. The gain is made in the 1998‑99 income year (the year you entered into the contract) and not the 1999‑2000 income year (the year that settlement takes place). Note 1: If the contract falls through before completion, this event does not happen because no change in ownership occurs. Note 2: If the asset was compulsorily acquired from you: see subsection (6). (4) You make a capital gain if the *capital proceeds from the disposal are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Exceptions (5) A *capital gain or *capital loss you make is disregarded if: (a) you *acquired the asset before 20 September 1985; or (b) for a lease: (i) it was granted before that day; or (ii) if it has been renewed or extended—the start of the last renewal or extension occurred before that day. Note: You can make a gain if you dispose of shares in a company, or an interest in a trust, that you acquired before that day: see CGT event K6. Compulsory acquisition (6) If the asset was *acquired from you by an entity under a power of compulsory acquisition conferred by an *Australian law or a *foreign law, the time of the event is the earliest of: (a) when you received compensation from the entity; or (b) when the entity became the asset's owner; or (c) when the entity entered it under that power; or (d) when the entity took possession under that power. Note: You may be able to choose a roll‑over if an asset is compulsorily acquired: see Subdivision 124‑B. (7) CGT event A1 does not happen if the *disposal of the asset was done to provide or redeem a security. Subdivision 104‑B—Use and enjoyment before title passes 104‑15 Use and enjoyment before title passes: CGT event B1 (1) CGT event B1 happens if you enter into an agreement with another entity under which: (a) the right to the use and enjoyment of a *CGT asset you own passes to the other entity; and (b) title in the asset will or may pass to the other entity at the end of the agreement. (2) The time of the event is when the other entity first obtains the use and enjoyment of the asset. (3) You make a capital gain if the *capital proceeds from the agreement are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Exceptions (4) A *capital gain or *capital loss you make is disregarded if: (a) title in the asset does not pass to the other entity when the agreement ends; or (b) you *acquired the asset before 20 September 1985. Subdivision 104‑C—End of a CGT asset Table of sections 104‑20 Loss or destruction of a CGT asset: CGT event C1 104‑25 Cancellation, surrender and similar endings: CGT event C2 104‑30 End of option to acquire shares etc.: CGT event C3 104‑20 Loss or destruction of a CGT asset: CGT event C1 (1) CGT event C1 happens if a *CGT asset you own is lost or destroyed. Note: This event can apply to part of a CGT asset: see section 108‑5 (definition of CGT asset). (2) The time of the event is: (a) when you first receive compensation for the loss or destruction; or (b) if you receive no compensation—when the loss is discovered or the destruction occurred. (3) You make a capital gain if the *capital proceeds from the loss or destruction are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Exception (4) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104‑25 Cancellation, surrender and similar endings: CGT event C2 (1) CGT event C2 happens if your ownership of an intangible *CGT asset ends by the asset: (a) being redeemed or cancelled; or (b) being released, discharged or satisfied; or (c) expiring; or (d) being abandoned, surrendered or forfeited. (2) The time of the event is: (a) when you enter into the contract that results in the asset ending; or (b) if there is no contract—when the asset ends. (3) You make a capital gain if the *capital proceeds from the ending are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. (4) A lease is taken to have expired even if it is extended or renewed. Exceptions (5) A *capital gain or *capital loss you make is disregarded if: (a) you *acquired the asset before 20 September 1985; or (b) for a lease: (i) it was granted before that day; or (ii) if it has been renewed or extended—the start of the last renewal or extension occurred before that day. Note 1: There are other exceptions if: * your lease expires and you did not use it mainly to produce assessable income: see section 118‑40; or * you exercise rights to acquire shares or units: see section 130‑40; or * you acquire shares or units by converting a convertible note: see section 130‑60; or * you exercise an option: see section 134‑1. Note 2: A company can agree to forgo any capital loss it makes as a result of forgiving a commercial debt owed to it by another company where the companies are under common ownership: see section 245‑90 of Schedule 2C to the Income Tax Assessment Act 1936. Note 3: A capital gain or loss a company makes because shares in its 100% subsidiary are cancelled (an example of CGT event C2) on the liquidation of the subsidiary may be reduced if there was a roll‑over for a CGT asset under Subdivision 126‑B: see section 126‑85. 104‑30 End of option to acquire shares etc.: CGT event C3 (1) CGT event C3 happens if an option a company or a trustee of a unit trust granted to an entity to *acquire a *CGT asset that is: (a) *shares in the company or units in the unit trust; or (b) *debentures of the company or unit trust; ends in one of these ways: (c) it is not exercised by the latest time for its exercise; (d) it is cancelled; (e) the entity releases or abandons it. (2) The time of the event is when the option ends. (3) The company or trustee makes a capital gain if the *capital proceeds from the grant of the option are more than the expenditure incurred in granting it. It makes a capital loss if those *capital proceeds are less. (4) The expenditure can include giving property: see section 103‑5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income. Exception (5) A *capital gain or *capital loss the company or trustee makes is disregarded if it granted the option before 20 September 1985. Note: This subsection is modified for the purpose of calculating the attributable income of a CFC: see section 418 of the Income Tax Assessment Act 1936. Subdivision 104‑D—Bringing into existence a CGT asset Table of sections 104‑35 Creating contractual or other rights: CGT event D1 104‑40 Granting an option: CGT event D2 104‑45 Granting a right to income from mining: CGT event D3 104‑35 Creating contractual or other rights: CGT event D1 (1) CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity. Example: You enter into a contract with the purchaser of your business not to operate a similar business in the same town. The contract states that $20,000 was paid for this. You have created a contractual right in favour of the purchaser. If you breach the contract, the purchaser can enforce that right. (2) The time of the event is when you enter into the contract or create the other right. (3) You make a capital gain if the *capital proceeds from creating the right are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those *capital proceeds are less. Example: To continue the example: If you paid your lawyer $1,500 to draw up the contract, you make a capital gain of: (4) The costs can include giving property: see section 103‑5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exceptions (5) CGT event D1 does not happen if: (a) you created the right by borrowing money or obtaining credit from another entity; or (b) the right requires you to do something that is another *CGT event that happens to you; or (c) a company issues or allots *shares to you; or (d) the trustee of a unit trust issues units in the trust to you. Example: You agree to sell land. You have created a contractual right in the buyer to enforce completion of the transaction. The sale results in you disposing of the land, an example of CGT event A1. This means that a gain or loss from CGT event D1 is disregarded. 104‑40 Granting an option: CGT event D2 (1) CGT event D2 happens if you grant an option to an entity, or renew or extend an option you had granted. Note: Some options are not covered: see subsections (6) and (7). (2) The time of the event is when you grant, renew or extend the option. (3) You make a capital gain if the *capital proceeds from the grant, renewal or extension of the option are more than the expenditure you incurred to grant, renew or extend it. You make a capital loss if those *capital proceeds are less. (4) The expenditure can include giving property: see section 103‑5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exceptions (5) A *capital gain or *capital loss you make from the grant, renewal or extension of the option is disregarded if the other entity exercises the option. Note: Section 134‑1 sets out the consequences of an option being exercised. (6) This section does not apply to an option granted, renewed or extended by a company or the trustee of a unit trust to *acquire a *CGT asset that is: (a) *shares in the company or units in the unit trust; or (b) debentures of the company or unit trust. Note: Section 104‑30 deals with this situation. (7) Nor does it apply to an option relating to a *personal use asset or a *collectable. 104‑45 Granting a right to income from mining: CGT event D3 (1) CGT event D3 happens if you own a *prospecting entitlement or *mining entitlement, or an interest in one, and you grant another entity a right to receive *ordinary income or *statutory income from operations permitted to be carried on by the entitlement. Note: If this event applies, there is no disposal of the entitlement. (2) The time of the event is: (a) when you enter into the contract with the other entity; or (b) if there is no contract—when you grant the right to receive *ordinary income or *statutory income. (3) You make a capital gain if the *capital proceeds from the grant of the right are more than the expenditure you incurred in granting it. You make a capital loss if those *capital proceeds are less. (4) The expenditure can include giving property: see section 103‑5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Subdivision 104‑E—Trusts Table of sections 104‑55 Creating a trust over a CGT asset: CGT event E1 104‑60 Transferring a CGT asset to a trust: CGT event E2 104‑65 Converting a trust to a unit trust: CGT event E3 104‑70 Capital payment for trust interest: CGT event E4 104‑75 Beneficiary becoming entitled to a trust asset: CGT event E5 104‑80 Disposal to beneficiary to end income right: CGT event E6 104‑85 Disposal to beneficiary to end capital interest: CGT event E7 104‑90 Disposal by beneficiary of capital interest: CGT event E8 104‑95 Making a capital gain 104‑100 Making a capital loss 104‑105 Creating a trust over future property: CGT event E9 104‑55 Creating a trust over a CGT asset: CGT event E1 (1) CGT event E1 happens if you create a trust over a *CGT asset by declaration or settlement. (2) The time of the event is when the trust over the asset is created. (3) You make a capital gain if the *capital proceeds from the creation are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Cost base rule (4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's *cost base and *reduced cost base in your hands is its market value when the trust is created. Exceptions (5) CGT event E1 does not happen if: (a) you are the sole bene