Income Tax Assessment Act 1997 Act No. 38 of 1997 as amended This compilation was prepared on 1 October 2009 taking into account amendments up to Act No. 88 of 2009 Volume 3 includes: Table of Contents Sections 58-1 to 122-205 The text of any of those amendments not in force on that date is appended in the Notes section The operation of amendments that have been incorporated may be affected by application provisions that are set out in the Notes section Chapter 2-Liability rules of general application Part 2-15-Non-assessable income Contents Chapter 2-Liability rules of general application i Part 2-15-Non-assessable income i Division 58-Capital allowances for depreciating assets previously owned by an exempt entity 1 Guide to Division 58 1 58-1 What this Division is about 1 Subdivision 58-A-Application 1 58-5 Application of Division 2 58-10 When an asset is acquired in connection with the acquisition of a business 3 Subdivision 58-B-Calculating decline in value of privatised assets under Division 40 4 58-60 Purpose of rules in this Subdivision 5 58-65 Choice of method to work out cost of privatised asset 5 58-70 Application of Division 40 5 58-75 Meaning of notional written down value 6 58-80 Meaning of undeducted pre-existing audited book value 8 58-85 Pre-existing audited book value of depreciating asset 9 58-90 Method and effective life for transition entity 10 Division 59-Particular amounts of non-assessable non-exempt income 11 Guide to Division 59 11 59-1 What this Division is about 11 Operative provisions 11 59-5 Bonus payments made to certain older Australians 11 59-10 Compensation under firearms surrender arrangements 12 59-15 Mining payments 12 59-20 Taxable amounts relating to franchise fees windfall tax 12 59-25 Taxable amounts relating to Commonwealth places windfall tax 13 59-30 Amounts you must repay 13 59-35 Amounts that would be mutual receipts but for prohibition on distributions to members 13 59-40 Issue of rights 14 59-45 Tax bonus for the 2007-08 income year 14 59-50 Clean-up and Restoration Grants for 2009 Victorian bushfires 14 Part 2-20-Tax offsets 15 Division 61-Generally applicable tax offsets 15 Subdivision 61-G-Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 15 Guide to Subdivision 61-G 15 61-200 What this Subdivision is about 15 Operative provisions 16 61-205 Entitlement to the private health insurance tax offset 16 61-210 Amount of the private health insurance tax offset 17 61-215 Tax offset after a person 65 years or over ceases to be covered by policy 18 61-220 How to work out the incentive amount 19 Subdivision 61-I-First child tax offset (baby bonus) 20 Guide to Subdivision 61-I 20 61-350 What this Subdivision is about 20 Entitlement to a first child tax offset 21 61-355 Who is entitled to a tax offset under this section 21 61-360 What is a child event? 22 61-365 First child only 23 61-370 Another carer with entitlement for another child 23 61-375 Selection rules 23 61-380 Special rules for death of first child 24 Transferring an entitlement 24 61-385 You may transfer your entitlement to a tax offset 24 61-390 Transfer is irrevocable 25 61-395 Transferor is not entitled to tax offset 25 61-400 Transferee is entitled to tax offset 25 Claiming a first child tax offset 25 61-405 How to claim a tax offset for a child 25 61-410 Claim is irrevocable 25 Amount of a first child tax offset 26 61-415 Formula for working out amount of tax offset 26 61-420 Component of formula-entitlement amount 26 61-425 Component of formula-total of the entitlement days 27 61-430 What is your base year? 27 Additional tax offset if a child is in your care before you legally adopt the child 28 61-440 Additional tax offset if a child is in your care before you legally adopt the child 28 61-445 When a child is first in your care 29 61-450 What is your base year if a child is in your care before you legally adopt the child? 29 61-455 Old Subdivision applies if you would be worse off 30 Subdivision 61-IA-Child care tax offset 31 Guide to Subdivision 61-IA 31 61-460 What this Subdivision is about 31 Operative provisions 32 61-465 Object of this Subdivision 32 Entitlement to the child care tax offset 32 61-470 Who is entitled to the tax offset 32 61-475 Meaning of approved child care 33 61-480 Meaning of entitled to child care benefit and entitlement to child care benefit 33 Amount of the child care tax offset 35 61-485 Amount of the child care tax offset 35 61-490 Component of formula-approved child care fees 36 61-495 Component of formula-child care offset limit 37 Transfer of entitlement to unused balance of child care tax offset 37 61-496 Entitlement to transfer 37 61-497 Form of transfer 38 Subdivision 61-J-25% entrepreneurs' tax offset 38 Guide to Subdivision 61-J 38 61-500 What this Subdivision is about 38 Operative provisions 39 61-505 25% entrepreneurs' tax offset: individual or company 39 61-510 25% entrepreneurs' tax offset: partner in a partnership 41 61-515 25% entrepreneurs' tax offset: trustee of a trust 42 61-520 25% entrepreneurs' tax offset: beneficiary of a trust 44 61-525 Meaning of net small business income and small business entity turnover 45 Subdivision 61-K-Mature age worker tax offset 46 Guide to Subdivision 61-K 46 61-550 What this Subdivision is about 46 Operative provisions 46 61-555 Object of this Subdivision 46 61-560 Entitlement to the mature age worker tax offset 47 61-565 The amount of the tax offset 47 61-570 Definition of net income from working 47 Subdivision 61-L-Tax offset for Medicare levy surcharge (lump sum payments in arrears) 48 Guide to Subdivision 61-L 48 61-575 What this Subdivision is about 48 Operative provisions 49 61-580 Entitlement to a tax offset 49 61-585 The amount of a tax offset 51 61-590 Definition of MLS lump sums 51 Subdivision 61-M-Education expenses tax offset 53 Guide to Subdivision 61-M 53 61-600 What this Subdivision is about 53 Entitlement to education expenses tax offset 53 61-610 Entitlement to education expenses tax offset 53 61-620 Eligibility in respect of another individual 55 61-630 Schooling requirement 56 61-640 Education expenses 57 Amount of education expenses tax offset 59 61-650 Amount of education expenses tax offset 59 61-660 Education expenses tax offset limit 61 61-670 Shared care 62 61-680 Excess education expenses 64 Division 63-Common rules for tax offsets 65 Guide to Division 63 65 63-1 What this Division is about 65 63-10 Priority rules 65 Division 65-Tax offset carry forward rules 67 Guide to Division 65 67 65-10 What this Division is about 67 Operative provisions 67 65-30 Amount carried forward 67 65-35 How to apply carried forward tax offsets 68 65-40 When a company cannot apply a tax offset 68 65-50 Effect of bankruptcy 69 65-55 Deduction for amounts paid for debts incurred before bankruptcy 69 Division 67-Refundable tax offset rules 71 Guide to Division 67 71 67-10 What this Division is about 71 Operative provisions 71 67-20 Which tax offsets this Division applies to 71 67-23 Refundable tax offsets 71 67-25 Refundable tax offsets-franked distributions 72 Part 2-25-Trading stock 75 Division 70-Trading stock 75 Guide to Division 70 75 70-1 What this Division is about 75 70-5 The 3 key features of tax accounting for trading stock 76 Subdivision 70-A-What is trading stock 76 70-10 Meaning of trading stock 76 Subdivision 70-B-Acquiring trading stock 77 70-15 In which income year do you deduct an outgoing for trading stock? 77 70-20 Non-arm's length transactions 78 70-25 Cost of trading stock is not a capital outgoing 78 70-30 Starting to hold as trading stock an item you already own 78 Subdivision 70-C-Accounting for trading stock you hold at the start or end of the income year 81 General rules 82 70-35 You include the value of your trading stock in working out your assessable income and deductions 82 70-40 Value of trading stock at start of income year 82 70-45 Value of trading stock at end of income year 82 Special valuation rules 84 70-50 Valuation if trading stock obsolete etc. 84 70-55 Working out the cost of natural increase of live stock 84 70-60 Valuation of horse breeding stock 84 70-65 Working out the horse opening value and the horse reduction amount 85 70-70 Valuing interests in FIFs 86 Subdivision 70-D-Assessable income arising from disposals of trading stock and certain other assets 87 Guide to Subdivision 70-D 87 70-75 What this Subdivision is about 87 70-80 Why the rules in this Subdivision are necessary 87 Operative provisions 88 70-85 Application of this Subdivision to certain other assets 88 70-90 Assessable income on disposal of trading stock outside the ordinary course of business 88 70-95 Purchase price is taken to be market value 89 70-100 Notional disposal when you stop holding an item as trading stock 89 70-105 Death of owner 91 70-110 You stop holding an item as trading stock but still own it 92 70-115 Compensation for lost trading stock 93 Subdivision 70-E-Miscellaneous 93 70-120 Deducting capital costs of acquiring trees 93 Part 2-40-Rules affecting employees and other taxpayers receiving PAYG withholding payments 96 Division 80-General rules 96 Guide to Division 80 96 80-1 What this Division is about 96 Operative provisions 96 80-5 Holding of an office 96 80-10 Application to the termination of employment 97 80-15 Transfer of property 97 80-20 Payments for your benefit or at your direction or request 97 Division 82-Employment termination payments 99 Guide to Division 82 99 82-1 What this Division is about 99 Subdivision 82-A-Employment termination payments: life benefits 99 Guide to Subdivision 82-A 99 82-5 What this Subdivision is about 99 Operative provisions 100 82-10 Taxation of life benefit termination payments 100 Subdivision 82-B-Employment termination payments: death benefits 101 Guide to Subdivision 82-B 101 82-60 What this Subdivision is about 101 Operative provisions 102 82-65 Death benefits for dependants 102 82-70 Death benefits for non-dependants 103 82-75 Death benefits paid to trustee of deceased estate 104 Subdivision 82-C-Key concepts 105 Guide to Subdivision 82-C 105 82-125 What this Subdivision is about 105 Operative provisions 106 82-130 What is an employment termination payment? 106 82-135 Payments that are not employment termination payments 107 82-140 Tax free component of an employment termination payment 109 82-145 Taxable component of an employment termination payment 109 82-150 What is an invalidity segment of an employment termination payment? 109 82-155 What is a pre-July 83 segment of an employment termination payment? 110 82-160 What is the ETP cap amount? 111 Division 83-Other payments on termination of employment 112 Guide to Division 83 112 83-1 What this Division is about 112 Subdivision 83-A-Unused annual leave payments 112 Guide to Subdivision 83-A 112 83-5 What this Subdivision is about 112 Operative provisions 113 83-10 Unused annual leave payment is assessable 113 83-15 Entitlement to tax offset 114 Subdivision 83-B-Unused long service leave payments 114 Guide to Subdivision 83-B 114 83-65 What this Subdivision is about 114 General 115 83-70 Application-long service leave 115 83-75 Meaning of unused long service leave payment 115 83-80 Taxation of unused long service leave payments 116 83-85 Entitlement to tax offset 116 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 117 Employment wholly full-time or wholly part-time 118 83-95 How to work out amount of payment attributable to each period 118 83-100 How to work out unused days of long service leave for each period 118 83-105 How to work out long service leave accrued in each period 119 Employment partly full-time and partly part-time 120 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 120 Long service leave taken at less than full pay 121 83-115 Working out used days of long service leave if leave taken at less than full pay 121 Subdivision 83-C-Genuine redundancy payments and early retirement scheme payments 122 Guide to Subdivision 83-C 122 83-165 What this Subdivision is about 122 Operative provisions 122 83-170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments 122 83-175 What is a genuine redundancy payment? 123 83-180 What is an early retirement scheme payment? 124 Subdivision 83-D-Foreign termination payments 126 Guide to Subdivision 83-D 126 83-230 What this Subdivision is about 126 Operative provisions 126 83-235 Termination payments tax free-foreign resident period 126 83-240 Termination payments tax free-Australian resident period 127 Subdivision 83-E-Other payments 128 Guide to Subdivision 83-E 128 83-290 What this Subdivision is about 128 Operative provisions 128 83-295 Termination payments made more than 12 months after termination etc. 128 Part 2-42-Personal services income 129 Division 84-Introduction 129 Guide to Part 2-42 129 84-1 What this Part is about 129 Operative provisions 129 84-5 Meaning of personal services income 129 84-10 This Part does not imply that individuals are employees 130 Division 85-Deductions relating to personal services income 131 Guide to Division 85 131 85-1 What this Division is about 131 Operative provisions 131 85-5 Object of this Division 131 85-10 Deductions for non-employees relating to personal services income 132 85-15 Deductions for rent, mortgage interest, rates and land tax 133 85-20 Deductions for payments to associates etc. 133 85-25 Deductions for superannuation for associates 133 85-30 Exception: personal services businesses 134 85-35 Exception: employees, office holders and religious practitioners 134 85-40 Application of Subdivision 900-B to individuals who are not employees 135 Division 86-Alienation of personal services income 136 Guide to Division 86 136 86-1 What this Division is about 136 86-5 A simple description of what this Division does 136 Subdivision 86-A-General 138 86-10 Object of this Division 138 86-15 Effect of obtaining personal services income through a personal services entity 138 86-20 Offsetting the personal services entity's deductions against personal services income 139 86-25 Apportionment of entity maintenance deductions among several individuals 141 86-27 Deduction for net personal services income loss 143 86-30 Assessable income etc. of the personal services entity 143 86-35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes 143 86-40 Salary payments shortly after an income year 144 Subdivision 86-B-Entitlement to deductions 145 86-60 General rule for deduction entitlements of personal services entities 145 86-65 Entity maintenance deductions 146 86-70 Car expenses 146 86-75 Superannuation 147 86-80 Salary or wages promptly paid 148 86-85 Deduction entitlements of personal services entities for amounts included in an individual's assessable income 148 86-87 Personal services entity cannot deduct net personal services income loss 148 86-90 Application of Divisions 28 and 900 to personal services entities 149 Division 87-Personal services businesses 150 Guide to Division 87 150 87-1 What this Division is about 150 87-5 Diagram showing the operation of this Division 151 Subdivision 87-A-General 153 87-10 Object of this Division 153 87-15 What is a personal services business? 153 87-18 The results test for a personal services business 155 87-20 The unrelated clients test for a personal services business 156 87-25 The employment test for a personal services business 157 87-30 The business premises test for a personal services business 157 87-35 Personal services income from Australian government agencies 158 87-40 Application of this Division to certain agents 159 Subdivision 87-B-Personal services business determinations 161 87-60 Personal services business determinations for individuals 161 87-65 Personal services business determinations for personal services entities 164 87-70 Applying etc. for personal services business determinations 166 87-75 When personal services business determinations have effect 167 87-80 Revoking personal services business determinations 167 87-85 Review of decisions 168 Chapter 3-Specialist liability rules 169 Part 3-1-Capital gains and losses: general topics 169 Division 100-A Guide to capital gains and losses 169 General overview 169 100-1 What this Division is about 169 100-5 Effect of this Division 170 100-10 Fundamentals of CGT 170 100-15 Overview of Steps 1 and 2 171 Step 1-Have you made a capital gain or a capital loss? 172 100-20 What events attract CGT? 172 100-25 What are CGT assets? 173 100-30 Does an exception or exemption apply? 173 100-33 Can there be a roll-over? 174 Step 2-Work out the amount of the capital gain or loss 175 100-35 What is a capital gain or loss? 175 100-40 What factors come into calculating a capital gain or loss? 175 100-45 How to calculate the capital gain or loss for most CGT events 176 Step 3-Work out your net capital gain or loss for the income year 176 100-50 How to work out your net capital gain or loss 176 100-55 How do you comply with CGT? 177 Keeping records for CGT purposes 177 100-60 Why keep records? 177 100-65 What records? 177 100-70 How long you need to keep records 178 Division 102-Assessable income includes net capital gain 179 Guide to Division 102 179 102-1 What this Division is about 179 102-3 Concessions in working out your net capital gain 179 Operative provisions 180 102-5 Assessable income includes net capital gain 180 102-10 How to work out your net capital loss 182 102-15 How to apply net capital losses 183 102-20 Ways you can make a capital gain or a capital loss 183 102-22 Amounts of capital gains and losses 184 102-23 CGT event still happens even if gain or loss disregarded 184 102-25 Order of application of CGT events 184 102-30 Exceptions and modifications 185 Division 103-General rules 189 Guide to Division 103 189 103-1 What this Division is about 189 Operative provisions 189 103-5 Giving property as part of a transaction 189 103-10 Entitlement to receive money or property 189 103-15 Requirement to pay money or give property 190 103-25 Choices 190 103-30 Reduction of cost base etc. by net input tax credits 191 Division 104-CGT events 192 Guide to Division 104 192 104-1 What this Division is about 192 104-5 Summary of the CGT events 193 Subdivision 104-A-Disposals 203 104-10 Disposal of a CGT asset: CGT event A1 203 Subdivision 104-B-Use and enjoyment before title passes 205 104-15 Use and enjoyment before title passes: CGT event B1 205 Subdivision 104-C-End of a CGT asset 206 104-20 Loss or destruction of a CGT asset: CGT event C1 206 104-25 Cancellation, surrender and similar endings: CGT event C2 207 104-30 End of option to acquire shares etc.: CGT event C3 208 Subdivision 104-D-Bringing into existence a CGT asset 209 104-35 Creating contractual or other rights: CGT event D1 209 104-40 Granting an option: CGT event D2 211 104-45 Granting a right to income from mining: CGT event D3 212 104-47 Conservation covenants: CGT event D4 212 Subdivision 104-E-Trusts 214 104-55 Creating a trust over a CGT asset: CGT event E1 214 104-60 Transferring a CGT asset to a trust: CGT event E2 215 104-65 Converting a trust to a unit trust: CGT event E3 216 104-70 Capital payment for trust interest: CGT event E4 216 104-71 Adjustment of non-assessable part 218 104-72 Reducing your capital gain under CGT event E4 if you are a trustee 221 104-75 Beneficiary becoming entitled to a trust asset: CGT event E5 222 104-80 Disposal to beneficiary to end income right: CGT event E6 223 104-85 Disposal to beneficiary to end capital interest: CGT event E7 224 104-90 Disposal by beneficiary of capital interest: CGT event E8 225 104-95 Making a capital gain 226 104-100 Making a capital loss 228 104-105 Creating a trust over future property: CGT event E9 230 Subdivision 104-F-Leases 231 104-110 Granting a lease: CGT event F1 231 104-115 Granting a long-term lease: CGT event F2 232 104-120 Lessor pays lessee to get lease changed: CGT event F3 233 104-125 Lessee receives payment for changing lease: CGT event F4 233 104-130 Lessor receives payment for changing lease: CGT event F5 234 Subdivision 104-G-Shares 234 104-135 Capital payment for shares: CGT event G1 235 104-145 Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 236 Subdivision 104-H-Special capital receipts 238 104-150 Forfeiture of deposit: CGT event H1 238 104-155 Receipt for event relating to a CGT asset: CGT event H2 239 Subdivision 104-I-Australian residency ends 240 104-160 Individual or company stops being an Australian resident: CGT event I1 240 104-165 Exception for individuals 241 104-170 Trust stops being a resident trust: CGT event I2 242 Subdivision 104-J-CGT events relating to roll-overs 243 104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 243 104-180 Sub-group break-up 245 104-182 Consolidated group break-up 246 104-185 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2 246 104-190 Modifying or extending the replacement asset period 249 104-195 Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 249 104-197 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5 251 104-198 Cost of acquisition of replacement asset or amount of fourth element expenditure, or both, not sufficient to cover disregarded capital gain: CGT event J6 252 Subdivision 104-K-Other CGT events 253 104-210 Bankrupt pays amount in relation to debt: CGT event K2 253 104-215 Asset passing to tax-advantaged entity: CGT event K3 254 104-220 CGT asset starts being trading stock: CGT event K4 255 104-225 Special collectable losses: CGT event K5 255 104-230 Pre-CGT shares or trust interest: CGT event K6 257 104-235 Balancing adjustment events for depreciating assets and section 73BA depreciating assets: CGT event K7 260 104-240 Working out capital gain or loss for CGT event K7: general case 261 104-245 Working out capital gain or loss for CGT event K7: pooled assets 262 104-250 Direct value shifts: CGT event K8 264 104-255 Carried interests: CGT event K9 264 104-260 Certain short-term forex realisation gains: CGT event K10 265 104-265 Certain short-term forex realisation losses: CGT event K11 266 104-270 Foreign hybrids: CGT event K12 266 Subdivision 104-L-Consolidated groups and MEC groups 266 104-500 Loss of pre-CGT status of membership interests in entity becoming subsidiary member: CGT event L1 267 104-505 Where pre-formation intra-group roll-over reduction results in negative allocable cost amount: CGT event L2 268 104-510 Where tax cost setting amounts for retained cost base assets exceeds joining allocable cost amount: CGT event L3 269 104-515 Where no reset cost base assets and excess of net allocable cost amount on joining: CGT event L4 269 104-520 Where amount remaining after step 4 of leaving allocable cost amount is negative: CGT event L5 270 104-525 Error in calculation of tax cost setting amount for joining entity's assets: CGT event L6 270 104-530 Discharged amount of liability differs from amount for allocable cost amount purposes: CGT event L7 273 104-535 Where reduction in tax cost setting amounts for reset cost base assets cannot be allocated: CGT event L8 274 Division 106-Entity making the gain or loss 275 Guide to Division 106 275 106-1 What this Division is about 275 Subdivision 106-A-Partnerships 275 106-5 Partnerships 275 Subdivision 106-B-Bankruptcy and liquidation 277 106-30 Effect of bankruptcy 278 106-35 Effect of liquidation 278 Subdivision 106-C-Absolutely entitled beneficiaries 278 106-50 Absolutely entitled beneficiaries 278 Subdivision 106-D-Security holders 279 106-60 Acts by security holders 279 Division 108-CGT assets 280 Guide to Division 108 280 108-1 What this Division is about 280 Subdivision 108-A-What a CGT asset is 280 108-5 CGT assets 280 108-7 Interest in CGT assets as joint tenants 281 Subdivision 108-B-Collectables 281 108-10 Losses from collectables to be offset only against gains from collectables 281 108-15 Sets of collectables 282 108-17 Cost base of a collectable 283 Subdivision 108-C-Personal use assets 283 108-20 Losses from personal use assets must be disregarded 284 108-25 Sets of personal use assets 284 108-30 Cost base of a personal use asset 285 Subdivision 108-D-Separate CGT assets 285 Guide to Subdivision 108-D 285 108-50 What this Subdivision is about 285 Operative provisions 286 108-55 When is a building a separate asset from land? 286 108-60 Depreciating asset that is part of a building is a separate asset 286 108-65 Land adjacent to land acquired before 20 September 1985 287 108-70 When is a capital improvement a separate asset? 287 108-75 Capital improvements to CGT assets for which a roll- over may be available 289 108-80 Deciding if capital improvements are related to each other 291 108-85 Meaning of improvement threshold 291 Division 109-Acquisition of CGT assets 292 Guide to Division 109 292 109-1 What this Division is about 292 Subdivision 109-A-Operative rules 292 109-5 General acquisition rules 293 109-10 When you acquire a CGT asset without a CGT event 295 109-15 Exceptions 296 Subdivision 109-B-Signposts to other acquisition rules 296 109-50 Effect of this Subdivision 296 109-55 Other acquisition rules 296 109-60 Acquisition rules outside this Part and Part 3-3 302 Division 110-Cost base and reduced cost base 306 Guide to Division 110 306 110-1 What this Division is about 306 110-5 Modifications to general rules 306 110-10 Rules about cost base not relevant for some CGT events 306 Subdivision 110-A-Cost base 308 110-25 General rules about cost base 309 110-35 Incidental costs 311 110-36 Indexation 312 What does not form part of the cost base 313 110-37 Expenditure forming part of cost base or element 313 110-38 Exclusions 314 110-40 Assets acquired before 7.30 pm on 13 May 1997 314 110-43 Partnership interests acquired before 7.30 pm on 13 May 1997 315 110-45 Assets acquired after 7.30 pm on 13 May 1997 315 110-50 Partnership interests acquired after 7.30 pm on 13 May 1997 318 110-53 Exceptions to application of sections 110-45 and 110- 50 320 110-54 Debt deductions disallowed by thin capitalisation rules 320 Subdivision 110-B-Reduced cost base 320 110-55 General rules about reduced cost base 321 110-60 Reduced cost base for partnership assets 324 Division 112-Modifications to cost base and reduced cost base 326 Guide to Division 112 326 112-1 What this Division is about 326 112-5 Discussion of modifications 326 Subdivision 112-A-General modifications 327 112-15 General rule for replacement modifications 327 112-20 Market value substitution rule 327 112-25 Split, changed or merged assets 329 112-30 Apportionment rules 330 112-35 Assumption of liability rule 331 112-37 Put options 332 Subdivision 112-B-Finding tables for special rules 332 112-40 Effect of this Subdivision 333 112-45 CGT events 333 112-48 Gifts acquired by associates 334 112-50 Main residence 334 112-53 Scrip for scrip roll-over 335 112-53AAStatutory licences 335 112-53A MDO roll-over 336 112-53B Exchange of stapled ownership interests for units in a unit trust 336 112-54 Demergers 336 112-55 Effect of you dying 337 112-60 Bonus shares or units 337 112-65 Rights 337 112-70 Convertible interests 338 112-75 Employee share schemes 338 112-77 Exchangeable interests 338 112-80 Leases 339 112-85 Options 340 112-87 Residency 340 112-90 An asset stops being a pre-CGT asset 341 112-92 Demutualisation of certain entities 341 112-95 Transfer of tax losses and net capital losses within wholly-owned groups of companies 341 112-97 Modifications outside this Part and Part 3-3 342 Subdivision 112-C-Replacement-asset roll-overs 350 112-100 Effect of this Subdivision 350 112-105 What is a replacement-asset roll-over? 350 112-110 How is the cost base of the replacement asset modified? 350 112-115 Table of replacement-asset roll-overs 351 Subdivision 112-D-Same-asset roll-overs 352 112-135 Effect of this Subdivision 352 112-140 What is a same-asset roll-over? 352 112-145 How is the cost base of the asset modified? 353 112-150 Table of same-asset roll-overs 353 Division 114-Indexation of cost base 355 114-1 Indexing elements of cost base 355 114-5 When indexation relevant 356 114-10 Requirement for 12 months ownership 357 114-15 Cost base modifications 359 114-20 When expenditure is incurred for roll-overs 360 Division 115-Discount capital gains and trusts' net capital gains 362 Guide to Division 115 362 115-1 What this Division is about 362 Subdivision 115-A-Discount capital gains 363 What is a discount capital gain? 363 115-5 What is a discount capital gain? 363 115-10 Who can make a discount capital gain? 363 115-15 Discount capital gain must be made after 21 September 1999 364 115-20 Discount capital gain must not have indexed cost base 364 115-25 Discount capital gain must be on asset acquired at least 12 months before 365 115-30 Special rules about time of acquisition 366 What are not discount capital gains? 369 115-40 Capital gain resulting from agreement made within a year of acquisition 369 115-45 Capital gain from equity in an entity with newly acquired assets 369 115-50 Discount capital gain from equity in certain entities 372 115-55 Capital gains involving money received from demutualisation of friendly society health or life insurer 374 Subdivision 115-B-Discount percentage 374 115-100 What is the discount percentage for a discount capital gain 374 Subdivision 115-C-Rules about trusts with net capital gains 375 Guide to Subdivision 115-C 375 115-200 What this Division is about 375 Operative provisions 376 115-210 When this Subdivision applies 376 115-215 Assessing presently entitled beneficiaries 376 115-220 Special rule for assessing trustee under paragraph 98(3)(b) of the Income Tax Assessment Act 1936 378 115-222 Special rule for assessing trustee under subsection 98(4) of the Income Tax Assessment Act 1936 379 115-225 Special rule for assessing trustee under section 99A of the Income Tax Assessment Act 1936 379 115-230 Assessing capital gains of resident testamentary trusts 380 Subdivision 115-D-Tax relief for shareholders in listed investment companies 382 Guide to Subdivision 115-D 382 115-275 What this Subdivision is about 382 Operative provisions 382 115-280 Deduction for certain dividends 382 115-285 Meaning of LIC capital gain 385 115-290 Meaning of listed investment company 386 115-295 Maintaining records 387 Division 116-Capital proceeds 388 Guide to Division 116 388 116-1 What this Division is about 388 116-5 General rules 389 116-10 Modifications to general rules 389 General rules 390 116-20 General rules about capital proceeds 390 Modifications to general rules 392 116-25 Table of modifications to the general rules 392 116-30 Market value substitution rule: modification 1 394 116-35 Companies and trusts that are not widely held 396 116-40 Apportionment rule: modification 2 397 116-45 Non-receipt rule: modification 3 398 116-50 Repaid rule: modification 4 398 116-55 Assumption of liability rule: modification 5 399 116-60 Misappropriation rule: modification 6 399 Special rules 400 116-65 Disposal etc. of a CGT asset the subject of an option 400 116-70 Option requiring both acquisition and disposal etc. 400 116-75 Special rule for CGT event happening to a lease 401 116-80 Special rule if CGT asset is shares or an interest in a trust 401 116-85 Section 47A of 1936 Act applying to rolled-over asset 401 116-95 Company changes residence from an unlisted country 402 116-100 Gifts of property 404 116-105 Conservation covenants 404 Division 118-Exemptions 406 Guide to Division 118 406 118-1 What this Division is about 406 Subdivision 118-A-General exemptions 407 Exempt assets 408 118-5 Cars, motor cycles and valour decorations 408 118-10 Collectables and personal use assets 408 118-12 Assets used to produce exempt income etc. 409 118-13 Shares in a PDF 410 Anti-overlap provisions 411 118-20 Reducing capital gains if amount otherwise assessable 411 118-21 Carried interests 413 118-22 Superannuation lump sums and employment termination payments 414 118-24 Depreciating assets and section 73BA depreciating assets 414 118-25 Trading stock 414 118-27 Division 230 financial arrangements 415 118-30 Film copyright 416 118-35 Research and development 416 Exempt or loss-denying transactions 417 118-37 Compensation, damages etc. 417 118-40 Expiry of a lease 420 118-42 Transfer of stratum units 420 118-45 Sale of rights to mine 420 118-55 Foreign currency hedging gains and losses 421 118-60 Certain gifts 421 118-65 Later distributions of personal services income 422 118-70 Transactions by exempt entities 422 118-75 Marriage or relationship breakdown settlements 422 Boat capital gains 423 118-80 Reduction of boat capital gain 423 Subdivision 118-B-Main residence 423 Guide to Subdivision 118-B 423 118-100 What this Subdivision is about 423 118-105 Map of this Subdivision 425 Basic case and concepts 426 118-110 Basic case 426 118-115 Meaning of dwelling 426 118-120 Extension to adjacent land 427 118-125 Meaning of ownership period 427 118-130 Meaning of ownership interest in land or a dwelling 427 Rules that may extend the exemption 428 118-135 Moving into a dwelling 428 118-140 Changing main residences 428 118-145 Absences 429 118-150 If you build, repair or renovate a dwelling 430 118-155 Where individual referred to in section 118-150 dies 430 118-160 Destruction of dwelling and sale of land 431 Rules that may limit the exemption 432 118-165 Separate CGT event for adjacent land or other structures 432 118-170 Spouse having different main residence 432 118-175 Dependent child having different main residence 433 Roll-overs under Subdivision 126-A 433 118-178 Previous roll-over under Subdivision 126-A 433 118-180 Acquisition of dwelling from company or trust on marriage or relationship breakdown-roll-over provision applying 434 Partial exemption rules 434 118-185 Partial exemption where dwelling was your main residence during part only of ownership period 434 118-190 Use of dwelling for producing assessable income 435 118-192 Special rule for first use to produce income 437 Dwellings acquired from deceased estates 438 118-195 Dwelling acquired from a deceased estate 438 118-197 Special rule for surviving joint tenant 440 118-200 Partial exemption for deceased estate dwellings 440 118-205 Adjustment if dwelling inherited from deceased individual 441 118-210 Trustee acquiring dwelling under will 442 Subdivision 118-D-Insurance and superannuation 444 118-300 Insurance policies 444 118-305 Superannuation 445 118-310 RSA's 446 118-313 Superannuation agreements under the Family Law Act 446 118-315 Segregated exempt assets of life insurance companies 446 118-320 Segregated current pension assets of a complying superannuation entity 446 Subdivision 118-E-Units in pooled superannuation trusts 447 118-350 Units in pooled superannuation trusts 447 Subdivision 118-F-Venture capital investment 447 Guide to Subdivision 118-F 447 118-400 What this Subdivision is about 447 Operative provisions 449 118-405 Exemption for certain foreign venture capital investments through venture capital limited partnerships 449 118-407 Exemption for certain venture capital investments through early stage venture capital limited partnerships 450 118-410 Exemption for certain foreign venture capital investments through Australian venture capital funds of funds 453 118-415 Exemption for certain venture capital investments by foreign residents 456 118-420 Meaning of eligible venture capital partner etc. 457 118-425 Meaning of eligible venture capital investment- investments in companies 459 118-427 Meaning of eligible venture capital investment- investments in unit trusts 466 118-428 Additional investment requirements for ESVCLPs 473 118-430 Meaning of at risk 474 118-435 Special rule relating to investment in foreign resident holding companies 474 118-440 Meaning of permitted entity value 475 118-445 Meaning of committed capital 478 Subdivision 118-G-Venture capital: investment by superannuation funds for foreign residents 478 Guide to Subdivision 118-G 478 118-500 What this Subdivision is about 478 118-505 Exemption for certain foreign venture capital 479 118-510 Meaning of resident investment vehicle 479 118-515 Meaning of venture capital entity 480 118-520 Meaning of superannuation fund for foreign residents 481 118-525 Meaning of venture capital equity 481 Subdivision 118-H-Demutualisation of Tower Corporation 483 118-550 Demutualisation of Tower Corporation 483 Division 121-Record keeping 485 Guide to Division 121 485 121-10 What this Division is about 485 Operative provisions 485 121-20 What records you must keep 485 121-25 How long you must retain the records 487 121-30 Exceptions 488 121-35 Asset register entries 488 Part 3-3-Capital gains and losses: special topics 490 Division 122-Roll-over for the disposal of assets to, or the creation of assets in, a wholly-owned company 490 Guide to Division 122 490 122-1 What this Division is about 490 Subdivision 122-A-Disposal or creation of assets by an individual or trustee to a wholly-owned company 491 Guide to Subdivision 122-A 491 122-5 What this Subdivision is about 491 When is a roll-over available 492 122-15 Disposal or creation of assets-wholly-owned company 492 122-20 What you receive for the trigger event 492 122-25 Other requirements to be satisfied 493 122-35 What if the company undertakes to discharge a liability (disposal case) 495 122-37 Rules for working out what a liability in respect of an asset is 496 Replacement-asset roll-over if you dispose of a CGT asset 497 122-40 Disposal of a CGT asset 497 Replacement-asset roll-over if you dispose of all the assets of a business 498 122-45 Disposal of all the assets of a business 498 122-50 All assets acquired on or after 20 September 1985 498 122-55 All assets acquired before 20 September 1985 499 122-60 Assets acquired before and after 20 September 1985 500 Replacement-asset roll-over for a creation case 501 122-65 Creation of asset 501 Same-asset roll-over consequences for the company (disposal case) 501 122-70 Consequences for the company (disposal case) 501 Same-asset roll-over consequences for the company (creation case) 502 122-75 Consequences for the company (creation case) 502 Subdivision 122-B-Disposal or creation of assets by partners to a wholly-owned company 503 Guide to Subdivision 122-B 503 122-120 What this Subdivision is about 503 When is a roll-over available 504 122-125 Disposal or creation of assets-wholly-owned company 504 122-130 What the partners receive for the trigger event 504 122-135 Other requirements to be satisfied 505 122-140 What if the company undertakes to discharge a liability (disposal case) 507 122-145 Rules for working out what a liability in respect of an interest in an asset is 509 Replacement-asset roll-over if partners dispose of a CGT asset 510 122-150 Capital gain or loss disregarded 510 122-155 Disposal of post-CGT or pre-CGT interests 510 122-160 Disposal of both post-CGT and pre-CGT interests 510 Replacement-asset roll-over if the partners dispose of all the assets of a business 511 122-170 Capital gain or loss disregarded 511 122-175 Other consequences 511 122-180 All interests acquired on or after 20 September 1985 512 122-185 All interests acquired before 20 September 1985 512 122-190 Interests acquired before and after 20 September 1985 513 Replacement-asset roll-over for a creation case 514 122-195 Creation of asset 514 Same-asset roll-over consequences for the company (disposal case) 515 122-200 Consequences for the company (disposal case) 515 Same-asset roll-over consequences for the company (creation case) 516 122-205 Consequences for the company (creation case) 516 Division 58-Capital allowances for depreciating assets previously owned by an exempt entity Table of Subdivisions Guide to Division 58 58-A Application 58-B Calculating decline in value of privatised assets under Division 40 Guide to Division 58 58-1 What this Division is about This Division sets out special rules that apply in calculating deductions for the decline in value of depreciating assets and balancing adjustments for assets previously owned by an exempt entity if the assets: 1. continue to be owned by that entity after the entity becomes taxable; or 2. are acquired from that entity, in connection with the acquisition of a business, by a purchaser that is a taxable entity. There is a choice of 2 methods for each depreciating asset: 3. the notional written down value method; and 4. the undeducted pre-existing audited book value method. Subdivision 58-A-Application Table of sections 58-5 Application of Division 58-10 When an asset is acquired in connection with the acquisition of a business 58-5 Application of Division (1) This Division applies in 2 situations. Entity sale (2) The first (an entity sale situation) is where: (a) at a particular time on or after 1 July 2001, an entity is an *exempt entity; and (b) just after that time, the entity's *ordinary income or *statutory income becomes to any extent assessable income. (3) In an entity sale situation: (a) the entity is a transition entity; and (b) the time when the entity's *ordinary income or *statutory income becomes to that extent assessable is the transition time; and (c) the income year in which the *transition time occurs is the transition year for the entity; and (d) the *depreciating assets the *transition entity *held just before the transition time are privatised assets. Asset sale (4) The second (an asset sale situation) is where: (a) at a particular time on or after 1 July 2001, an entity (the purchaser) whose *ordinary income or statutory income is to any extent assessable acquires a *depreciating asset from the Commonwealth, a State, a Territory or an *exempt entity; and (b) the asset is acquired in connection with the acquisition of a *business from the Commonwealth, the State, the Territory or the exempt entity. (5) In an asset sale situation: (a) the Commonwealth, the State, the Territory or the *exempt entity is the tax exempt vendor; and (b) the time when the *depreciating asset is acquired is the acquisition time; and (c) the income year in which the *acquisition time occurs is the acquisition year; and (d) each *depreciating asset the purchaser acquires from the *tax exempt vendor at the acquisition time is a privatised asset. 58-10 When an asset is acquired in connection with the acquisition of a business (1) A *depreciating asset is taken to be acquired in connection with the acquisition of a *business from the Commonwealth, the State, the Territory or the *exempt entity if and only if: (a) the asset was used by the Commonwealth, the State, the Territory or the exempt entity in carrying on a business and the purchaser or another entity uses the asset in carrying on the business; or (b) subsection (2) applies. (2) This subsection applies if: (a) the asset was used by the Commonwealth, the State, the Territory or the *exempt entity in performing functions, or engaging in activities, that did not constitute the carrying on of a *business by the Commonwealth, the State, the Territory or the exempt entity and the asset is used by the purchaser or another entity in performing those functions or engaging in those activities as part of carrying on a business; or (b) all of these subparagraphs apply: (i) the acquisition by the purchaser of the asset was connected with the acquisition of another asset by the purchaser or another entity from the Commonwealth, the State, the Territory or the exempt entity or from an *associate of the Commonwealth, the State, the Territory or the exempt entity; (ii) ownership of the other asset gives the purchaser or other entity a right, or imposes on the purchaser or other entity an obligation, to perform functions or engage in activities as part of the carrying on of a business or confers on the purchaser or other entity a commercial advantage or opportunity in connection with performing functions or engaging in activities as part of the carrying on of a business; (iii) the asset is used by the purchaser or other entity in performing those functions or engaging in those activities under the right or obligation or in taking the benefit of the advantage or opportunity; or (c) the asset was acquired by the purchaser under an *arrangement under which the purchaser or another entity acquired another asset from the Commonwealth, the State, the Territory or the exempt entity or from an associate of the Commonwealth, the State, the Territory or the exempt entity and: (i) the other asset is taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection; or (ii) where the other asset is not a depreciating asset, it would, if it were a depreciating asset, be taken by paragraph (1)(a), or by paragraph (a) or (b) of this subsection; to be acquired in connection with the acquisition of a business from the Commonwealth, the State, the Territory or the exempt entity. (3) Paragraphs (2)(a), (b) and (c) do not apply if the asset is used by the purchaser solely to *derive assessable income from the provision of office or residential accommodation. Subdivision 58-B-Calculating decline in value of privatised assets under Division 40 Table of sections 58-60 Purpose of rules in this Subdivision 58-65 Choice of method to work out cost of privatised asset 58-70 Application of Division 40 58-75 Meaning of notional written down value 58-80 Meaning of undeducted pre-existing audited book value 58-85 Pre-existing audited book value of depreciating asset 58-90 Method and effective life for transition entity 58-60 Purpose of rules in this Subdivision This Subdivision sets out rules that affect the way in which the *transition entity or the purchaser work out the decline in value of, and balancing adjustments for, *privatised assets under Division 40 after the *transition time or the *acquisition time. 58-65 Choice of method to work out cost of privatised asset (1) The *transition entity or the purchaser has a choice to work out the first element of the *cost of each *privatised asset. (2) The choice is to use either: (a) the *notional written down value of the asset; or (b) the *undeducted pre-existing audited book value (if any) of the asset. (3) The choice must be made: (a) for the *transition entity-by the day on which the transition entity lodges its *income tax return for the *transition year; or (b) for the purchaser-by the day on which the purchaser lodges the purchaser's income tax return for the *acquisition year; or within a further period allowed by the Commissioner. (4) The choice, once made, cannot be changed. 58-70 Application of Division 40 Application of Division 40 (1) The *transition entity and the purchaser work out the decline in value of, and the effect of a *balancing adjustment event occurring for, each *privatised asset using Division 40 (Capital allowances) as if the asset had been acquired under a contract entered into on or after 1 July 2001. Entity sale situation (2) Division 40 applies to a *privatised asset *held by the *transition entity as if the asset had not been used, or *installed ready for use, for any purpose before the *transition time. (3) The first element of the *cost to the *transition entity at the *transition time is the *notional written down value of the asset or the *undeducted pre-existing audited book value of the asset (depending on the choice made for the asset). (4) No amount incurred before the *transition time is included in the second element of the *cost of a *privatised asset. Asset sale situation (5) The first element of the *cost of a *privatised asset to the purchaser at the *acquisition time is the sum of: (a) the *notional written down value of the asset or the *undeducted pre-existing audited book value of the asset (depending on the choice made for the asset); and (b) the amount of any incidental costs to the purchaser in acquiring the asset. 58-75 Meaning of notional written down value (1) The notional written down value of a *privatised asset is its *adjustable value in the hands of: (a) the *transition entity just before the *transition time; or (b) the *tax exempt vendor just before the *acquisition time; worked out using the assumptions in this section. Application of Division 40 (2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset. Use for taxable purposes (3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes. Cost and acquisition time: exempt Australian government agency (4) If the *transition entity or the *tax exempt vendor was an *exempt Australian government agency just before the *transition time and had acquired the *privatised asset from another exempt Australian government agency: (a) assume that the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the other exempt Australian government agency and that the first element of its *cost to the transition entity or tax exempt vendor is the amount that was its cost to the other exempt Australian government agency; or (b) if it had, before its acquisition by the transition entity or tax exempt vendor, been successively *held by 2 or more exempt Australian government agencies-assume that: (i) the transition entity or tax exempt vendor acquired it at the time when it was acquired or constructed by the first of those exempt Australian government agencies that owned it; and (ii) the first element of its cost to the transition entity or tax exempt vendor is the sum of the amount that was the first element of its cost to the first of those exempt Australian government agencies that owned it and any amount included in the second element of its cost for that first agency or a later successive agency. Effective life (5) Assume that: (a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and (b) subsection 40-95(2) did not apply. (5A) Assume that section 40-102 did not apply to a *privatised asset unless all of the following are satisfied: (a) it is an entity sale situation within the meaning of section 58- 5; (b) a *capped life applies to the asset under subsection 40-102(4) or (5) at both the asset's *start time and the *transition time; (c) the *transition entity chooses, for the purposes of this section, to have section 40-102 apply to the asset. If section 40-102 is to be applied to the asset, disregard paragraphs 40-102(2)(a) and (b) and assume that the relevant time for the purposes of the application of that section to the asset were the transition time. (6) Assume also that section 40-110 (about recalculating effective life) did not apply. 58-80 Meaning of undeducted pre-existing audited book value (1) The undeducted pre-existing audited book value of a *privatised asset is its *adjustable value in the hands of: (a) the *transition entity just before the *transition time; or (b) the *tax exempt vendor just before the *acquisition time; worked out using the assumptions in this section. Application of Division 40 (2) Assume that Division 40 had always applied to work out the decline in value of the *privatised asset. Use for taxable purposes (3) Assume that, in applying Division 40 to the *privatised asset, it had always been used by the *transition entity or the *tax exempt vendor wholly for *taxable purposes. Cost (4) Assume that: (a) the first element of the *privatised asset's *cost to the *transition entity or the *tax exempt vendor is its *pre- existing audited book value as at the latest time (the test time) at which it had a pre-existing audited book value; and (b) no amount was included in the second element of the asset's cost before the test time; and (c) any amount included in the second element of the asset's cost after the test time had been incurred by the transition entity or the tax exempt vendor. Acquisition time (5) Assume that the *transition entity or the *tax exempt vendor had acquired the *privatised asset at the test time. Effective life (6) Assume that: (a) the *transition entity or the *tax exempt vendor had chosen to use an *effective life determined by the Commissioner for the *privatised asset as in force at the *transition time or the *acquisition time; and (b) subsection 40-95(2) did not apply. Note: Section 40-102 does not apply to a privatised asset for the purposes of this section. (7) Assume also that section 40-110 (about recalculating effective life) did not apply. 58-85 Pre-existing audited book value of depreciating asset (1) A *privatised asset has a pre-existing audited book value if: (a) a balance sheet, as at the end of an annual accounting period (the balance date), that was prepared as part of the final accounts of the Commonwealth, a State, a Territory or an *exempt entity for that period showed the asset as an asset of the relevant entity and specified a value for it; and (b) a qualified independent auditor who was engaged, or was required by law, to undertake an audit of those accounts had prepared and signed, before 4 August 1997, a final audit report on those accounts; and (c) the report did not state that the auditor was not satisfied that the specified value fairly represented the value of the asset. The asset is taken to have had a pre-existing audited book value at the balance date of an amount equal to the specified value. (2) If a balance sheet did not specify a value for the asset but specified a total value for 2 or more assets including the asset, the balance sheet is taken to have specified as the value of the asset so much of that total value as is reasonably attributable to the asset. 58-90 Method and effective life for transition entity (1) The *transition entity must, in working out the decline in value of a *privatised asset, use the *diminishing value method or the *prime cost method for the asset that it used to work out the *notional written down value, or the *undeducted pre-existing audited book value, of the asset. (2) In working out the decline in value of a *privatised asset held by a *transition entity: (a) if section 40-102 applied to the asset for the purposes of subsection 58-75(5A)-section 40-102 applies to the asset and applies as if the relevant time for the asset for the purposes of that section were the *transition time; or (b) if section 40-102 did not apply to the asset for the purposes of subsection 58-75(5A) or section 58-80-section 40-102 does not apply to the asset. Division 59-Particular amounts of non-assessable non-exempt income Guide to Division 59 59-1 What this Division is about This Division details particular amounts that are non-assessable non-exempt income. Table of sections Operative provisions 59-5 Bonus payments made to certain older Australians 59-10 Compensation under firearms surrender arrangements 59-15 Mining payments 59-20 Taxable amounts relating to franchise fees windfall tax 59-25 Taxable amounts relating to Commonwealth places windfall tax 59-30 Amounts you must repay 59-35 Amounts that would be mutual receipts but for prohibition on distributions to members 59-40 Issue of rights 59-45 Tax bonus for the 2007-08 income year 59-50 Clean-up and Restoration Grants for 2009 Victorian bushfires Operative provisions 59-5 Bonus payments made to certain older Australians A payment made to you under the A New Tax System (Bonuses for Older Australians) Act 1999 is not assessable income and is not *exempt income. 59-10 Compensation under firearms surrender arrangements A payment made to you by way of compensation under *firearms surrender arrangements for any loss of business is not assessable income and is not *exempt income. 59-15 Mining payments (1) These are not assessable income and are not *exempt income: (a) a *mining payment made to a *distributing body; (b) a mining payment made to one or more *Aboriginals, or applied for their benefit. (2) A payment: (a) made to a *distributing body; or (b) made to one or more *Aboriginals, or applied for their benefit; is not assessable income and is not *exempt income if the payment is made by a *distributing body out of a *mining payment that it has received. (3) A payment made to a *distributing body by another distributing body, out of a *mining payment received by the other distributing body, is taken to be a mining payment for the purposes of: (a) any further applications of subsection (2); and (b) any further applications of this subsection. (4) Subsection (2) does not apply to a payment by a *distributing body for the purposes of meeting its administrative costs. (5) This section does not apply to an amount paid to or applied for the benefit of a person if it is remuneration or consideration for goods or services provided by that person. 59-20 Taxable amounts relating to franchise fees windfall tax Taxable amounts on which tax is imposed by the Franchise Fees Windfall Tax (Imposition) Act 1997 are not assessable income and are not *exempt income. 59-25 Taxable amounts relating to Commonwealth places windfall tax Taxable amounts on which tax is imposed by the Commonwealth Places Windfall Tax (Imposition) Act 1998 are not assessable income and are not *exempt income. 59-30 Amounts you must repay (1) An amount you receive is not assessable income and is not *exempt income for an income year if: (a) you must repay it; and (b) you repay it in a later income year; and (c) you cannot deduct the repayment for any income year. (2) It does not matter if: (a) you received the amount as part of a larger amount; or (b) the obligation to repay existed when you received the amount or it came into existence later. (3) This section does not apply to an amount you must repay because you received a lump sum as compensation or damages for a wrong or injury you suffered in your occupation. 59-35 Amounts that would be mutual receipts but for prohibition on distributions to members An amount of *ordinary income of an entity is not assessable income and not *exempt income if: (a) the amount would be a mutual receipt, but for the entity's constituent document preventing the entity from making any *distribution, whether in money, property or otherwise, to its members; and (b) apart from this section, the amount would be assessable income only because of section 6-5. 59-40 Issue of rights (1) The *market value, as at the time of issue (the issue time), of rights issued to you: (a) by a company to *acquire *shares in that company; or (b) by a trustee of a unit trust to acquire units in that trust; is not assessable income and is not *exempt income as at the issue time if the conditions in subsection (2) are satisfied. (2) The conditions are as follows: (a) at the issue time, you must already own *shares in the company or units in the unit trust (the original interests); (b) the rights must be issued to you because of your ownership of the original interests; (c) the original interests and the rights must not be *revenue assets or *trading stock at the issue time; (d) the rights must not have been acquired (within the meaning of section 139G of the Income Tax Assessment Act 1936) under an *employee share scheme; (e) the original interests and the rights must not be *traditional securities; (f) the original interests must not be *convertible interests. 59-45 Tax bonus for the 2007-08 income year A tax bonus paid in accordance with the Tax Bonus for Working Australians Act (No. 2) 2009 is not assessable income and is not *exempt income. 59-50 Clean-up and Restoration Grants for 2009 Victorian bushfires The following payments administered by the Rural Finance Corporation of Victoria in relation to the Victorian bushfires of 2009 are not assessable income and are not *exempt income: (a) Clean-up and Restoration Grants for primary producers; (b) Clean-up and Restoration Grants for small businesses. Part 2-20-Tax offsets Division 61-Generally applicable tax offsets Table of Subdivisions 61-G Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 61-I First child tax offset (baby bonus) 61-IA Child care tax offset 61-J 25% entrepreneurs' tax offset 61-K Mature age worker tax offset 61-L Tax offset for Medicare levy surcharge (lump sum payments in arrears) 61-M Education expenses tax offset Subdivision 61-G-Private health insurance offset complementary to Part 2-2 of the Private Health Insurance Act 2007 Guide to Subdivision 61-G 61-200 What this Subdivision is about You can choose to claim a tax offset for a premium, or an amount in respect of a premium, paid under a private health insurance policy instead of having the premium reduced under Division 23 of the Private Health Insurance Act 2007 or receiving a payment under Division 26 of that Act. Table of sections Operative provisions 61-205 Entitlement to the private health insurance tax offset 61-210 Amount of the private health insurance tax offset 61-215 Tax offset after a person 65 years or over ceases to be covered by policy 61-220 How to work out the incentive amount Operative provisions 61-205 Entitlement to the private health insurance tax offset (1) If you are an individual (other than an individual in the capacity of an employer), you are entitled to a *tax offset for the 2007-08 income year or a later income year if: (a) a premium, or an amount in respect of a premium, was paid by you, or by your employer as a *fringe benefit for you, under a complying private health insurance policy (within the meaning of the Private Health Insurance Act 2007), on or after 1 July 2007; and (b) the premium, or amount in respect of a premium, was paid during the income year; and (c) each person insured under the complying health insurance policy during the period covered by the premium or amount is, for the whole of the time that he or she is insured under the policy during that period, an eligible person within the meaning of section 3 of the Health Insurance Act 1973, or treated as such because of section 6, 6A or 7 of that Act. (2) You are also entitled to the *tax offset if: (a) you are a trustee who is liable to be assessed under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the net income of a trust estate; and (b) the beneficiary who is presently entitled to the share of the income of the trust estate would be entitled to the tax offset because of subsection (1). (3) However, you are not entitled to the *tax offset in respect of the payment of any premium, or any amount in respect of a premium, if: (a) you have received an amount under Division 26 of the Private Health Insurance Act 2007 in relation to the payment; or (b) the premium, or the amount in respect of a premium, was less than it would otherwise have been because of the operation of Division 23 of that Act. Note: In certain circumstances you can get a refund of the tax offset under Division 67. 61-210 Amount of the private health insurance tax offset (1) The amount of the *tax offset for an income year is the sum of: (a) 30% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the policy in respect of days in the income year on which no person covered by the policy was aged 65 years or over; and (b) 35% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a fringe benefit for you, under the policy in respect of days in the income year on which: (i) at least one person covered by the policy was aged 65 years or over; and (ii) no person covered by the policy was aged 70 years or over; and (c) 40% of the amount of the premium, or of the amount in respect of a premium, paid by you, or by your employer as a fringe benefit for you, under the policy in respect of days in the income year on which at least one person covered by the policy was aged 70 years or over. (2) However, if, before 1 January 1999, a person was registered, or eligible to be registered, under the Private Health Insurance Incentives Act 1997 in respect of the policy for the income year, the amount of the *tax offset for the income year is the greater of: (a) the amount worked out under subsection (1); and (b) the *incentive amount for the policy for the income year. (3) If, because of the operation of Division 23 of the Private Health Insurance Act 2007, an amount paid by you, or by your employer as a *fringe benefit for you, under a policy was less than the amount that would otherwise have been payable, the *tax offset in respect of the amount paid is reduced by the amount of the difference. 61-215 Tax offset after a person 65 years or over ceases to be covered by policy (1) If: (a) at any time, the amount of a *tax offset in respect of premiums payable under an insurance policy (the original policy) was 35% or 40% of the premiums payable under the policy because a person aged 65 years or over (the entitling person) was insured under the original policy; and (b) at that time, another person (other than a dependent child) was insured under the original policy; and (c) the entitling person subsequently ceases to be insured under the policy; subsections 61-210(1) and (2) apply in relation to a complying health insurance policy (whether or not the original policy) under which the other person is insured (other than for the purposes of working out the *incentive amount) as if: (d) the entitling person were also insured under that policy; and (e) the entitling person were the same age as the age at which he or she ceased to be insured under the original policy. (2) Subsection (1) ceases to apply if a person (other than a dependent child) who was not insured under the original policy at the time the entitling person ceased to be insured under it becomes insured under the complying health insurance policy. (3) Subsection (1) does not apply if its application would result in the amount of the *tax offset under subsection 61-210(1) or (2) being less than it would otherwise have been. (4) Paragraph (1)(a) applies in relation to an amount of a *tax offset that is 35% or 40% of the premiums payable under an insurance policy whether the tax offset was available under this Subdivision or Subdivision 61-H as in force before 1 July 2007. (5) In this section: complying health insurance policy has the same meaning as in the Private Health Insurance Act 2007. dependent child: (a) has the meaning given in the Private Health Insurance Act 2007; and (b) in paragraph (1)(b), in relation to a time before 1 July 2007, includes a dependent child within the meaning of the Private Health Insurance Incentives Act 1998. 61-220 How to work out the incentive amount (1) The incentive amount for a complying private health insurance policy (within the meaning of the Private Health Insurance Act 2007) for an income year is the amount worked out under this table: |Incentive amount | |Item|Number and |Policy |Policy covers|Policy | | |kinds of |covers |*general |covers | | |people |*hospital |treatment but|*hospital | | |covered by |treatment |not *hospital|treatment | | |the policy |but not |treatment |and | | | |*general | |*general | | | |treatment | |treatment | |1 |3 or more |$350 |$100 |$450 | | |people | | | | |2 |One |$350 |$100 |$450 | | |dependent | | | | | |child and | | | | | |one other | | | | | |person | | | | |3 |2 people |$200 |$50 |$250 | | |neither of | | | | | |whom is a | | | | | |dependent | | | | | |child | | | | |4 |One person |$100 |$25 |$125 | (2) If the amount of the premium, or the amount in respect of a premium, paid by you, or by your employer as a *fringe benefit for you, under the policy is for part only of the income year, the incentive amount is worked out using this formula: [pic] Subdivision 61-I-First child tax offset (baby bonus) Guide to Subdivision 61-I 61-350 What this Subdivision is about You are entitled to a tax offset for your first child, for income years up to and including the year the child turns 5, if you meet certain conditions. The amount of the offset is usually based on your tax liability in the year before you became responsible for the child, and on a comparison between your taxable income in that year and the year you are claiming for. However, if you are a low income taxpayer, a minimum offset will generally be available. Instead of claiming the offset yourself, you may transfer your entitlement to your spouse. If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption. Table of sections Entitlement to a first child tax offset 61-355 Who is entitled to a tax offset under this section 61-360 What is a child event? 61-365 First child only 61-370 Another carer with entitlement for another child 61-375 Selection rules 61-380 Special rules for death of first child Transferring an entitlement 61-385 You may transfer your entitlement to a tax offset 61-390 Transfer is irrevocable 61-395 Transferor is not entitled to tax offset 61-400 Transferee is entitled to tax offset Claiming a first child tax offset 61-405 How to claim a tax offset for a child 61-410 Claim is irrevocable Amount of a first child tax offset 61-415 Formula for working out amount of tax offset 61-420 Component of formula-entitlement amount 61-425 Component of formula-total of the entitlement days 61-430 What is your base year? Additional tax offset if a child is in your care before you legally adopt the child 61-440 Additional tax offset if a child is in your care before you legally adopt the child 61-445 When a child is first in your care 61-450 What is your base year if a child is in your care before you legally adopt the child? 61-455 Old Subdivision applies if you would be worse off Entitlement to a first child tax offset 61-355 Who is entitled to a tax offset under this section (1) You are entitled to a *tax offset for a child for an income year if you meet the conditions in subsection (3) at any time in the income year. Note: If you are entitled to a tax offset because you adopt a child, you might also be entitled to an offset if the child was in your care before the adoption (see section 61-440). (2) To meet those conditions for a child at a given time is to have a primary entitlement to the *tax offset for the child at that time. (3) The conditions are that: (a) you have had a *child event (see section 61-360) in relation to the child (whether or not in the income year); and (b) section 61-365 (first child only) does not prevent you from having a *primary entitlement to the offset for the child; and (c) at the time: (i) the child is less than 5; and (ii) you are *legally responsible for the child; and (iii) the child is in your care; and (iv) you are an Australian resident; and (v) section 61-370 (another carer) does not prevent you from having a primary entitlement to the offset for the child; and (vi) if section 61-375 (selection rules) applies-you are selected by subsection (3) of that section. 61-360 What is a child event? You have a child event at a particular time (the event time) if: (a) you become *legally responsible for a child at the event time; and Example: Giving birth is generally an example of becoming legally responsible for a child. (b) the event time is on or after 1 July 2001 and before 1 July 2004; and (c) you are an Australian resident at the event time; and (d) you were not legally responsible for the child at any time before 1 July 2001; and (e) there is no other person who is also legally responsible for the child at the event time and who was legally responsible for the child at any time before 1 July 2001. 61-365 First child only You cannot have a *primary entitlement to a *tax offset under section 61-355 for a child if: (a) you have had a *child event in relation to another child that was earlier than the child event you had for the first- mentioned child; and (b) you meet, or met at any time, the conditions in subparagraphs 61-355(3)(c)(i) to (iv) for that other child. 61-370 Another carer with entitlement for another child You cannot have a *primary entitlement to a *tax offset under section 61-355 for a child at a time if: (a) at that time: (i) another person is *legally responsible for the child; and (ii) the child is in the other person's care; and (b) the other person has, or had at any time, a primary entitlement to a tax offset for another child. 61-375 Selection rules (1) This section applies if the conditions in subsection 61-355(3) (other than subparagraph (c)(vi)) are met by more than one person at the same time in relation to the same child. (2) Only one of those persons can have a *primary entitlement to a *tax offset under section 61-355 for the child at that time. (3) The person who gets the *primary entitlement to the offset at that time is selected in the following order of priority: (a) the natural mother; (b) if only one is the adoptive mother-the adoptive mother; (c) if only one is a woman-the woman; (d) the natural father; (e) if only one is the adoptive father-the adoptive father; (f) the person determined by the Commissioner, having regard to: (i) any agreement between the persons; and (ii) any other matters that the Commissioner considers relevant. 61-380 Special rules for death of first child Child dies aged less than 5 (1) This section applies if your *primary entitlement to a *tax offset under section 61-355 for a child ends because the child dies aged less than 5. Special extension of time in year of death (2) Your *primary entitlement is extended until the end of the income year in which the death occurred. Limit on application of first child only rule (3) Section 61-365 does not prevent you from having a *primary entitlement to a *tax offset for another child after the end of the income year in which the death occurred. Transferring an entitlement 61-385 You may transfer your entitlement to a tax offset (1) If you are entitled to a *tax offset for a child for an income year under section 61-355 or 61-440, you may transfer that entitlement to another person. (1A) However, if you are entitled to a *tax offset for a child for a particular income year under both of sections 61-355 and 61-440, you may only transfer one of those entitlements to another person if you also transfer the other entitlement to the same person. (2) A transfer has effect only if: (a) the transferee was your *spouse at all times when you had a *primary entitlement for the child for the income year; and (b) the transferee does not have a primary entitlement for that, or another, child for any time during the income year; and (c) you have not already claimed the *tax offset for the income year; and (d) you make the transfer after the end of the income year; and (e) the transfer is in the *approved form. 61-390 Transfer is irrevocable A transfer cannot be changed or revoked. 61-395 Transferor is not entitled to tax offset You are no longer yourself entitled to a *tax offset for a child for an income year if you transfer the entitlement under section 61-385 for that income year. 61-400 Transferee is entitled to tax offset If an entitlement to a *tax offset is transferred under section 61-385, the transferee is entitled to the offset for the income year. Claiming a first child tax offset 61-405 How to claim a tax offset for a child If you are entitled under this Subdivision to a *tax offset for an income year, you may claim the offset only: (a) in the *income tax return you give the Commissioner, before 1 July 2014, for the income year for which you are entitled to the offset; or (b) if you are not required to give the Commissioner a return for the income year-in the *approved form given to the Commissioner before 1 July 2014. 61-410 Claim is irrevocable A claim for a *tax offset under this Subdivision cannot be revoked. Amount of a first child tax offset 61-415 Formula for working out amount of tax offset The amount of your *tax offset under sections 61-355 and 61-440 for an income year is the amount (rounded up to the nearest whole dollar) worked out using the formula: [pic] where: entitlement amount has the meaning given by section 61-420. total of the entitlement days has the meaning given by section 61- 425. 61-420 Component of formula-entitlement amount (1) In section 61-415, the entitlement amount is the amount (rounded up to the nearest whole dollar) worked out using the formula: [pic] where: base amount is the lesser of: (a) one-fifth of your basic income tax liability for your *base year (as worked out in step 2 of the method statement in subsection 4-10(3)); and (b) $2,500. (2) However, if: (a) the current income year is not your *base year; and (b) your taxable income for the current income year is not more than $25,000; and (c) the amount worked out under subsection (1) is less than $500; then the entitlement amount is $500. (3) If the amount worked out under subsection (1) is negative, then, unless subsection (2) applies, the entitlement amount is nil. 61-425 Component of formula-total of the entitlement days (1) In section 61-415, the total of the entitlement days is the total number of days for which the primary person (see subsection (3)) had a *primary entitlement to a *tax offset under either or both of sections 61-355 and 61-440 for the child for the income year. (2) In addition, if: (a) the relevant *child event happened in the primary person's *base year; and (b) the primary person did not transfer the entitlement under section 61-385 for the primary person's base year; and (c) the relevant child turns 5 during the income year; the total of the entitlement days also includes the number of days in the base year for which the primary person had a primary entitlement to a *tax offset under either or both of sections 61- 355 and 61-440 for the child. (3) In this section, the primary person is: (a) if you are claiming the offset as a person who has a *primary entitlement to the offset for the child-you; or (b) if you are claiming the offset as a transferee under section 61- 400-the transferor. 61-430 What is your base year? Primary entitlement (1) Your base year for an entitlement to a *tax offset for a child under section 61-355 is: (a) if you were an Australian resident at any time in the income year just before the income year in which the *child event for the child happened (the event year)-the income year just before the event year; and (b) otherwise-the event year. Note: If a child is in your care before you adopt the child, your base year can instead be the year the child was first in your care or the year before that (see section 61-450). (2) If paragraph (1)(a) applies to you, you may choose the event year to be your base year, in the *approved form. A choice cannot be revoked. (3) A choice cannot be made: (a) after you have claimed the *tax offset under section 61-355 for any income year; or (b) after you have transferred your entitlement to the tax offset under section 61-355 for any income year. Transferred entitlement (4) Your base year for an entitlement transferred to you under section 61-385 is the income year before the first income year for which the entitlement for the child was transferred to you. Additional tax offset if a child is in your care before you legally adopt the child 61-440 Additional tax offset if a child is in your care before you legally adopt the child (1) You are entitled to a *tax offset for a child for an income year if: (a) you meet the conditions in paragraph (3)(a) at any time in the income year; and (b) you meet the conditions in paragraphs (3)(b), (c) and (d). Note: You are not entitled to a tax offset under this section if section 61-455 applies to you. (2) To meet those conditions for a child at a given time is to have a primary entitlement to the *tax offset for the child at that time. (3) The conditions are that: (a) at the time: (i) the child is less than 5; and (ii) the child is in your care (but you are not legally responsible for the child); and (iii) you are an Australian resident; and (b) you meet the conditions in subsection 61-355(3) in relation to the child in that year or a later income year; and (c) you have become legally responsible for the child by adopting the child; and (d) the time is on or after 1 July 2001 and before 1 July 2004. Note: See section 61-445 for when a child is first in your care. 61-445 When a child is first in your care For the purposes of sections 61-440 and 61-450, a child is first in your care on the date evidenced in writing by a court or relevant department of the relevant State or Territory. 61-450 What is your base year if a child is in your care before you legally adopt the child? Your base year can relate to a year during which a child was in your care before you adopted the child (1) This section defines your base year if you are entitled to a *tax offset for a child under section 61-440 (which is where a child is in your care before you legally adopt the child). Primary entitlement (2) Your base year for a *tax offset under sections 61-355 and 61- 440 is: (a) if you were an Australian resident at any time in the income year (the previous income year) just before the income year in which the child was first in your care-the later of the following years: (i) the previous income year; (ii) the income year commencing on 1 July 2000; and (b) otherwise-the later of the following years: (i) the earliest income year in which you were an Australian resident and the child was in your care; (ii) the income year commencing on 1 July 2001. Note: See section 61-445 for when a child is first in your care. (3) If paragraph (2)(a) applies to you, you may choose, in the *approved form, the later of the following years to be your base year: (a) the year the child was first in your care; (b) the income year commencing on 1 July 2001. A choice cannot be revoked. (4) A choice cannot be made: (a) after you have claimed the *tax offset under section 61-440 for any income year; or (b) after you have transferred your entitlement to the tax offset under section 61-440 for any income year. Transferred entitlement (5) Your base year for an entitlement transferred to you under section 61-385 is the income year before the first income year for which the entitlement for the child was transferred to you. 61-455 Old Subdivision applies if you would be worse off This Subdivision as in force on 30 June 2004 (instead of this Subdivision as amended by Schedule 10 to the Tax Laws Amendment (2004 Measures No. 6) Act 2005) continues to apply to you if the amount of all *tax offsets to which you would be entitled under this Subdivision as in force on that date is more than the amount of all tax offsets to which you would be entitled under the amended Subdivision. Note: The effect of this is that: (a) you are only entitled to a tax offset in respect of days for which you are legally responsible for the child (and not days during which the child is in your care); and (b) your base year is the income year in which the child event happened or the year before. Subdivision 61-IA-Child care tax offset Guide to Subdivision 61-IA 61-460 What this Subdivision is about You are entitled to a tax offset for an income year for child care fees if you meet certain conditions. The amount of the offset is 30% of the difference between the amounts for each child, in the previous year, of child care fees incurred and child care benefit entitlement. This is subject to an indexed cap of $4,000 per child. If the amount of the tax offset exceeds the amount of your income tax liability, the excess may be transferred to your spouse as a tax offset. Table of sections Operative provisions 61-465 Object of this Subdivision Entitlement to the child care tax offset 61-470 Who is entitled to the tax offset 61-475 Meaning of approved child care 61-480 Meaning of entitled to child care benefit and entitlement to child care benefit Amount of the child care tax offset 61-485 Amount of the child care tax offset 61-490 Component of formula-approved child care fees 61-495 Component of formula-child care offset limit Transfer of entitlement to unused balance of child care tax offset 61-496 Entitlement to transfer 61-497 Form of transfer Operative provisions 61-465 Object of this Subdivision The object of this Subdivision is to provide a *tax offset to assist families with the cost of child care. Entitlement to the child care tax offset 61-470 Who is entitled to the tax offset (1) You are entitled to a *tax offset for an income year ending before 1 July 2007 (the child care offset year) for *approved child care provided in the previous income year (the child care base year) if: (a) you are an individual; and (b) there is at least 1 *child care base week for you and a particular child in the child care base year. Example: If there is at least 1 child care base week for you and a child in the 2004-2005 income year (the child care base year), you are entitled to a tax offset for the child for the 2005-2006 income year (the child care offset year). (2) A week is a child care base week for you and a particular child in the child care base year if: (a) the week starts on a Monday in the child care base year (whether or not it finishes in the child care base year); and (b) you are *entitled to child care benefit for *approved child care provided for the child in the week; and (c) one or more of the following limits applies under Subdivision G of Division 4 of Part 3 of the A New Tax System (Family Assistance) Act 1999 to your *entitlement to child care benefit for that week: (i) the 50 hour limit (see section 54 of that Act); (ii) the more than 50 hour limit (see section 55 of that Act); (iii) the 24 hour care limit for a particular session (or sessions) of care (see section 56 of that Act). Note: If one of the paragraph (c) limits applies, you satisfy the paragraph (c) condition even if you have not used approved child care for the child during the week up to the full extent of the limit. (3) If you are *entitled to child care benefit subject to a limit of only 24 hours for a week under subsection 53(3) of the A New Tax System (Family Assistance) Act 1999, the condition mentioned in paragraph (2)(c) is not satisfied for the week. (4) The 50 hour limit is taken, for the purposes of paragraph (2)(c), to apply to your entitlement for child care benefit for the week if it would have applied but for the fact that you failed to meet the requirements of paragraph 17A(1)(b) of the A New Tax System (Family Assistance) Act 1999 in relation to the week. 61-475 Meaning of approved child care (1) Approved child care, for a particular child, is care provided for the child by a child care service that is approved under section 195 of the A New Tax System (Family Assistance) (Administration) Act 1999. (2) Approved child care is also taken to have been provided by such a child care service for the child during a period of absence from care if section 10 or 10A of the A New Tax System (Family Assistance) Act 1999 applies to the period of absence. Note: If a child is absent from care during a period for which child care fees are incurred for the child, but neither of sections 10 or 10A of the A New Tax System (Family Assistance) Act 1999 apply to the period of absence, approved child care would not be taken to have been provided for the child. As a result, child care fees incurred for the child during the period would not count as approved child care fees for which the child care tax offset is payable (see sections 61-485 and 61-490). 61-480 Meaning of entitled to child care benefit and entitlement to child care benefit (1) You are entitled to child care benefit for *approved child care for a child as provided in this section, and not otherwise. The amount of your entitlement to child care benefit for the care is as provided in this section, and not otherwise. Note: Child care benefit is a benefit provided for by the A New Tax System (Family Assistance) Act 1999. General rule-actual determination of entitlement must have been made (2) You are only entitled to child care benefit for the care if you are so entitled because of a determination made under section 51B or 52E of the A New Tax System (Family Assistance) (Administration) Act 1999. The amount of your entitlement to child care benefit for the care is the amount worked out under that Act by reference to that determination. Entitlement based on fee reductions under a determination of conditional entitlement (3) However, if: (a) a determination (the conditional determination) has been made under section 50F of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are conditionally eligible for child care benefit by fee reduction for the care; and (b) under section 219A of that Act as it applies in relation to the determination, fees for the care have been reduced; you are, subject to subsections (4) and (5), taken to be entitled to child care benefit for the care. The amount of your entitlement to child care benefit for the care is the amount of the reduction. (4) Despite subsection (3), if: (a) a determination (the final determination) is subsequently made under section 51B of the A New Tax System (Family Assistance) (Administration) Act 1999 of your entitlement to be paid child care benefit by fee reduction for the care; and (b) the amount (the final determination amount) of your entitlement to child care benefit for the care, as worked out by reference to the final determination, differs from the amount of the reduction referred to in paragraph (3)(b); the amount of your entitlement to child care benefit for the care is taken to be, and always to have been, the final determination amount. (5) Despite subsection (3), if a determination is subsequently made under section 51C of the A New Tax System (Family Assistance) (Administration) Act 1999 that you are not entitled to be paid child care benefit by fee reduction for the care, you are taken not to be, and never to have been, entitled to be paid any child care benefit for the care. Entitlement does not end with receipt (6) In applying this Act at a particular time in relation to yourself and the care, the fact that you have, by that time, received some or all of your entitlement to child care benefit for the care does not mean that you are no longer to be regarded as being entitled to child care benefit for the care. Later determinations, variations and substitutions to be taken into account (7) If, after applying this Act at a particular time in relation to yourself and the care, a determination mentioned in this section is made or varied, or is set aside and a new determination substituted, the question of your entitlement to child care benefit for the care is to be redetermined taking account of the making, variation or substitution. Amount of the child care tax offset 61-485 Amount of the child care tax offset The amount of your *tax offset for a child care offset year is worked out in this way: Method statement Step 1. For each child in relation to whom you are entitled to the *tax offset for the child care offset year, work out amounts in accordance with steps 2, 3 and 4. Step 2. Work out the total amount of your *approved child care fees for the child in each *child care base week for you and the child in the child care base year. Step 3. Work out the total amount of your *entitlement to child care benefit for *approved child care for the child in each *child care base week for you and the child in the child care base year. Step 4. Work out the lesser of the following amounts (the child offset) for the child: (a) the amount worked out using the formula: [pic] (b) the *child care offset limit for the child care base year. Step 5. Total the child offsets for each of those children. The result is the amount of your *tax offset for the child care offset year. 61-490 Component of formula-approved child care fees General rule-approved child care fees for a child care base week for you and a child (1) The amount of your approved child care fees for a child for a *child care base week for you and the child is the amount of fees for *approved child care for the child during the week that are incurred by: (a) you; or (b) your partner, within the meaning of the A New Tax System (Family Assistance) Act 1999, during the week. Subject to subsection (2), it does not matter whether you are *entitled to child care benefit for all of that care. Special rule if the week is also a child care base week for your partner and the child (2) If the *child care base week is also a child care base week for your partner and the child, your approved child care fees for the week do not include any fees incurred by your partner for *approved child care, for the child in the week, for which you are not *entitled to child care benefit. If fee reduction applies, count unreduced amount of fees (3) If fees for *approved child care have been reduced under section 219A of the A New Tax System (Family Assistance) (Administration) Act 1999, then for this section, a reference to the fees incurred for the care is taken to be a reference to the fees that would have been incurred for the care if they had not been so reduced. 61-495 Component of formula-child care offset limit (1) The child care offset limit for the 2004-2005 child care base year is $4,000. The limit is indexed annually. Note: Subdivision 960-M shows you how to index amounts. (2) In applying the indexation formula in subsection 960-275(1) to determine the child care offset limit for the 2005-2006 child care base year or a later child care base year, the relevant financial year is the child care base year rather than the child care offset year for which the offset is being calculated. Transfer of entitlement to unused balance of child care tax offset 61-496 Entitlement to transfer (1) You may transfer your entitlement to so much of your *tax offset as is equal to the excess to the individual who was your *spouse as at the last day of the child care offset year. Note: The excess part of a tax offset is worked out under Division 63. (2) If you make a transfer: (a) the transferee is entitled to the transferred part of the *tax offset for the child care offset year; and (b) you are no longer entitled to the transferred part of the tax offset. (3) A transfer cannot be revoked. (4) If you die during the child care offset year, the reference to your *spouse in subsection (1) is taken to be a reference to your spouse just before your death. 61-497 Form of transfer (1) A transfer has effect only if you have applied for it in the *approved form. (2) The *approved form must require the inclusion of: (a) your *tax file number; and (b) the tax file number of the transferee; and (c) the transferee's signed consent to: (i) the transfer; and (ii) the disclosure of his or her tax file number in the form. (3) Subsection (2) does not limit what may be required by the *approved form. Subdivision 61-J-25% entrepreneurs' tax offset Guide to Subdivision 61-J 61-500 What this Subdivision is about This Subdivision provides a 25% tax offset on your income tax liability related to the business income of a small business entity with aggregated turnover of less than $75,000. Your entitlement to the offset varies depending on what kind of entity you are. The amount of your offset varies depending on whether your aggregated turnover is $50,000 or less or is more than $50,000. You may be entitled to more than 1 tax offset. For example, if you are an individual running your own small business, you may be entitled to a tax offset under section 61-505. If you are also a beneficiary of a trust that is a small business entity, you may be entitled to a tax offset under section 61-520. Table of sections Operative provisions 61-505 25% entrepreneurs' tax offset: individual or company 61-510 25% entrepreneurs' tax offset: partner in a partnership 61-515 25% entrepreneurs' tax offset: trustee of a trust 61-520 25% entrepreneurs' tax offset: beneficiary of a trust 61-525 Meaning of net small business income and small business entity turnover Operative provisions 61-505 25% entrepreneurs' tax offset: individual or company Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are an individual or a company; and (b) you are a *small business entity for the year; and (c) your *aggregated turnover for the year is less than $75,000; and (d) you have *net small business income for the year. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4-10(3)). Step 3. Work out the percentage (the small business percentage) using the formula: [pic] If that percentage is more than 100%, the small business percentage is 100%. Step 4. If your *aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your *tax offset. Step 5. If your *aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: [pic] The amount of your *tax offset is worked out using the formula: [pic] Example: A company runs a local sports business. The company is a small business entity for the year. The company's aggregated turnover for the year is $50,000, the company's net small business income for the year is $40,000 and the company's taxable income for the year is $80,000. The company is entitled to a tax offset. The amount of the offset is worked out in this way: The step 1 amount is $80,000. The step 2 amount is $6,000: 25% of the company's basic income tax liability of $24,000 ($80,000 multiplied by the 30% company tax rate). The step 3 small business percentage is: [pic] The amount of the company's tax offset (step 4) is: [pic] 61-510 25% entrepreneurs' tax offset: partner in a partnership Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are a partner in a partnership during the year; and (b) the partnership is a *small business entity for the year; and (c) the partnership's *aggregated turnover for the year is less than $75,000; and (d) the partnership has *net small business income for the year; and (e) your assessable income for the year includes a share (your net small business income share) of that net small business income. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4-10(3)). Step 3. Work out the percentage (the small business percentage) using the formula: [pic] If that percentage is more than 100%, the small business percentage is 100%. Step 4. If the partnership's *aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your *tax offset. Step 5. If the partnership's *aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: [pic] The amount of your *tax offset is worked out using the formula: [pic] 61-515 25% entrepreneurs' tax offset: trustee of a trust Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are a trustee of a trust during the year; and (b) the trust is a *small business entity for the year; and (c) the trust's *aggregated turnover for the year is less than $75,000; and (d) the trust has *net small business income for the year; and (e) you are liable to be assessed under section 98, 99 or 99A of the Income Tax Assessment Act 1936 on a share (your net small business income share) of that net small business income. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out the *net income of the trust for the income year. Step 2. Work out 25% of the amount of income tax you are liable to pay for the year on that *net income (apart from any *tax offsets). Step 3. Work out the percentage (the small business percentage) using the formula: [pic] If that percentage is more than 100%, the small business percentage is 100%. Step 4. If the trust's *aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your *tax offset. Step 5. If the trust's *aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: [pic] The amount of your *tax offset is worked out using the formula: [pic] 61-520 25% entrepreneurs' tax offset: beneficiary of a trust Entitlement (1) You are entitled to a *tax offset for an income year if: (a) you are a beneficiary of a trust during the year; and (b) the trust is a *small business entity for the year; and (c) the trust's *aggregated turnover for the year is less than $75,000; and (d) the trust has *net small business income for the year; and (e) your assessable income for the year includes a share (your net small business income share) of that net small business income. Amount (2) The amount of your *tax offset is worked out in this way: Method statement Step 1. Work out your taxable income for the income year. Step 2. Work out 25% of your basic income tax liability for the year (as worked out in step 2 of the method statement in subsection 4-10(3)). Step 3. Work out the percentage (the small business percentage) using the formula: [pic] If that percentage is more than 100%, the small business percentage is 100%. Step 4. If the trust's *aggregated turnover for the year is $50,000 or less, multiply the amount at step 2 by the small business percentage: the result is the amount of your *tax offset. Step 5. If the trust's *aggregated turnover for the year is more than $50,000, work out the fraction (the small business phase-out fraction) using the formula: [pic] The amount of your *tax offset is worked out using the formula: [pic] 61-525 Meaning of net small business income and small business entity turnover Net small business income (1) An entity's net small business income for an income year is the amount by which the entity's *small business entity turnover for the year is more than the sum of the entity's deductions attributable to that turnover. Small business entity turnover (2) An entity's small business entity turnover for an income year is the total *ordinary income that the entity *derives in the income year in the ordinary course of carrying on a *business. (3) In working out an entity's *small business entity turnover for an income year, do not include any amount that is *non-assessable non-exempt income under section 17-5 (which is about GST). Subdivision 61-K-Mature age worker tax offset Guide to Subdivision 61-K 61-550 What this Subdivision is about You may get a tax offset under this Subdivision if you are an Australian resident individual who is aged 55 or over at the end of the income year and who has worked during the year. The amount of the offset depends on the amount of your net income from working, but is up to a maximum of $500. (Basically, your net income from working is the total of amounts of assessable income that are mainly a reward for your personal efforts or skills, less any relevant deductions.) Table of sections Operative provisions 61-555 Object of this Subdivision 61-560 Entitlement to the mature age worker tax offset 61-565 The amount of the tax offset 61-570 Definition of net income from working Operative provisions 61-555 Object of this Subdivision The object of this Subdivision is to provide a *tax offset (subject to certain income conditions) as an incentive to Australians aged 55 or over to remain in work. 61-560 Entitlement to the mature age worker tax offset You are entitled to a *tax offset for an income year if you are an Australian resident individual who is aged 55 or over at the end of the income year. Note: However, the amount of the tax offset is nil if you have no net income from working or your net income from working is over $63,000 (or $58,000 for the 2004-2005 income year). 61-565 The amount of the tax offset (1) If your *net income from working for the income year is equal to or less than $53,000, the amount of the *tax offset is the lesser of the amount worked out under the following formula and $500: [pic] (2) If your *net income from working for the income year is greater than $53,000, the amount of the *tax offset is the amount worked out under the following formula (but not below nil): [pic] Special rule for the 2004-2005 income year (3) For the 2004-2005 income year, references in subsections (1) and (2) to $53,000 are taken instead to be references to $48,000. 61-570 Definition of net income from working (1) Your net income from working for an income year is the sum of the following amounts (excluding amounts covered by subsection (2)): (a) your assessable income for the year to the extent that it consists of the following: (i) *personal services income; (ii) assessable income from a *business you carry on; (iii) an amount included under section 393-15 of Schedule 2G to the Income Tax Assessment Act 1936 as a result of the repayment of a *farm management deposit; (b) your *reportable fringe benefits total for the year; (c) the total of your *reportable employer superannuation contributions for the year; less the sum of any amounts you can deduct for the year to the extent that they relate to assessable income mentioned in subparagraph (a)(i) or (ii). (2) Your net income from working for an income year does not include your assessable income for the year to the extent that it consists of the following: (a) amounts of *superannuation lump sums or *employment termination payments; (b) amounts of *unused annual leave payments or *unused long service leave payments; (c) amounts of passive income (within the meaning of section 6 of the Income Tax Assessment Act 1936). Subdivision 61-L-Tax offset for Medicare levy surcharge (lump sum payments in arrears) Guide to Subdivision 61-L 61-575 What this Subdivision is about You may get a tax offset under this Subdivision if: (a) Medicare levy surcharge is payable by you for the current year; and (b) a substantial lump sum was paid to you in the current year; and (c) the lump sum accrued in whole or in part in a previous year. The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your lump sums and your spouse's lump sums. Alternatively, you may get a tax offset under this Subdivision if your spouse gets a tax offset under this Subdivision. The amount of the offset is the amount of additional Medicare levy surcharge payable by you for the current year because of your spouse's lump sums. Table of sections Operative provisions 61-580 Entitlement to a tax offset 61-585 The amount of a tax offset 61-590 Definition of MLS lump sums Operative provisions 61-580 Entitlement to a tax offset Tax offset for MLS lump sums paid to you (1) You are entitled to a *tax offset for the *current year if: (a) you are an individual; and (b) *Medicare levy surcharge is payable by you for the current year because of: (i) section 8B, 8C or 8D of the Medicare Levy Act 1986; or (ii) the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999; and (c) your assessable income or *exempt foreign employment income for the current year includes one or more *MLS lump sums paid to you; and (d) the total of the MLS lump sums paid to you is greater than or equal to one-eleventh of the total of the following amounts: (i) your normal taxable income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) for the current year; (ii) your exempt foreign employment income for the current year; (iii) your *reportable fringe benefits total for the current year; (iv) the amounts that would be included in your assessable income for the current year if, and only if, subsection 271-105(1) (family trust distribution tax) in Schedule 2F to the Income Tax Assessment Act 1936 were ignored; (v) your *reportable superannuation contributions for the current year; (vi) your *total net investment loss for the current year. Note: The test in paragraph (d) is similar to the 10% test in paragraph 159ZRA(1)(b) of the Income Tax Assessment Act 1936, which also deals with a tax offset for lump sum payments in arrears. Tax offset for MLS lump sums paid to your spouse (2) You are also entitled to a *tax offset for the *current year if: (a) during all or part of the current year, you were married to an individual (within the meaning of section 3 of the Medicare Levy Act 1986 or section 7 of the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999); and (b) the individual is entitled to a tax offset for the current year under subsection (1); and (c) *Medicare levy surcharge is payable by you for the current year because of: (i) section 8D of the Medicare Levy Act 1986; or (ii) Division 4 of Part 3 of the A New Tax System (Medicare Levy Surcharge-Fringe Benefits) Act 1999; (which are about Medicare Levy surcharge for individuals who are married); and (d) you are not entitled to a tax offset for the current year under subsection (1); and (e) less of the Medicare levy surcharge referred to in paragraph (c) would be payable by you for the current year if the *MLS lump sums paid to the individual referred to in paragraph (a) were disregarded. 61-585 The amount of a tax offset (1) The amount of a *tax offset under subsection 61-580(1) is the amount worked out using the following formula: [pic] where: total Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61-580(1)(b) that is payable by you for the *current year. total non-arrears Medicare levy surcharge means the amount that would be the total Medicare levy surcharge if the *MLS lump sums paid to you (and the MLS lump sums paid to the individual referred to in paragraph 61-580(2)(a)) were disregarded. (2) The amount of a *tax offset under subsection 61-580(2) is the amount worked out using the following formula: [pic] where: total family Medicare levy surcharge means the total of the *Medicare levy surcharge referred to in paragraph 61-580(2)(c) that is payable by you for the *current year. total non-arrears family Medicare levy surcharge means the amount that would be the total family Medicare levy surcharge if the *MLS lump sums referred to in paragraph 61-580(2)(e) were disregarded. 61-590 Definition of MLS lump sums Both of the following are MLS lump sums paid to an individual: (a) a lump sum payment of eligible income (within the meaning of section 159ZR of the Income Tax Assessment Act 1936) that is included in the individual's assessable income for the *current year (but only to the extent that it accrued in an earlier income year); (b) a lump sum payment that is included in the individual's *exempt foreign employment income for the current year (but only to the extent that it accrued during a period ending more than 12 months before the date on which it was paid). Subdivision 61-M-Education expenses tax offset Guide to Subdivision 61-M 61-600 What this Subdivision is about You may get a refundable tax offset for education expenses incurred for a school student in your care, or for yourself if you are an independent student. There is a limit on the amount of the tax offset. Education expenses over the limit can be taken into account in the next year of income. Table of sections Entitlement to education expenses tax offset 61-610 Entitlement to education expenses tax offset 61-620 Eligibility in respect of another individual 61-630 Schooling requirement 61-640 Education expenses Amount of education expenses tax offset 61-650 Amount of education expenses tax offset 61-660 Education expenses tax offset limit 61-670 Shared care 61-680 Excess education expenses Entitlement to education expenses tax offset 61-610 Entitlement to education expenses tax offset Entitlement in respect of another individual (1) You are entitled to a *tax offset for an income year if: (a) you satisfy subsection 61-620(1), (2), (3) or (4) on a day in the income year for an individual; and (b) the individual satisfies the schooling requirement in section 61-630 on that day; and (c) an expense covered by section 61-640 for the individual's education is incurred on that day. Entitlement for independent students (2) You are also entitled to a *tax offset for an income year if: (a) on a day in the income year you are receiving: (i) payments under a prescribed educational scheme (within the meaning of the Social Security Act 1991); or (ii) a social security pension (within the meaning of that Act); or (iii) a social security benefit (within the meaning of that Act); or (iv) payments under a program included in the programs known as Labour Market Programs; and (b) an independence requirement (however described) that you satisfy is relevant to the amount of the payment; and (c) on that day you are: (i) an Australian resident (within the meaning of the Social Security Act 1991) or a special category visa holder (within the meaning of the Migration Act 1958); and (ii) residing in Australia; and (d) you are aged under 25 on that day; and (e) you satisfy the schooling requirement in section 61-630 on that day; and (f) another individual or entity is not entitled to a tax offset for the income year for that day in respect of you under subsection (1); and (g) an expense covered by section 61-640 for your education is incurred on that day. 61-620 Eligibility in respect of another individual You are entitled to Family Tax Benefit (Part A) (1) You satisfy this section on a day in an income year for an individual if: (a) you are entitled to be paid family tax benefit for the individual in relation to that day under the A New Tax System (Family Assistance) (Administration) Act 1999; and (b) your daily rate of family tax benefit for that day consists of, or includes, a Part A rate worked out under Part 2 or 3 of Schedule 1 to the A New Tax System (Family Assistance) Act 1999 that is greater than nil. You care for an individual entitled to certain payments (2) You satisfy this section on a day in an income year for an individual if: (a) one or more of the following: (i) payments under a prescribed educational scheme (within the meaning of the Social Security Act 1991); or (ii) a social security pension (within the meaning of that Act); or (iii) a social security benefit (within the meaning of that Act); or (iv) payments under a program included in the programs known as Labour Market Programs; is received on that day by the individual, or by you or another person on the individual's behalf; and (b) the individual would be your FTB child (within the meaning of Subdivision A of Division 1 of Part 3 of the A New Tax System (Family Assistance) Act 1999) on that day if that payment were disregarded. Approved care organisation (3) An approved care organisation (within the meaning of the A New Tax System (Family Assistance) Act 1999) satisfies this section on a day in an income year for an individual if the approved care organisation is entitled, under the A New Tax System (Family Assistance) (Administration) Act 1999, to be paid family tax benefit for that individual on that day. Individual finishing full-time schooling-cut-out amount disregarded (4) You satisfy this section on a day in an income year for an individual if: (a) the individual satisfies the schooling requirement in section 61-630 on that day; and (b) during the income year, the individual ceased to be covered by either subsection 61-630(2) or (4); and (c) the individual was not covered by either of those subsections at the end of the year of income; and (d) the Commissioner is of the opinion that you would satisfy one or more of subsections (1), (2) and (3) for the individual on that day if: (i) paragraph (a) of item 2 of the table in subsection 22A(1) of the A New Tax System (Family Assistance) Act 1999 (which deals with the cut-out amount) were disregarded; or (ii) for approved care organisations (within the meaning of the A New Tax System (Family Assistance) Act 1999)-paragraph (a) of item 2 of the table in subsection 35(1) of that Act (which also deals with the cut-out amount) were disregarded. 61-630 Schooling requirement (1) An individual satisfies the schooling requirement in this section on every day in a 6 month period beginning on 1 July or 1 January if there is at least one day in that 6 month period on which the individual: (a) is covered by subsection (2) or (4); and (b) attended the course of study or instruction, or received the home schooling, referred to in that subsection. Primary school student (2) An individual is covered by this section if the individual is a student enrolled or registered: (a) in a course of study or instruction that is a primary course within the meaning of the *GST Act; or (b) with the education authority of the State or Territory in which the individual resides as a home schooled student (however described) allocated to the primary level of education; or (c) in a course of study or instruction to which subsection (3) applies. (3) The *Education Minister may, by legislative instrument, determine that a course of study or instruction is a course to which this subsection applies. Secondary school student (4) An individual is covered by this section if the individual is a student enrolled or registered: (a) in a course of study or instruction that is a secondary course within the meaning of the *GST Act; or (b) with the education authority of the State or Territory in which the individual resides as a home schooled student (however described) allocated to the secondary level of education; or (c) in a course of study or instruction to which subsection (5) applies. (5) The *Education Minister may, by legislative instrument, determine that a course of study or instruction is a course to which this subsection applies. 61-640 Education expenses (1) An expense incurred on a day is covered for you by this section if: (a) the expense is incurred by: (i) you; or (ii) your partner (within the meaning of the Social Security Act 1991); and (b) the expense directly relates to the education of: (i) one or more individuals in relation to whom paragraphs 61- 610(1)(a) and (b) are satisfied on the day; or (ii) if you are covered by paragraphs 61-610(2)(a), (b), (c), (d), (e) and (f) on the day-yourself; and (c) the expense is of a kind mentioned in subsection (4). (2) However, an expense is not covered by this section to the extent that the expense: (a) is deductible under this Act; or (b) is subject to a *tax offset under this Act (other than this Subdivision); or (c) is covered by a payment or property you receive, or are entitled to receive, as reimbursement or payment of your expenses under a benefit, grant or subsidy: (i) the provision of which was authorised under a *Commonwealth law or an instrument of a legislative character made under a Commonwealth law; or (ii) to which paragraph (3)(a) applies. (3) The regulations may provide the following: (a) that a benefit, grant or subsidy is a benefit, grant or subsidy to which this paragraph applies; (b) that an expense of a particular kind is not an expense covered by this section. (4) The expenses are those mentioned in column 3 of an item in the following table relating to a thing mentioned in column 2 of that item. |Item |Thing to which expense |Kind of expense | | |relates | | |1 |Computer for: |(a) cost of acquiring | | |(a) home use (including,|(whether by way of | | |in the case of an |purchase, lease, hire or| | |individual who has no |hire-purchase); and | | |home, use in a setting |(b) cost of repairing; | | |that equates to a |and | | |residential setting for |(c) costs associated | | |the person); or |with running. | | |(b) use in an | | | |educational institution | | | |in place of paper based | | | |educational material | | |2 |Computer-related |(a) cost of acquiring | | |equipment for a use |(whether by way of | | |referred to in item 1, |purchase, lease, hire or| | |including: |hire-purchase); and | | |(a) printers; and |(b) cost of repairing; | | |(b) disability aids |and | | | |(c) costs associated | | | |with running. | |3 |Home internet connection|(a) cost of | | | |establishing; and | | | |(b) cost of maintaining.| |4 |Item of computer |cost of acquiring | | |software |(whether by way of | | | |purchase, lease, hire or| | | |hire-purchase). | |5 |School textbooks, other |cost of acquiring | | |paper based school |(whether by way of | | |learning material and |purchase, lease, hire or| | |stationery |hire-purchase). | |6 |A tool of trade |cost of acquiring | | | |(whether by way of | | | |purchase, lease, hire or| | | |hire-purchase). | Amount of education expenses tax offset 61-650 Amount of education expenses tax offset (1) The amount of your *tax offset for an income year (the current year) is the amount (rounded up to the nearest whole dollar) that is the lesser of: (a) one half of the sum of: (i) all of the expenses covered for you by section 61-640 for the current year; and (ii) your expenses covered by section 61-680 (about excess education expenses) for the income year ending immediately before the current year; and (b) your offset limit under section 61-660 for the current year. Effect of shared care arrangements (2) If: (a) on a particular day, you and your partner (within the meaning of the Social Security Act 1991) (your partner) satisfy subsection 61-620(1) for an individual; and (b) a determination has been made under section 28 or 29 of the A New Tax System (Family Assistance) Act 1999 of your percentage, and of your partner's percentage, of the family tax benefit for the individual for a period that includes that day; and (c) an expense covered for you by section 61-640 was incurred on that day; for the purposes of subparagraph (1)(a)(i) you and your partner may each count only a portion of the expense corresponding to your percentage. (3) If: (a) on a particular day, you are a member of a couple (within the meaning of the Social Security Act 1991); and (b) both you and your partner (within the meaning of that Act) (your partner) satisfy subsection 61-620(2) or (4) for one or more individuals on that day; and (c) an expense covered for you by section 61-640 was incurred on that day; for the purposes of subparagraph (1)(a)(i) the expense only counts as follows: (d) if you and your partner have made a written agreement nominating one of you as the member who can claim the offset under this Subdivision in respect of the individual or individuals for a period including that day: (i) the nominated member may count the whole of each expense covered for you by section 61-640 incurred on that day; and (ii) the other member must not count any of the expense; or (e) if paragraph (d) does not apply-you and your partner may each count only half of the expense. 61-660 Education expenses tax offset limit (1) Your offset limit is: (a) if you satisfy paragraphs 61-610(1)(a), (b) and (c) for one or more individuals in the current year-the sum of the amounts worked out under the method statement for each such individual; and (b) if you are an independent student covered by subsection 61- 610(2)-the amount worked out for yourself under the method statement. Method statement Step 1. Start with this amount: (a) for an individual who satisfies the schooling requirement in subsection 61-630(4) (for secondary school students) on a day in the current year-$750; or (b) if paragraph (a) does not apply and the individual satisfies the schooling requirement in subsection 61- 630(2) (for primary school students) on a day in the current year-$375. Note: The effect of step 1 is that the secondary school student starting amount applies for the whole year where an individual completes primary school in the first half of the financial year and starts secondary school in the second half of the financial year. Step 2. Add up the number of days in the current year on which: (a) paragraphs 61-610(1)(a) and (b) are satisfied for you and the individual; or Note: There are modifications to step 2(a) in section 61-670. (b) if you are an independent student covered by subsection 61- 610(2)-paragraphs 61-610(2)(a), (b), (c), (d), (e) and (f) apply to you. Step 3. Divide the result of step 2 by the number of days in the current year. Round the result to 2 decimal places (rounding up if the third decimal place is 5 or more). Step 4. Multiply the result from step 1 by the result from step 3. (2) The amounts specified in step 1 of the method statement in subsection (1) are indexed annually. Note: Subdivision 960-M shows you how to index amounts. 61-670 Shared care (1) This section modifies the operation of step 2 of the method statement in subsection 61-660(1). Modification for shared care determinations (2) If: (a) on a particular day, you satisfy subsection 61-620(1) for an individual; and (b) a determination has been made under section 28 or 29 of the A New Tax System (Family Assistance) Act 1999 of your percentage of the family tax benefit for the individual for a period that includes that day; and (c) step 2 applies to that day; only a portion of that day corresponding to that percentage may be counted for the purposes of step 2. (3) If: (a) on a particular day, you satisfy subsection 61-620(1) for an individual; and (b) you have a shared care percentage under section 59 of the A New Tax System (Family Assistance) Act 1999 for the individual for a period that includes that day; and (c) step 2 (including that step as affected by subsection (2)) applies to that day; only a portion of that day (or only a portion of the portion referred to in subsection (2)) corresponding to the shared care percentage may be counted for the purposes of step 2 (or that step as affected by subsection (2)). Modification for members of a couple (4) If: (a) on a particular day, you are a member of a couple (within the meaning of the Social Security Act 1991); and (b) both you and your partner (within the meaning of that Act) (your partner) satisfy subsection 61-620(2) or (4) for one or more individuals on that day; and (c) step 2 applies to that day; for the purposes of step 2 the day only counts as follows: (d) if you and your partner have made a written agreement nominating one of you as the member who can claim the offset under this Subdivision in respect of the individual or individuals for that period: (i) the nominated member may, subject to subsection (5), count the whole of each day in the period for each such individual; and (ii) the other member must not count any days in the period for each such individual; or (e) if paragraph (d) does not apply-only half of each day in the period may, subject to subsection (5), be counted. Modification for individuals not members of a couple (5) If you and one or more other entities (other than your partner (within the meaning of the Social Security Act 1991)) each satisfy subsection 61-620(2) or (4) for an individual on a day, you may only count for the purposes of step 2 (or that step as affected by subsection (4)) a portion of that day that is reasonable having regard to: (a) the objects of this subsection; and (b) the living arrangements of the individual. (6) The objects of subsection (5) are: (a) to determine the extent to which the individual was in your care on a day; and (b) to prevent double counting in distributing the tax offset under this Subdivision between you and others who share the care of the individual. 61-680 Excess education expenses (1) You have an amount covered by this section from an income year if the amount worked out under paragraph 61-650(1)(a) for the year exceeds your offset limit for the year under section 61-660. (2) The amount that is covered by this section is the lesser of: (a) all of the expenses covered for you by section 61-640 for the year that can be counted for the purposes of subparagraph 61- 650(1)(a)(i); and (b) twice the amount of the excess. Note: The excess is worked out by comparing half of the education expenses to the offset limit (see section 61-650). Paragraph (b) doubles any excess so that the excess expenses have their original value and can be counted in full the next year. Example: A family with one child in full-time secondary schooling has incurred education expenses of $2,000 in an income year. Under section 61-650, these expenses are halved ($1,000) and then compared to the offset limit ($750). The excess of $250 is doubled under subsection (2) to restore it to the original expense amount. In the next year, the family can count this $500 of expenses towards the offset. Division 63-Common rules for tax offsets Guide to Division 63 63-1 What this Division is about This Division sets out some rules that are common to all tax offsets. Table of sections 63-10 Priority rules 63-10 Priority rules (1) If you have one or more *tax offsets for an income year, apply them against your basic income tax liability in the order shown in the table. To the extent that an amount of a tax offset remains, the table tells you what happens to it. |Order of applying tax offsets | |Item |Tax offset |What happens to any | | | |excess | |5 |*Tax offset under |Your entitlement to it | | |section 160AAAA of the |is transferred in | | |Income Tax Assessment |accordance with | | |Act 1936 (tax offset for|regulations made under | | |low income aged persons)|that Act | |10 |*Tax offset under |Your entitlement to it | | |section 160AAAB of the |is transferred in | | |Income Tax Assessment |accordance with | | |Act 1936 (tax offset for|regulations made under | | |low income aged |that Act | | |persons-trustee assessed| | | |under section 98) | | |15 |*Tax offset under |Your entitlement to it | | |section 160AAA of the |is transferred in | | |Income Tax Assessment |accordance with | | |Act 1936 (tax offset in |regulations made under | | |respect of certain |that Act | | |pensions) | | |20 |Any *tax offset not |You cannot get a refund| | |covered by another item |of it, you cannot | | |in this table |transfer it and you | | | |cannot carry it forward| | | |to a later income year | |22 |*Tax offset for *foreign|You cannot get a refund| | |income tax under |of it, you cannot | | |Division 770 |transfer it and you | | | |cannot carry it forward| | | |to a later income year | |25 |Child care *tax offset |You may transfer your | | |under Subdivision 61-IA |entitlement to it to | | | |your *spouse (under | | | |sections 61-496 and | | | |61-497) | |30 |Landcare and water |You may carry it | | |facility *tax offset |forward to a later | | |under the former |income year (under | | |Subdivision 388-A |Division 65) | |40 |*Tax offset that is |You can get a refund of| | |subject to the |the remaining amount | | |refundable tax offset | | | |rules (see Division 67) | | |45 |*Tax offset arising from|You may carry it | | |payment of *franking |forward to a later | | |deficit tax (see |income year (under | | |section 205-70) |section 205-70) | Note 1: Section 13-1 lists tax offsets. Note 2: Former Division 388 was repealed by the New Business Tax System (Capital Allowances-Transitional and Consequential) Act 2001. Note 4: The remaining amount of a carry forward tax offset may be reduced by section 65-30 or 65-35 to take account of net exempt income. Note 5: Tax offsets mentioned in items 5 and 10 are more commonly referred to as the Senior Australians Tax Offset. (2) Within each item, apply the tax offsets in the order in which they arose. Note: This would be relevant if you have carry forward tax offsets of the same category for different income years. Division 65-Tax offset carry forward rules Guide to Division 65 65-10 What this Division is about This Division sets out the rules about carrying forward excess tax offsets to later income years. You can only carry forward certain tax offsets. Before you can apply a tax offset to reduce the amount of income tax that you will pay in a later year, you must apply it to reduce certain amounts of net exempt income. The same rules that prevent companies from using certain losses that are carried forward prevent companies from applying tax offsets that they have carried forward. Table of sections Operative provisions 65-30 Amount carried forward 65-35 How to apply carried forward tax offsets 65-40 When a company cannot apply a tax offset 65-50 Effect of bankruptcy 65-55 Deduction for amounts paid for debts incurred before bankruptcy Operative provisions 65-30 Amount carried forward The amount of the *tax offset that is carried forward is the amount of the excess worked out under Division 63. However, if you have a taxable income for the income year, reduce the tax offset by the following amount: [pic] 65-35 How to apply carried forward tax offsets (1) A *tax offset that you have carried forward decreases the amount of income tax that you would otherwise have to pay under section 4-10 in a later income year. (2) You apply a *tax offset that is carried forward to a later year in accordance with the priorities set out in Division 63 as if it were a tax offset for that later year. (3) Before you apply a *tax offset to reduce the amount of income tax that you pay in a later income year in which you have a taxable income, you must apply it to reduce to nil any *net exempt income for: (a) that later income year; or (b) any income year after the year in which the tax offset arose and before the later income year in which you had a taxable income but did not apply the tax offset to reduce the amount of income tax you had to pay. In reducing net exempt income, each 30 cents of tax offset reduces the net exempt income by $1. Note: Paragraph (b) would apply to cases such as where your taxable income was below your tax-free threshold or where you had other tax offsets that reduced your income tax to nil. (4) You can only apply a *tax offset that you have carried forward to the extent that it has not already been applied. Note: Section 65-40 contains special restrictions on applying carried forward tax offsets. 65-40 When a company cannot apply a tax offset (1) In working out its *tax offset for the *current year, a company cannot apply a *tax offset it has carried forward if, assuming: (a) the tax offset were a *tax loss of the company for the income year in which it became entitled to the tax offset; and (b) section 165-20 (deducting part of a tax loss) were disregarded; Subdivision 165-A would prevent the company from deducting it for the current year. Note: Subdivision 165-A deals with the deductibility of a company's tax loss for an earlier income year if there has been a change in the ownership or control of the company in the loss year or the income year. (2) If subsection (1) prevents the company from applying the *tax offset, it can apply the part of the tax offset that it is reasonable to consider relates to a part of the income year in which it became entitled to the tax offset, but only if, assuming that part of that income year had been treated as the whole of it, the company would have been entitled to apply the tax offset. 65-50 Effect of bankruptcy (1) If during the *current year: (a) you became bankrupt; or (b) you were released from debts under a law relating to bankruptcy; you cannot apply a *tax offset that you have carried forward from an earlier income year in working out the tax offset for the current year or a later income year. (2) Subsection (1) applies even though your bankruptcy is annulled if: (a) the annulment happens under section 74 of the Bankruptcy Act 1966 because your creditors have accepted your proposal for a composition or scheme of arrangement; and (b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy. 65-55 Deduction for amounts paid for debts incurred before bankruptcy (1) If: (a) you pay an amount in the *current year for a debt that you incurred in an earlier income year; and (b) you have a *tax offset referred to in section 65-50 for that earlier income year; you can deduct the amount paid, but only to the extent that it does not exceed so much of the debt as the Commissioner is satisfied was taken into account in calculating the amount of the tax offset. (2) The total of the following amounts cannot exceed the total of the expenditure that the Commissioner is satisfied was taken into account in calculating the amount of the *tax offset that you are unable to apply because of section 66-50: (a) your deductions under subsection (1) for amounts paid in the *current year or an earlier income year for debts incurred in the income year for which you have the tax offset; and (b) the expenditure that the Commissioner is satisfied was taken into account in calculating any amounts of the tax offset that, apart from section 65-50, would have been applied in reducing your *net exempt income for the current year or earlier income years. Division 67-Refundable tax offset rules Guide to Division 67 67-10 What this Division is about If your total tax offsets exceed your basic income tax liability, and some of those offsets are subject to the refundable tax offset rules, you may get a refund instead of paying income tax (see section 63-10). This Division tells you which tax offsets are subject to the refundable tax offset rules. Table of sections Operative provisions 67-20 Which tax offsets this Division applies to 67-23 Refundable tax offsets 67-25 Refundable tax offsets-franked distributions Operative provisions 67-20 Which tax offsets this Division applies to This Division only applies to a *tax offset if it is stated to be subject to the refundable tax offset rules. 67-23 Refundable tax offsets The following *tax offsets are subject to the refundable tax offset rules: |Refundable tax offsets | |Item|Subject matter |Tax offset | |5 |private health |private health insurance tax | | |insurance |offsets under | | | |Subdivision 61-G, other than | | | |those arising under | | | |subsection 61-205(2) | |10 |children |first child tax offsets under| | | |Subdivision 61-I | |15 |no-TFN |the *tax offset available | | |contributions |under Subdivision 295-J | | |income | | |20 |films |the *tax offsets available | | | |under Division 376 | |25 |National Urban |urban water tax offset under | | |Water and |Subdivision 402-W | | |Desalination Plan | | |30 |life insurance |the *tax offset available | | |company's |under subsection 713-545(5) | | |subsidiary joining| | | |consolidated group| | |35 |research and |the *tax offset available | | |development |under section 73I of the | | | |Income Tax Assessment Act | | | |1936 | Note 1: Subsection 61-205(2) of this Act deals with tax offsets for trustees who are assessed and liable to pay tax under section 98 of the Income Tax Assessment Act 1936. Note 2: For the tax offsets available under Division 207 and Subdivision 210-H (franked distributions), see section 67- 25. 67-25 Refundable tax offsets-franked distributions (1) *Tax offsets available under Division 207 (which sets out the effects of receiving a *franked distribution) or Subdivision 210-H (which sets out the effects of receiving a *distribution *franked with a venture capital credit) are subject to the refundable tax offset rules, unless otherwise stated in this section. (1A) Where the trustee of a *non-complying superannuation fund or a *non-complying approved deposit fund is entitled to a *tax offset under Division 207 because a *franked distribution is made to, or *flows indirectly to, the trustee, the tax offset is not subject to the refundable tax offset rules. (1B) If: (a) the trustee of a trust to whom a *franked distribution *flows indirectly under subsection 207-50(4) is entitled to a *tax offset under Division 207 for an income year because of the distribution; and (b) the trustee is liable to be assessed under section 98 or 99A of the Income Tax Assessment Act 1936 on a share of, or all or a part of, the trust's *net income for that income year; the tax offset is not subject to the refundable tax offset rules. (1C) Where a *corporate tax entity is entitled to a *tax offset under Division 207 because a *franked distribution is made to the entity, the tax offset is not subject to the refundable tax offset rules unless: (a) the entity is an *exempt institution that is eligible for a refund; or (b) the entity is a *life insurance company and the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period: (i) starting at the beginning of the income year of the company in which the distribution is made; and (ii) ending when the distribution is made. (1D) Where a *corporate tax entity is entitled to a *tax offset under Division 207 because a *franked distribution *flows indirectly to the entity, the tax offset is not subject to the refundable tax offset rules unless: (a) the entity is an *exempt institution that is eligible for a refund; or (b) the entity is a *life insurance company and the company's interest in the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period: (i) starting at the beginning of the income year of the company in which the distribution is made; and (ii) ending when the distribution is made. (1DA) A *tax offset is not subject to the refundable tax offset rules if: (a) an entity is entitled to the tax offset under Division 207 because a *franked distribution is made, or *flows indirectly, to the entity; and (b) the entity is a foreign resident and carries on business in Australia at or through a permanent establishment of the entity in Australia, being a permanent establishment within the meaning of: (i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936) that relates to a foreign country and affects the entity; or (ii) subsection 6(1) of that Act, if there is no such agreement; and (c) the distribution is attributable to the permanent establishment. (1E) Where a *corporate tax entity is entitled to a *tax offset under Subdivision 210-H because a *distribution *franked with a venture capital credit is made to the entity, the tax offset is not subject to the refundable tax offset rules unless: (a) the entity is a *life insurance company; and (b) the *membership interest on which the distribution was made was not held by the company on behalf of its shareholders at any time during the period: (i) starting at the beginning of the income year of the company in which the distribution is made; and (ii) ending when the distribution is made. Education expenses tax offset (7) The *tax offset available under Subdivision 61-M is subject to the refundable tax offset rules. Part 2-25-Trading stock Division 70-Trading stock Table of Subdivisions Guide to Division 70 70-A What is trading stock 70-B Acquiring trading stock 70-C Accounting for trading stock you hold at the start or end of the income year 70-D Assessable income arising from disposals of trading stock and certain other assets 70-E Miscellaneous Guide to Division 70 70-1 What this Division is about This Division deals with amounts you can deduct, and amounts included in your assessable income, because of these situations: . you acquire an item of trading stock; . you carry on a business and hold trading stock at the start or the end of the income year; . you dispose of an item of trading stock outside the ordinary course of business, or it ceases to be trading stock in certain other circumstances. Table of sections 70-5 The 3 key features of tax accounting for trading stock 70-5 The 3 key features of tax accounting for trading stock The purpose of income tax accounting for trading stock is to produce an overall result that (apart from concessions) properly reflects your activities with your trading stock during the income year. There are 3 key features: (1) You bring your gross outgoings and earnings to account, not your net profits and losses on disposal of trading stock. (2) Those outgoings and earnings are on revenue account, not capital account. As a result: (a) the gross outgoings are usually deductible as general deductions under section 8-1 (when the trading stock becomes trading stock on hand); and (b) the gross earnings are usually assessable as ordinary income under section 6-5 (when the trading stock stops being trading stock on hand). (3) You must bring to account any difference between the value of your trading stock on hand at the start and at the end of the income year. This is done in such a way that, in effect: (a) you account for the value of your trading stock as assessable income; and (b) you carry that value over as a corresponding deduction for the next income year. Note: You may not have to bring to account that difference if you are a small business entity: see Division 328. Subdivision 70-A-What is trading stock Table of sections 70-10 Meaning of trading stock 70-10 Meaning of trading stock 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; but does not include a *Division 230 financial arrangement. 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. Subdivision 70-B-Acquiring trading stock Table of sections 70-15 In which income year do you deduct an outgoing for trading stock? 70-20 Non-arm's length transactions 70-25 Cost of trading stock is not a capital outgoing 70-30 Starting to hold as trading stock an item you already own 70-15 In which income year do you deduct an outgoing for trading stock? (1) This section tells you in which income year to deduct under section 8-1 (about general deductions) an outgoing incurred in connection with acquiring an item of *trading stock. (The outgoing must be deductible under that section.) (2) If the item becomes part of your *trading stock on hand before or during the income year in which you incur the outgoing, deduct it in that income year. (3) Otherwise, deduct the outgoing in the first income year: (a) during which the item becomes part of your *trading stock on hand; or (b) for which an amount is included in your assessable income in connection with the disposal of that item. Note You can deduct your capital costs of acquiring land carrying trees or of acquiring a right to fell trees, to the extent that the trees are felled for sale, or for use in manufacture, by you. (This is because the trees will then usually become your trading stock.) See section 70-120. 70-20 Non-arm's length transactions If: (a) you incur an outgoing that is directly attributable to your buying or obtaining delivery of an item of your *trading stock; and (b) you and the seller of the item did not deal with each other at arm's length; and (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 1: 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). Note 2: This section is disregarded in applying Division 13 (about transfer-pricing arrangements) of Part III of the Income Tax Assessment Act 1936. 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 |the item's *market value | | |during or after the |when you last acquired it| | |1998-99 income year, | | | |and the acquisition | | | |involved a *CGT event | | |2 |you acquired the item |the item's *market value | | |before or during the |when you last acquired it| | |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| | |3 |your acquisition of the|(a) if the person died | | |item involved the item:|during or after his or | | | |her 1998-99 income | | |(a) devolving to you as|year-the dead person's | | |someone's *legal |*cost base for the item | | |personal |just before his or her | | |representative; or |death; or | | |(b) *passing to you as |(b) if the person died | | |a beneficiary in |before or during his or | | |someone's estate; |her 1997-98 income | | |and, if a *CGT event |year-the dead person's | | |had happened in |indexed cost base (within| | |relation to the item |the meaning of former | | |just before you started|Part IIIA (Capital gains | | |holding it as *trading |and capital losses) of | | |stock, a *capital gain |the Income Tax Assessment| | |or *capital loss could |Act 1936) for the item | | |have resulted that |just before his or her | | |would have been taken |death (but worked out | | |into account in working|disregarding former | | |out your *net capital |section 160ZG (which | | |gain or *net capital |affects the indexed cost | | |loss for the income |base for a non-listed | | |year of the event |personal use asset) of | | | |that Act) | |4 |any other case where |a nil amount | | |you last acquired the | | | |item for no | | | |consideration | | 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.) Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936: . subsection 47A(10) (which treats certain benefits as dividends paid by a CFC) . paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year). Subdivision 70-C-Accounting for trading stock you hold at the start or end of the income year Table of sections General rules 70-35 You include the value of your trading stock in working out your assessable income and deductions 70-40 Value of trading stock at start of income year 70-45 Value of trading stock at end of income year Special valuation rules 70-50 Valuation if trading stock obsolete etc. 70-55 Working out the cost of natural increase of live stock 70-60 Valuation of horse breeding stock 70-65 Working out the horse opening value and the horse reduction amount 70-70 Valuing interests in FIFs 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 |Section 102AAY of the | | |attributable income of |Income Tax Assessment | | |a non-resident trust |Act 1936 | | |estate, trading stock | | | |is taken to be valued | | | |at cost. | | |3 |In working out the |Section 397 of the | | |attributable income of |Income Tax Assessment | | |a controlled foreign |Act 1936 | | |corporation, the | | | |corporation must value | | | |at cost. | | |4 |Some anti-avoidance |Subsections 52A(7), | | |provisions reduce the |82KH(1N), 82KL(6) and | | |amount that is taken to|100A(6B) of the Income | | |be the cost of an item |Tax Assessment Act 1936 | | |of trading stock. | | |5 |The value of the item |Subdivision 328-E of | | |at the end of an income|this Act | | |year may be the same as| | | |at the start of the | | | |year for a small | | | |business entity | | 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 |... you can value it at this | |is: |amount: | |female 12 years|$1 | |or over | | |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: [pic] (b) for any male horse: [pic] (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. 70-70 Valuing interests in FIFs (1) You must value at its cost an item of your *trading stock that is an interest in a *foreign investment fund (a *FIF). Note: For special rules about valuing an interest in a FIF that was an item of your trading stock on hand at the start of the 1991-92 income year, see section 70-70 of the Income Tax (Transitional Provisions) Act 1997. (2) However, you may elect to value all your interests in *FIFs at their *market value instead. If you make this election, then for the income year of the election, and for all later income years, you must value at their market value all your interests in FIFs. (3) You can only make this election before you lodge your *income tax return for the first income year in which a *notional accounting period of any *FIF you have an interest in ends. Subdivision 70-D-Assessable income arising from disposals of trading stock and certain other assets Guide to Subdivision 70-D 70-75 What this Subdivision is about Your assessable income includes the market value of an item of trading stock if you dispose of it outside the ordinary course of business or it ceases to be trading stock in certain other circumstances. This Subdivision treats certain other assets in the same way as trading stock. Table of sections 70-80 Why the rules in this Subdivision are necessary Operative provisions 70-85 Application of this Subdivision to certain other assets 70-90 Assessable income on disposal of trading stock outside the ordinary course of business 70-95 Purchase price is taken to be market value 70-100 Notional disposal when you stop holding an item as trading stock 70-105 Death of owner 70-110 You stop holding an item as trading stock but still own it 70-115 Compensation for lost trading stock 70-80 Why the rules in this Subdivision are necessary (1) When you dispose of an item of your trading stock in the ordinary course of business, what you get for it is included in your assessable income (under section 6-5) as ordinary income. (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 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). Note: A transaction that this section treats as having occurred is disregarded for the purposes of these provisions of the Income Tax Assessment Act 1936: . subsection 47A(10) (which treats certain benefits as dividends paid by a CFC) . paragraph 103A(3A)(c) (which affects whether a company is a public company for an income year). 70-115 Compensation for lost trading stock Your assessable income includes an amount that: (a) you receive by way of insurance or indemnity for a loss of *trading stock; and (b) is not assessable as *ordinary income under section 6-5. Subdivision 70-E-Miscellaneous Table of sections 70-120 Deducting capital costs of acquiring trees 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 2-40-Rules affecting employees and other taxpayers receiving PAYG withholding payments Division 80-General 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 82-Employment termination payments Table of Subdivisions Guide to Division 82 82-A Employment termination payments: life benefits 82-B Employment termination payments: death benefits 82-C Key concepts Guide to Division 82 82-1 What this Division is about This Division tells you how employment termination payments are treated for the purpose of income tax. Subdivision 82-A-Employment termination payments: life benefits Guide to Subdivision 82-A 82-5 What this Subdivision is about If you receive a life benefit termination payment, part of the payment may be tax free (the tax free component). You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations. The extent of your entitlement to the offset depends on your age in the year you receive the offset, on the total amount of payments you receive in the same year, and on the total amount of payments you receive in consequence of the same employment termination. Table of sections Operative provisions 82-10 Taxation of life benefit termination payments Operative provisions 82-10 Taxation of life benefit termination payments Tax free component (1) The *tax free component of a *life benefit termination payment you receive is not assessable income and is not *exempt income. Taxable component (2) The *taxable component of the payment is assessable income. (3) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed: (a) if you are your *preservation age or older on the last day of the income year in which you receive the payment-15%; or (b) otherwise-30%. Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986. (4) The amount is so much of the *taxable component of the payment as does not exceed the lesser of: (a) the *ETP cap amount, reduced (but not below zero) by the amount worked out under this subsection for each *life benefit termination payment you have received earlier in the income year; and (b) the ETP cap amount, reduced (but not below zero) by 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. 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. Subdivision 82-B-Employment termination payments: death benefits Guide to Subdivision 82-B 82-60 What this Subdivision is about If you receive a death benefit termination payment after the death of a person, part of the payment may be tax free (the tax free component). You are entitled to a tax offset on the remaining part of the payment (the taxable component), subject to limitations. The extent of your entitlement to the offset depends on whether or not you were a death benefits dependant of the deceased, and on the total amount of payments you receive in consequence of the same employment termination. If a death benefit termination payment is payable to the trustee of the estate of the deceased for the benefit of another person, the payment is taxed in the hands of the trustee in the same way as it would be taxed if it had been paid directly to the other person. Table of sections Operative provisions 82-65 Death benefits for dependants 82-70 Death benefits for non-dependants 82-75 Death benefits paid to trustee of deceased estate Operative provisions 82-65 Death benefits for dependants Tax free component (1) The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are a *death benefits dependant is not assessable income and is not *exempt income. Taxable component (2) If you receive a *death benefit termination payment after the death of a person of whom you are a *death benefits dependant: (a) the part of the *taxable component of the payment mentioned in subsection (3) is not assessable income and is not *exempt income; and (b) the remainder of the taxable component (if any) of the payment is assessable income. Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986. (3) The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount. Note: For the ETP cap amount, see section 82-160. (4) The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (3) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year. Note 1: See subsection 82-75(2) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased. Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax concession under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82-10). 82-70 Death benefits for non-dependants Tax free component (1) The *tax free component of a *death benefit termination payment that you receive after the death of a person of whom you are not a *death benefits dependant is not assessable income and is not *exempt income. Taxable component (2) If you receive a *death benefit termination payment after the death of a person of whom you are not a *death benefits dependant, the *taxable component of the payment is assessable income. (3) You are entitled to a *tax offset that ensures that the rate of income tax on the amount mentioned in subsection (4) does not exceed 30%. Note: The remainder of the taxable component is taxed at the top marginal rate in accordance with the Income Tax Rates Act 1986. (4) The amount is so much of the *taxable component of the payment as does not exceed the *ETP cap amount. Note: For the ETP cap amount, see section 82-160. (5) The *ETP cap amount is reduced (but not below zero) by the amount worked out under subsection (4) for each *death benefit termination payment (if any) you have received earlier in consequence of the same employment termination, whether in the income year or an earlier income year. Note 1: See subsection 82-75(3) for the tax treatment of any amount by which you may have benefited from an employment termination payment to the trustee of the estate of the deceased. Note 2: If you have also received a life benefit termination payment in the same income year, your entitlement to a tax offset under this section is not affected by your entitlement (if any) to an offset for the life benefit termination payment (under section 82-10). 82-75 Death benefits paid to trustee of deceased estate (1) This section applies to you if: (a) you are the trustee of a deceased estate; and (b) a *death benefit termination payment is made to you in your capacity as trustee. Note: See also subsection 101A(3) of the Income Tax Assessment Act 1936. Dependants of deceased benefit from payment (2) To the extent that 1 or more beneficiaries of the estate who were *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment: (a) the payment is treated as if it had been made to you as a person who was a death benefits dependant of the deceased; and (b) the payment is taken to be income to which no beneficiary is presently entitled. Note: Section 82-65 deals with the taxation of employment termination payments made to persons who are death benefits dependants of deceased persons. Non-dependants of deceased benefit from payment (3) To the extent that 1 or more beneficiaries of the estate who were not *death benefits dependants of the deceased have benefited, or may be expected to benefit, from the payment: (a) the payment is treated as if it had been made to you as a person who was not a death benefits dependant of the deceased; and (b) the payment is taken to be income to which no beneficiary is presently entitled. Note: Section 82-70 deals with the taxation of employment termination payments made to persons who are not death benefits dependants of deceased persons. Subdivision 82-C-Key concepts Guide to Subdivision 82-C 82-125 What this Subdivision is about This Subdivision defines an employment termination payment as a payment made in consequence of the termination of a person's employment that is received no later than 12 months after the termination (though the 12 month restriction is relaxed in some circumstances). An employment termination payment can be a life benefit termination payment (received by the person whose employment is terminated) or a death benefit termination payment (received by another person after the death of a person whose employment is terminated). Certain types of payments are declared not to be employment termination payments. Various other terms used in describing the taxation treatment of employment termination payments are defined in the Subdivision. Table of sections Operative provisions 82-130 What is an employment termination payment? 82-135 Payments that are not employment termination payments 82-140 Tax free component of an employment termination payment 82-145 Taxable component of an employment termination payment 82-150 What is an invalidity segment of an employment termination payment? 82-155 What is a pre-July 83 segment of an employment termination payment? 82-160 What is the ETP cap amount? Operative provisions 82-130 What is an employment termination payment? (1) A payment is an employment termination payment if: (a) it is received by you: (i) in consequence of the termination of your employment; or (ii) after another person's death, in consequence of the termination of the other person's employment; and (b) it is received no later than 12 months after that termination (but see subsection (4)); and (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 13A of Part III of the Income Tax Assessment Act 1936 (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: [pic] 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: [pic] 82-160 What is the ETP cap amount? The ETP cap amount for the 2007-2008 income year is $140,000. This amount is indexed annually. Note 1: Subdivision 960-M shows how to index amounts. However, annual indexation does not necessarily increase the ETP cap amount: see section 960-285. Note 2: The ETP cap amount may be reduced for the purpose of working out tax offsets for individual employment termination payments. Division 83-Other payments on termination of employment Table of Subdivisions Guide to Division 83 83-A Unused annual leave payments 83-B Unused long service leave payments 83-C Genuine redundancy payments and early retirement scheme payments 83-D Foreign termination payments 83-E Other payments Guide to Division 83 83-1 What this Division is about This Division sets out the taxation treatment for a variety of payments, other than employment termination payments, that are made in consequence of the termination of employment. Subdivision 83-A-Unused annual leave payments Guide to Subdivision 83-A 83-5 What this Subdivision is about You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused annual leave. Table of sections Operative provisions 83-10 Unused annual leave payment is assessable 83-15 Entitlement to tax offset Operative provisions 83-10 Unused annual leave payment is assessable Application-annual leave (1) This section applies to leave (annual leave) of the following types (whether it is made available as an entitlement or as a privilege): (a) leave ordinarily known as annual leave, including recreational leave and annual holidays; (b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available. Unused annual leave payments (2) Your assessable income includes an *unused annual leave payment that you receive. (3) A payment that you receive in consequence of the termination of your employment is an unused annual leave payment if: (a) it is for annual leave you have not used; or (b) it is a bonus or other additional payment for annual leave you have not used; or (c) it is for annual leave, or is a bonus or other additional payment for annual leave, to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination. 83-15 Entitlement to tax offset You are entitled to a *tax offset to ensure that the rate of tax on an *unused annual leave payment does not exceed 30%, to the extent that: (a) the payment was made in connection with a payment that includes, or consists of, any of the following: (i) a *genuine redundancy payment; (ii) an *early retirement scheme payment; (iii) the *invalidity segment of an *employment termination payment or *superannuation benefit; or (b) the payment was made in respect of employment before 18 August 1993. Subdivision 83-B-Unused long service leave payments Guide to Subdivision 83-B 83-65 What this Subdivision is about You are entitled to a tax offset for a payment that you receive in consequence of the termination of your employment that is for unused long service leave. Table of sections General 83-70 Application-long service leave 83-75 Meaning of unused long service leave payment 83-80 Taxation of unused long service leave payments 83-85 Entitlement to tax offset 83-90 Meaning of pre-16/8/78 period, pre-18/8/93 period, post-17/8/93 period and long service leave employment period Employment wholly full-time or wholly part-time 83-95 How to work out amount of payment attributable to each period 83-100 How to work out unused days of long service leave for each period 83-105 How to work out long service leave accrued in each period Employment partly full-time and partly part-time 83-110 Leave accrued in pre-16/8/78, pre-18/8/93 and post-17/8/93 periods-employment full-time and part-time Long service leave taken at less than full pay 83-115 Working out used days of long service leave if leave taken at less than full pay General 83-70 Application-long service leave This Subdivision applies to leave (long service leave) of the following types (whether it is made available as an entitlement or as a privilege), other than annual leave to which section 83-10 applies: (a) leave ordinarily known as long service leave, including long leave, furlough and extended leave; (b) any other leave made available in circumstances similar to those in which the leave mentioned in paragraph (a) is ordinarily made available; (c) if your employer has entered into a *scheme or *arrangement for leave and, because of the existence and nature of the scheme or arrangement, the employer does not have to comply with the requirements of a law of the Commonwealth, or of a State or Territory, relating to leave mentioned in paragraph (a) or (b)- leave made available under the scheme or arrangement. 83-75 Meaning of unused long service leave payment A payment that you receive in consequence of the termination of your employment is an unused long service leave payment if: (a) it is for long service leave you have not used; or (b) it is for long service leave to which you were not entitled just before the employment termination, but that would have been made available to you at a later time if it were not for the employment termination. 83-80 Taxation of unused long service leave payments Assessable and tax-free parts of unused long service leave payments (1) If you receive an *unused long service leave payment, your assessable income includes the part of the payment shown in this table: |*Unused long service leave payments | |Item |To the extent the |Your assessable income | | |payment is attributable |includes this part of it| | |to the ... |... | |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: [pic] 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 |Apply the |If, after you apply | | |are excess |excess days as|the excess days as | | |days in |follows: |shown in column 2, | | |this | |excess days remain, | | |period: | |apply the remaining | | | | |days as follows: | |1 |*pre-18/8/9|Subtract the |Subtract the excess | | |3 period |excess days |days from the unused | | | |from the |days in the | | | |unused days in|*pre-16/8/78 period | | | |the | | | | |*post-17/8/93 | | | | |period | | |2 |*post-17/8/|Subtract the |Subtract the excess | | |93 period |excess days |days from the unused | | | |from the |days in the | | | |unused days in|*pre-16/8/78 period | | | |the | | | | |*pre-18/8/93 | | | | |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: [pic] 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: [pic] 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: [pic] Subdivision 83-C-Genuine redundancy payments and early retirement scheme payments Guide to Subdivision 83-C 83-165 What this Subdivision is about This Subdivision defines what are genuine redundancy payments and early retirement scheme payments. If you receive a genuine redundancy payment or an early retirement scheme payment, you do not have to pay income tax on the payment so far as it does not exceed a certain amount worked out under this Subdivision. A part of a genuine redundancy payment or an early retirement scheme payment that is not tax free under this Subdivision will normally be an employment termination payment. Table of sections Operative provisions 83-170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments 83-175 What is a genuine redundancy payment? 83-180 What is an early retirement scheme payment? Operative provisions 83-170 Tax-free treatment of genuine redundancy payments and early retirement scheme payments (1) This section applies if you receive a *genuine redundancy payment or an *early retirement scheme payment. Note: A payment cannot be both a genuine redundancy payment and an early retirement scheme payment, because of the nature of each of these types of payment: see sections 83-175 and 83- 180. (2) So much of the relevant payment as does not exceed the amount worked out under subsection (3) is not assessable income and is not *exempt income. (3) Work out the amount using the formula: [pic] 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-D-Foreign termination payments Guide to Subdivision 83-D 83-230 What this Subdivision is about This Subdivision deals with termination payments that arise out of foreign employment. These payments are not employment termination payments, and are tax free (except for amounts worked out under this Subdivision). Table of sections Operative provisions 83-235 Termination payments tax free-foreign resident period 83-240 Termination payments tax free-Australian resident period Operative provisions 83-235 Termination payments tax free-foreign resident period A payment received by you is not assessable income and is not *exempt income if: (a) it was received in consequence of the termination of your employment in a foreign country; and (b) it is not a *superannuation benefit; and (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-E-Other payments Guide to Subdivision 83-E 83-290 What this Subdivision is about If a payment you receive in consequence of the termination of your employment is made more than 12 months after the termination of your employment, it does not qualify as an employment termination payment, subject to certain exceptions (see section 82-130). The payment is treated as assessable income and no tax concession is allowed under Division 82. Table of sections Operative provisions 83-295 Termination payments made more than 12 months after termination etc. Operative provisions 83-295 Termination payments made more than 12 months after termination etc. A payment received by you that would be an *employment termination payment but for paragraph 82-130(1)(b) is assessable income. Part 2-42-Personal services income Division 84-Introduction Guide to Part 2-42 84-1 What this Part is about This Part is about 2 issues relating to personal services income. Division 85 limits the entitlements of individuals to deductions relating to their personal services income. Division 86 sets out the tax consequences of individuals' personal services income being diverted to other entities (often called alienation of the income). These Divisions do not affect individuals or other entities that conduct personal services businesses. Division 87 defines personal services businesses. Note: This Part may not apply until the 2002-03 income year to participants in the prescribed payments system on 13 April 2000: see item 26 of Schedule 1 to the New Business Tax System (Alienation of Personal Services Income) Act 2000. Table of sections 84-5 Meaning of personal services income 84-10 This Part does not imply that individuals are employees Operative provisions 84-5 Meaning of personal services income (1) Your *ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income). Example 1: NewIT Pty. Ltd. provides computer programming services, but Ron does all the work involved in providing those services. Ron uses the clients' equipment and software to do the work. NewIT's ordinary income from providing the services is Ron's personal services income because it is a reward for his personal efforts or skills. Example 2: Trux Pty. Ltd. owns one semi-trailer, and Tom is the only person who drives it. Trux's ordinary income from transporting goods is not Tom's personal services income because it is produced mainly by use of the semi-trailer, and not mainly as a reward for Tom's personal efforts or skills. Example 3: Jim works as an accountant for a large accounting firm that employs many accountants. None of the firm's ordinary income or statutory income is Jim's personal services income because it is produced mainly by the firm's business structure, and not mainly as a reward for Jim's personal efforts or skills. (2) Only individuals can have personal services income. (3) This section applies whether the income is for doing work or is for producing a result. (4) The fact that the income is payable under a contract does not stop the income being mainly a reward for your personal efforts or skills. 84-10 This Part does not imply that individuals are employees The application of this Part to an individual does not imply, for the purposes of any *Australian law or any instrument made under an Australian law, that the individual is an employee. Division 85-Deductions relating to personal services income Guide to Division 85 85-1 What this Division is about This Division sets out amounts, relating to personal services income, that an individual cannot deduct. In particular, deductions that are unavailable to an employee are similarly unavailable to an individual who has personal services income and who is not an employee. However, this Division does not apply if the individual is conducting a personal services business or receives the income as an employee or office holder. Table of sections 85-5 Object of this Division 85-10 Deductions for non-employees relating to personal services income 85-15 Deductions for rent, mortgage interest, rates and land tax 85-20 Deductions for payments to associates etc. 85-25 Deductions for superannuation for associates 85-30 Exception: personal services businesses 85-35 Exception: employees, office holders and religious practitioners 85-40 Application of Subdivision 900-B to individuals who are not employees Operative provisions 85-5 Object of this Division The object of this Division is to ensure that individuals who are not conducting *personal services businesses cannot deduct certain amounts (such as amounts that employees cannot deduct). Note: This Division also affects the extent to which a personal services entity is entitled to deductions relating to gaining or producing an individual's personal services income: see section 86-60. 85-10 Deductions for non-employees relating to personal services income (1) You cannot deduct under this Act an amount to the extent that it relates to gaining or producing that part of your *ordinary income or *statutory income that is your *personal services income if: (a) the income is not payable to you as an employee; and (b) you would not be able to deduct the amount under this Act if the income were payable to you as an employee. Example: Ruth is an architect who works as an independent contractor for one firm. She is not conducting a personal services business. On most days she travels from her home to the business premises of the firm, where she does her work. She also has a home office, where she does some of her work. This section confirms that Ruth cannot deduct her expenses of travelling between her home and the firm's premises because she could not deduct them if she were an employee. (2) Subsection (1) does not stop you deducting an amount to the extent that it relates to: (a) gaining work; or Examples: Advertising, tendering and quoting for work. (b) insuring against loss of your income or your income earning capacity; or Examples: Sickness, accident and disability insurance. (c) insuring against liability arising from your acts or omissions in the course of earning income; or Examples: Public liability insurance and professional indemnity insurance. (d) engaging an entity that is not your *associate to perform work; or (e) engaging your *associate to perform work that forms part of the principal work for which you gain or produce your *personal services income; or (f) contributing to a fund in order to obtain *superannuation benefits for yourself or for your *SIS dependants in the event of your death; or Note: For deductions for superannuation contributions: see Subdivision 290-C. (g) meeting your obligations under a *workers' compensation law to pay premiums, contributions or similar payments or to make payments to an employee in respect of *compensable work-related trauma; or (h) meeting your obligations, or exercising your rights, under the *GST law. 85-15 Deductions for rent, mortgage interest, rates and land tax You cannot deduct under this Act an amount of rent, mortgage interest, rates or land tax: (a) for some or all of your residence; or (b) for some or all of your *associate's residence; to the extent that the amount relates to gaining or producing your *personal services income. 85-20 Deductions for payments to associates etc. (1) You cannot deduct under this Act: (a) any payment you make to your *associate; or (b) any amount you incur arising from an obligation you have to your associate; to the extent that the payment or amount relates to gaining or producing your *personal services income. (2) Subsection (1) does not stop you deducting a payment or amount to the extent that it relates to engaging your *associate to perform work that forms part of the principal work for which you gain or produce your *personal services income. (3) An amount or payment that you cannot deduct because of this section is neither assessable income nor *exempt income of your *associate. 85-25 Deductions for superannuation for associates (1) You cannot deduct under this Act a contribution you make to a fund or an *RSA to provide for *superannuation benefits payable for your *associate, to the extent that the associate's work for you relates to gaining or producing your *personal services income. (2) Subsection (1) does not stop you deducting a contribution to the extent that your *associate's performance of work forms part of the principal work for which you gain or produce your *personal services income. (3) However, if subsection (2) applies, your deduction cannot exceed the amount you would have to contribute, for the benefit of the *associate, to a *complying superannuation fund or an *RSA in order to ensure that you did not have any *individual superannuation guarantee shortfalls in respect of the associate for any of the *quarters in the income year. (4) To work out the amount you would have to contribute for the purposes of subsection (3), the *associate's salary or wages, for the purposes of the Superannuation Guarantee (Administration) Act 1992, are taken to be the amount that neither section 85-10 nor 85- 20 prevent you deducting for salary or wages you paid to the associate. Note: See paragraph 85-10(2)(e) for deductions relating to employment of associates. 85-30 Exception: personal services businesses This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to income from you conducting a *personal services business. 85-35 Exception: employees, office holders and religious practitioners (1) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to *personal services income that you receive as: (a) an employee; or (b) an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (about payments to office holders) in Schedule 1 to the Taxation Administration Act 1953. (2) This Division does not apply to an amount, payment or contribution to the extent that the amount, payment or contribution relates to a payment referred to in section 12-47 in Schedule 1 to the Taxation Administration Act 1953 (payments to *religious practitioners). 85-40 Application of Subdivision 900-B to individuals who are not employees This Division does not have the effect of applying Subdivision 900-B (about substantiating work expenses) to an individual who is not an employee. Division 86-Alienation of personal services income Table of Subdivisions Guide to Division 86 86-A General 86-B Entitlement to deductions Guide to Division 86 86-1 What this Division is about Income from the rendering of your personal services is treated as your assessable income if it is the income of another entity and is not promptly paid to you as salary. However, this does not apply if the other entity is conducting a personal services business. There are limits to the other entity's entitlement to deductions to offset against the amount treated as your income. 86-5 A simple description of what this Division does (1) This diagram shows an example of a simple arrangement for the alienation of personal services income. [pic] Note 1: Solid lines indicate actual payments between the parties. Dotted lines indicate other interactions between the parties. Note 2: This Division also applies to different and more complex arrangements. (2) This Division has the effect of attributing the personal services entity's income from the personal services to the individual who performed them (unless the income is promptly paid to the individual as salary). Certain deduction entitlements of the personal services entity can reduce the amount of the attribution. Subdivision 86-A-General Table of sections 86-10 Object of this Division 86-15 Effect of obtaining personal services income through a personal services entity 86-20 Offsetting the personal services entity's deductions against personal services income 86-25 Apportionment of entity maintenance deductions among several individuals 86-27 Deduction for net personal services income loss 86-30 Assessable income etc. of the personal services entity 86-35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes 86-40 Salary payments shortly after an income year 86-10 Object of this Division The object of this Division is to ensure that individuals cannot reduce or defer their income tax (and other liabilities) by alienating their *personal services income through companies, partnerships or trusts that are not conducting *personal services businesses. Note: The general anti-avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 may still apply to cases of alienation of personal services income that fall outside this Division. 86-15 Effect of obtaining personal services income through a personal services entity Amounts included in your assessable income (1) Your assessable income includes an amount of *ordinary income or *statutory income of a *personal services entity that is your *personal services income. Example: Continuing example 1 in section 84-5: Assume that NewIT only provides services to one client. Ron's assessable income includes ordinary income of NewIT from providing the computer programming services, because the income is Ron's personal services income. Note: The amount included in your assessable income can be reduced by certain deductions to which the personal services entity is entitled: see section 86-20. (2) A personal services entity is a company, partnership or trust whose *ordinary income or *statutory income includes the *personal services income of one or more individuals. Exception: personal services businesses (3) This section does not apply if that amount is income from the *personal services entity conducting a *personal services business. Note: Even if the entity is conducting a personal services business, it is possible that some of its income is not income from conducting that business. Exception: amounts promptly paid to you as salary or wages (4) This section does not apply to the extent that: (a) the *personal services entity pays that amount to you, as an employee, as salary or wages; and (b) the payment is made before the end of the 14th day after the *PAYG payment period during which the amount became *ordinary income or *statutory income of the entity. Note: The entity is obliged to withhold amounts from salary or wages paid before the end of that day: see section 12-35 in Schedule 1 to the Taxation Administration Act 1953. Exception: exempt income etc. (5) This section only applies to the extent that that amount would be assessable income of the personal services entity if this Division did not apply. Example: If the entity's income includes an amount that is your personal services income for a service on which GST is payable, the amount included in your assessable income will not include the GST, because the GST is neither assessable income nor exempt income of the entity: see section 17-5. 86-20 Offsetting the personal services entity's deductions against personal services income (1) The amount of your *personal services income included in your assessable income under section 86-15 may be reduced (but not below nil) by the amount of certain deductions to which the *personal services entity is entitled. Note 1: Subdivision 86-B limits a personal services entity's entitlement to deductions. Note 2: If the amount of the deductions exceeds the amount of the personal services income, a deduction for the excess is available to you under section 86-27. The personal services entity cannot deduct the amount of the excess: see section 86-87. (2) Use this method statement to work out whether, and by how much, the amount is reduced: Method statement Step 1. Work out, for the income year, the amount of any deductions (other than *entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the *personal services entity is entitled that are deductions relating to your *personal services income. Step 2. Work out, for the income year, the amount of any *entity maintenance deductions to which the *personal services entity is entitled. Step 3. Work out the *personal services entity's assessable income for that income year, disregarding any income it receives that is your *personal services income or the personal services income of anyone else. Step 4. Subtract the amount under step 3 from the amount under step 2. Note 1: Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not personal services income. Note 2: If the personal services entity receives another individual's personal services income, see section 86-25. Step 5. If the amount under step 4 is greater than zero, the amount of the reduction under subsection (1) is the sum of the amounts under steps 1 and 4. Step 6. If the amount under step 4 is not greater than zero, the amount of the reduction under subsection (1) is the amount under step 1. Example 1: Continuing example 1 in section 84-5: Assume these additional facts: . $120,000 of NewIT's income is Ron's personal services income; . NewIT has deductions (including superannuation contributions) of $50,000 relating to Ron's personal services income (step 1); . NewIT has entity maintenance deductions of $8,000 (step 2); . NewIT has investments that produce income. NewIT's assessable income, disregarding Ron's or anyone else's personal services income, is $20,000 (step 3). Because the step 4 amount is less than zero (-$12,000), step 5 does not apply and, under step 6, the amount of the reduction is $50,000. Therefore the amount included in Ron's assessable income is: [pic] Example 2: Assume, as an alternative set of facts, that NewIT's assessable income under step 3 was only $2,000. The step 4 amount would have been $6,000, and, under step 5, the amount of the reduction would have been $56,000 (adding the amounts under steps 1 and 4). The amount included in Ron's assessable income would then have been: [pic] Note: The personal services entity's deductions that do not relate to your personal services income and that are not entity maintenance deductions cannot reduce the amount included in your assessable income under section 86-15. 86-25 Apportionment of entity maintenance deductions among several individuals If, in the income year: (a) the amount worked out under step 4 of the method statement in section 86-20 is greater than zero; and Note: This happens if the entity has entity maintenance deductions that form some or all of the reduction under section 86-20. (b) the *ordinary income or *statutory income of the *personal services entity includes another individual's *personal services income (as well as your personal services income); and (c) the other individual's personal services income is included in the other individual's assessable income under section 86-15; the amount worked out under step 4 is taken to be: [pic] where: original step 4 amount is the amount that would be the amount worked out under step 4 if this section did not apply. total personal services income is the sum of all the amounts of personal services income (whether your personal services income or someone else's) that are included in the personal services entity's ordinary income or statutory income for the income year. your personal services income is the sum of all the amounts of your personal services income that are included in the personal services entity's ordinary income or statutory income for the income year. Example: Continuing example 2 in section 86-20: Assume that Robyn, another computer consultant, joined NewIT, and NewIT's ordinary income from providing the services also includes Robyn's personal services income of $168,000. Because NewIT now receives the personal services income of someone else, Ron's step 4 amount is reduced as follows: [pic] Under step 5 of the method statement in section 86-20, the amount of the reduction under that section is therefore $52,500, and the amount included in Ron's assessable income is $67,500. 86-27 Deduction for net personal services income loss If your personal services deduction amount exceeds your unreduced personal services income, then you can deduct the excess amount. For this purpose: (a) your personal services deduction amount is the amount of deductions relating to your *personal services income worked out under step 1 of the method statement in section 86-20, increased by the amount (if greater than zero) worked out under step 4 of the method statement; and (b) your unreduced personal services income is the personal services income that would have been included in your assessable income for the income year if there had not been any reduction under section 86-20. 86-30 Assessable income etc. of the personal services entity *Ordinary income or *statutory income of the *personal services entity is neither assessable income nor *exempt income of the entity, to the extent that it is *personal services income included in your assessable income under section 86-15. Note: Subsection 118-20(4) prevents this income being treated as a capital gain. 86-35 Later payments of, or entitlements to, personal services income to be disregarded for income tax purposes (1) To the extent that a payment by the *personal services entity, or by your *associate, is a payment to you or any of your associates of: (a) *personal services income included in your assessable income under section 86-15; or (b) any other amount that is attributable to that income; the payment: (c) is neither assessable income nor *exempt income of the entity receiving it; and Note: Subsection 118-20(4) prevents this income being treated as a capital gain. (d) is not an amount that the entity making it can deduct. Note: Section 118-65 prevents this amount being treated as a capital loss. Example: Continuing example 2 in section 86-20: Assume that NewIT had paid Jill, Ron's wife, an amount for work that is not the principal work of NewIT. The payment is made from money already included in Ron's assessable income under section 86- 15. The amount is neither assessable income nor exempt income of Jill, and NewIT cannot deduct the amount. (2) To the extent that you are entitled, or any of your *associates are entitled, to a share of the net income of the *personal services entity, or of any of your associates, and that income is: (a) *personal services income included in your assessable income under section 86-15; or (b) any other amount that is attributable to that income; that share is neither assessable income nor *exempt income of the entity receiving it or entitled to receive it. 86-40 Salary payments shortly after an income year (1) If: (a) before the end of 14 July in a particular income year, you receive, as salary or wages, *personal services income of yours from the *personal services entity; and (b) failure to make the payment before the end of 14 July would have resulted in an amount of income being included in your assessable income under section 86-15 for the preceding income year; you are taken to have received the payment on 30 June of that preceding income year. Example: Continuing example 2 in section 86-20: Assume that NewIT is a small withholder for PAYG withholding purposes, and its PAYG payment period covering April 2001 to June 2001 is the quarter ending on 30 June 2001. NewIT's income for that period (after taking into account any reductions under sections 86-20 and 86-25) includes $20,000 that is Ron's personal services income, and NewIT pays this to Ron on 12 July 2001. The $20,000 that Ron receives is assessable income for the income year ended on 30 June 2001. (2) However, this section does not affect the time at which the *personal services entity is treated as having paid the salary or wages. Note 1: Therefore neither the timing of the entity's deduction for the payment, nor the timing of the obligation to withhold amounts under section 12-35 in Schedule 1 to the Taxation Administration Act 1953, is affected. Note 2: However, these payments are treated as relating to the preceding income year for the purposes of the rules relating to payment summaries and PAYG credits (see Subdivisions 16-C and 18-A in Schedule 1 to the Taxation Administration Act 1953). Subdivision 86-B-Entitlement to deductions Table of sections 86-60 General rule for deduction entitlements of personal services entities 86-65 Entity maintenance deductions 86-70 Car expenses 86-75 Superannuation 86-80 Salary or wages promptly paid 86-85 Deduction entitlements of personal services entities for amounts included in an individual's assessable income 86-87 Personal services entity cannot deduct net personal services income loss 86-90 Application of Divisions 28 and 900 to personal services entities 86-60 General rule for deduction entitlements of personal services entities A *personal services entity cannot deduct under this Act an amount to the extent that it relates to gaining or producing an individual's *personal services income, unless: (a) the individual could have deducted the amount under this Act if the circumstances giving rise to the entity's entitlement to deduct the amount had applied instead to the individual; or Note: In particular, Division 85 specifies limits on an individual's entitlements to deductions relating to the individual's personal services income. (b) the entity receives the individual's *personal services income in the course of conducting a *personal services business. 86-65 Entity maintenance deductions (1) Section 86-60 does not stop a *personal services entity deducting an amount to the extent that it is an *entity maintenance deduction. Note: See section 86-25 for how entity maintenance deductions are offset against a personal services entity's income. (2) Each of these is an entity maintenance deduction: (a) any fee or charge payable by the entity for opening, operating or closing an account with an *ADI; (b) any deduction under section 25-5 (about tax-related expenses); (c) any loss or outgoing incurred in relation to preparation or lodgment of any document the entity is required to lodge under the Corporations Act 2001; (d) any fee or charge payable by the entity to an *Australian government agency for any licence, permission, approval, authorisation, registration or certification (however described) that is granted or given under an *Australian law. (3) However, paragraph (2)(c) does not include any payment that the entity makes to an *associate. 86-70 Car expenses Cars used solely for business (1) Section 86-60 does not stop a *personal services entity deducting a *car expense for a *car of which there is no *private use. Other cars (2) Section 86-60 does not stop a *personal services entity deducting: (a) a *car expense; or (b) an amount of tax payable under the Fringe Benefits Tax Assessment Act 1986 for a *car fringe benefit; for a *car of which there is *private use. However, there cannot be, at the same time, more than one car for which such deductions can arise in relation to gaining or producing the same individual's *personal services income. (3) If there is more than one *car to which subsection (2) could apply at the same time, the entity must choose the car to which subsection (2) applies at that time. The choice remains in effect until the entity ceases to *hold that car. Example: Continuing example 2 in section 86-20: Assume that NewIT provides 3 cars to Ron. Car 1 is used solely for business purposes and cars 2 and 3 are used for private purposes. NewIT can deduct all the car expenses it incurs for car 1. It can also deduct all the car expenses it incurs for its choice of either car 2 or car 3, as well as the fringe benefits tax it pays for that car. However, it cannot deduct any car expenses or fringe benefits tax for the car that it does not choose. Note: If car expenses for a car are not deductible because of section 86-60, the car benefit being provided is an exempt benefit for the purposes of fringe benefits tax: see subsection 8(4) of the Fringe Benefits Tax Assessment Act 1986. 86-75 Superannuation (1) Section 86-60 does not stop a *personal services entity deducting a contribution the entity makes to a fund or an *RSA for the purpose of making provision for *superannuation benefits payable for an individual whose *personal services income is included in the entity's *ordinary income or *statutory income. For deductions for superannuation contributions: see Subdivision AA of Division 3 of Part III of the Income Tax Assessment Act 1936. (2) However, if: (a) the individual performs less than 20% (by *market value) of the entity's principal work; and (b) the individual is an *associate of another individual whose *personal services income is included in the entity's *ordinary income or *statutory income; the entity's deduction cannot exceed the amount it would have to contribute, for the benefit of the individual, to a *complying superannuation fund or an *RSA in order to ensure that it did not have any *individual superannuation guarantee shortfalls in respect of the individual for any of the *quarters in the income year. (3) To work out the amount the entity would have to contribute for the purposes of subsection (2), the individual's salary or wages, for the purposes of the Superannuation Guarantee (Administration) Act 1992, are taken to be the amount that section 86-60 does not prevent the entity deducting for salary or wages it paid to the individual. Note: Section 86-60 will apply the limitations under sections 85- 10 and 85-20 on an individual's entitlement to deductions (but see paragraph 85-10(2)(e) on employment of associates). 86-80 Salary or wages promptly paid Section 86-60 does not stop a *personal services entity deducting an amount for salary or wages it pays to the individual referred to in that section before the end of the 14th day after the *PAYG payment period during which the amount became *ordinary income or *statutory income of the entity. 86-85 Deduction entitlements of personal services entities for amounts included in an individual's assessable income The fact that a *personal services entity: (a) incurs an amount in gaining or producing an individual's assessable income; or (b) uses a *depreciating asset, or has it installed ready for use, for the *purpose of producing assessable income of an individual; does not stop the entity deducting the loss or outgoing, or deducting an amount for the decline in value of the asset, under this Act if: (c) the entity incurs the amount in gaining or producing, or uses or installs the depreciating asset for the purpose of producing, its *ordinary income or *statutory income; and (d) the income is included in the individual's assessable income under section 86-15. 86-87 Personal services entity cannot deduct net personal services income loss The total amount of the deductions to which a *personal services entity is entitled for an income year is reduced by the amount of any deduction that an individual, whose *personal services income is ordinary or statutory income of the entity for that income year, is entitled to under section 86-27. 86-90 Application of Divisions 28 and 900 to personal services entities This Division does not have the effect of applying Division 28 (about car expenses) or Division 900 (about substantiation rules) to a *personal services entity. Note: Divisions 28 and 900 can still apply to a personal services entity that is a partnership: see subsections 28- 10(2) and 900-5(2). Division 87-Personal services businesses Table of Subdivisions Guide to Division 87 87-A General 87-B Personal services business determinations Guide to Division 87 87-1 What this Division is about Divisions 85 and 86 do not apply to personal services income that is income from conducting a personal services business. It is not intended that the Divisions apply to independent contractors. A personal services business exists if there is a personal services business determination or if one or more of 4 tests for what is a personal services business are met. Regardless of how much of your personal services income is paid from one source, you can self-assess against the results test to determine whether you are an independent contractor. The results test is based on the traditional tests for determining independent contractors and it is intended that it apply accordingly. However, you cannot "self-assess" whether you meet any of the other 3 tests if 80% or more of your personal services income is from one source. In these cases, you need a personal services business determination in order to be treated as conducting a personal services business. 87-5 Diagram showing the operation of this Division This diagram shows how this Division operates to ascertain whether personal services income is income from conducting a personal services business. [pic] Subdivision 87-A-General Table of sections 87-10 Object of this Division 87-15 What is a personal services business? 87-18 The results test for a personal services business 87-20 The unrelated clients test for a personal services business 87-25 The employment test for a personal services business 87-30 The business premises test for a personal services business 87-35 Personal services income from Australian government agencies 87-40 Application of this Division to certain agents 87-10 Object of this Division The object of this Division is to define *personal services businesses in a way that ensures that it covers genuine businesses but not situations that are merely arrangements for dealing with the *personal services income of individuals. 87-15 What is a personal services business? (1) An individual or *personal services entity conducts a personal services business if: (a) for an individual-a *personal services business determination is in force relating to the individual's *personal services income; or (b) for a personal services entity-a personal services business determination is in force relating to an individual whose personal services income is included in the entity's *ordinary income or *statutory income; or (c) in any case-the individual or entity meets at least one of the 4 *personal services business tests in the income year for which the question whether the individual or entity is conducting a personal services business is in issue. Note 1: For personal services business determinations, see Subdivision 87-B. Note 2: Under subsection (3), the personal services business tests, apart from the results test under section 87-18, do not apply if 80% or more of your personal services income is from one source (but they can still be used in deciding whether to make a personal services business determination). (2) The 4 personal services business tests are: (a) the results test under section 87-18; and (b) the unrelated clients test under section 87-20; and (c) the employment test under section 87-25; and (d) the business premises test under section 87-30. (3) However, if 80% or more of an individual's *personal services income (not including income referred to in subsection (4)) during an income year is income from the same entity (or one entity and its *associates), and: (a) the individual's personal services income is not included in a *personal services entity's *ordinary income or *statutory income during an income year, and the individual does not meet the results test under section 87-18 in that income year; or (b) the individual's personal services income is included in a personal services entity's ordinary income or statutory income during an income year, and the entity does not, in relation to the individual, meet the results test under section 87-18 in that income year; the individual's personal services income is not taken to be from conducting a *personal services business unless: (c) when the personal services income is gained or produced, a *personal services business determination is in force relating to the individual's personal services income; and (d) if the determination was made on the application of a personal services entity-the individual's personal services income is income from the entity conducting the personal services business. Note: Sections 87-35 and 87-40 affect the operation of subsection (3) in relation to Australian government agencies and certain agents. (4) Subsection (3) does not apply to income: (a) that the individual receives as an employee; or (b) that the individual receives as an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953; or (c) to the extent that it is a payment referred to in section 12-47 (payments to *religious practitioners) in that Schedule. 87-18 The results test for a personal services business (1) An individual meets the results test in an income year if, in relation to at least 75% of the individual's *personal services income (not including income referred to in subsection (2)) during the income year: (a) the income is for producing a result; and (b) the individual is required to supply the *plant and equipment, or tools of trade, needed to perform the work from which the individual produces the result; and (c) the individual is, or would be, liable for the cost of rectifying any defect in the work performed. (2) Paragraph (1)(a) does not apply to income: (a) that the individual receives as an employee; or (b) that the individual receives as an individual referred to in paragraph 12-45(1)(a), (b), (c), (d) or (e) (payments to office holders) in Schedule 1 to the Taxation Administration Act 1953; or (c) to the extent that it is a payment referred to in section 12-47 (payments to *religious practitioners) in that Schedule. (3) A *personal services entity meets the results test in an income year if, in relation to at least 75% of the *personal services income of one or more individuals that is included in the personal services entity's *ordinary income or *statutory income during the income year: (a) the income is for producing a result; and (b) the personal services entity is required to supply the *plant and equipment, or tools of trade, needed to perform the work from which the personal services entity produces the result; and (c) the personal services entity is, or would be, liable for the cost of rectifying any defect in the work performed. (4) For the purposes of paragraph (1)(a), (b) or (c) or (3)(a), (b) or (c), regard is to be had to whether it is the custom or practice, when work of the kind in question is performed by an entity other than an employee: (a) for the *personal services income from the work to be for producing a result; and (b) for the entity to be required to supply the *plant and equipment, or tools of trade, needed to perform the work; and (c) for the entity to be liable for the cost of rectifying any defect in the work performed; as the case requires. 87-20 The unrelated clients test for a personal services business (1) An individual or a *personal services entity meets the unrelated clients test in an income year if: (a) during the year, the individual or personal services entity gains or produces income from providing services to 2 or more entities that are not *associates of each other, and are not associates of the individual or of the personal services entity; and (b) the services are provided as a direct result of the individual or personal services entity making offers or invitations (for example, by advertising), to the public at large or to a section of the public, to provide the services. Note: Sections 87-35 and 87-40 affect the operation of paragraph (1)(a) in relation to Australian government agencies and certain agents. (2) The individual or *personal services entity is not treated, for the purposes of paragraph (1)(b), as having made offers or invitations to provide services merely by being available to provide the services through an entity that conducts a *business of arranging for persons to provide services directly for clients of the entity. 87-25 The employment test for a personal services business (1) An individual meets the employment test in an income year if: (a) the individual engages one or more entities (other than *associates of the individual that are not individuals) to perform work; and (b) that entity performs, or those entities together perform, at least 20% (by *market value) of the individual's principal work for that year. (2) A *personal services entity meets the employment test in an income year if: (a) the entity engages one or more other entities to perform work, other than: (i) individuals whose *personal services income is included in the entity's *ordinary income or *statutory income; or (ii) *associates of the entity that are not individuals; and (b) that other entity performs, or those other entities together perform, at least 20% (by *market value) of the entity's principal work for that year. (2A) If the *personal services entity is a partnership, work that a partner performs is taken, for the purposes of subsection (2), to be work that the personal services entity engages another entity to perform. (3) An individual or a *personal services entity also meets the employment test in an income year if, for at least half the income year, the individual or entity has one or more apprentices. 87-30 The business premises test for a personal services business (1) An individual or a *personal services entity meets the business premises test in an income year if, at all times during the income year, the individual or entity maintains and uses business premises: (a) at which the individual or entity mainly conducts activities from which *personal services income is gained or produced; and (b) of which the individual or entity has exclusive use; and (c) that are physically separate from any premises that the individual or entity, or any *associate of the individual or entity, uses for private purposes; and (d) that are physically separate from the premises of the entity to which the individual or entity provides services and from the premises of any associate of the entity to which the individual or entity provides services. (2) The individual or entity need not maintain and use the same business premises throughout the income year. 87-35 Personal services income from Australian government agencies (1) *Australian government agencies are not treated as *associates of each other for the purposes of subsection 87-15(3) and paragraph 87-20(1)(a). Example: You receive 60% of your personal services income from a Department of a State government and 40% of your personal services income from a corporation in which that State has a majority shareholding. You are not treated as if 80% or more of your personal services income is income from the same entity and that entity's associates, and therefore you will not need a personal services business determination to satisfy subsection 87- 15(3). In addition, you satisfy the first limb (but not necessarily the second limb) of the unrelated clients test in subsection 87- 20(1), because you receive your personal services income from 2 entities that are not treated as associates of each other. (2) Each Agency within the meaning of the Public Service Act 1999: (a) is treated as a separate entity; and (b) is not treated as an *associate of any other such Agency, or of any *Australian government agency; for the purposes of subsection 87-15(3) and paragraph 87-20(1)(a). Example: You receive 70% of your personal services income from the Commonwealth Department of Treasury and 30% of your personal services income from the Australian Taxation Office (neither body has a legal identity separate from the Commonwealth Government). You are not treated as if 80% or more of your personal services income is income from the same entity, or from the same entity and that entity's associates, and therefore you will not need a personal services business determination to satisfy subsection 87-15(3). In addition, you satisfy the first limb (but not necessarily the second limb) of the unrelated clients test in subsection 87- 20(1), because you receive your personal services income from 2 bodies that are treated as separate entities and that are not treated as associates of each other. (3) Each part of the government of a State or Territory, and each part of an authority of the State or Territory, that has, under a law of the State or Territory, a status corresponding to an Agency within the meaning of the Public Service Act 1999: (a) is treated as a separate entity; and (b) is not treated as an *associate of any other part of such a government or authority, or of any *Australian government agency; for the purposes of subsection 87-15(3) and paragraph 87-20(1)(a). 87-40 Application of this Division to certain agents Object of this section (1) The object of this section is to modify the operation of this Division for *agents who bear entrepreneurial risk in the way they provide services. Agent rules do not apply (1A) The rules in section 960-105 (Certain entities treated as agents) do not apply to this section. Agents covered by this section (2) Subsection 87-15(3) and section 87-20 apply, in the manner specified in this section, to an individual or *personal services entity if: (a) the individual or personal services entity is an *agent of another entity (the principal) but not the principal's employee; and (b) the agent receives income from the principal that is for services that the agent provides to other entities (customers) on the principal's behalf; and (c) at least 75% of that income is commissions, or fees, based on the agent's performance in providing services to the customers on the principal's behalf; and (d) the agent actively seeks other entities to whom the agent could provide services on the principal's behalf; and (e) the agent does not provide any services to the customers, on the principal's behalf, using premises: (i) that the principal or an *associate of the principal owns; or (ii) in which the principal or an associate of the principal has a leasehold interest; unless the agent uses the premises under an arrangement entered into at arm's length. Whether personal services income is from one source (3) If the *agent is an individual, in applying subsection 87-15(3) to the *personal services income of the agent during an income year, any part of the agent's personal services income from the principal that: (a) the agent gains or produces during the income year; and (b) is for services that the agent provided to a customer on the principal's behalf in the income year or an earlier income year; is treated as if it were personal services income from the customer, and not personal services income from the principal. (4) If the *agent is a *personal services entity, in applying subsection 87-15(3) to an individual's *personal services income that is included in the entity's *ordinary income or *statutory income during an income year, any part of the individual's personal services income from the principal that: (a) the agent gains or produces during the income year; and (b) is for services that the individual or the agent provided to a customer on the principal's behalf in the income year or an earlier income year; is treated as if it were personal services income from the customer, and not personal services income from the principal. The unrelated clients test for a personal services business (5) In determining whether, during an income year, the *agent meets the unrelated clients test under section 87-20, any services the agent provided in the income year or an earlier income year: (a) for which the agent gains or produces, during the income year, personal services income from the principal; and (b) that were provided to a customer on the principal's behalf; are treated for the purposes of paragraph 87-20(1)(a) as if the agent, and not the principal, provided them to the customer. Subdivision 87-B-Personal services business determinations Table of sections 87-60 Personal services business determinations for individuals 87-65 Personal services business determinations for personal services entities 87-70 Applying etc. for personal services business determinations 87-75 When personal services business determinations have effect 87-80 Revoking personal services business determinations 87-85 Review of decisions 87-60 Personal services business determinations for individuals Making etc. personal services business determinations (1) The Commissioner may, by giving written notice to an individual: (a) make a personal services business determination relating to the individual; or (b) vary such a determination. (2) The Commissioner may, in the notice, specify: (a) the day on which the determination or variation takes effect, or took effect; (b) the period for which the determination has effect; (c) conditions to which the determination is subject. Matters about which the Commissioner must be satisfied (3) The Commissioner must not make the determination unless satisfied that, in the income year during which the determination first has effect, or is taken to have first had effect, the conditions in one or more of subsections (3A), (3B), (5) and (6) are met. First alternative-results, employment or business premises test met or reasonably expected to be met (3A) The conditions in this subsection are that: (a) the individual could reasonably be expected to meet, or met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's *personal services income could reasonably be expected to be, or was, from the individual conducting activities that met one or more of those tests. Second alternative-unusual circumstances prevented the results, employment or business premises test from being met (3B) The conditions in this subsection are that: (a) but for unusual circumstances applying to the individual in that year, the individual could reasonably have been expected to meet, or would have met, the results test under section 87- 18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's *personal services income could reasonably be expected to be, or was, from the individual conducting activities that met one or more of those tests. (4) For the purposes of paragraph (3B)(a) but without limiting the scope of that paragraph, unusual circumstances include providing services to an insufficient number of entities to meet the unrelated clients test under section 87-20 if: (a) the individual starts a *business during the income year, and can reasonably be expected to meet the test in subsequent income years; or (b) the individual provides services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years. Third alternative-unrelated clients test was met but 80% or more of income from same source because of unusual circumstances (5) The conditions in this subsection are that: (a) the individual could reasonably be expected to meet, or met, the unrelated clients test under section 87-20; and (b) because of unusual circumstances applying to the individual in the income year, 80% or more of the individual's *personal services income (not including income mentioned in subsection 87-15(4)) could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates); and (c) the individual's personal services income could reasonably be expected to be, or was, from the individual conducting activities that met the unrelated clients test under section 87- 20. Fourth alternative-unrelated clients test not met because of unusual circumstances (6) The conditions in this subsection are that: (a) but for unusual circumstances applying to the individual in that year, the individual could reasonably have been expected to meet, or would have met, the unrelated clients test under section 87-20; and (b) if 80% or more of the individual's *personal services income (not including income mentioned in subsection 87-15(4)) could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates)-that is the case only because of unusual circumstances applying to the individual in the income year; and (c) the individual's personal services income could reasonably be expected to be, or was, from the individual conducting activities that met the unrelated clients test under section 87- 20. 87-65 Personal services business determinations for personal services entities Making etc. personal services business determinations (1) The Commissioner may, by giving written notice to a *personal services entity whose *ordinary income or *statutory income includes some or all of an individual's *personal services income: (a) make a personal services business determination relating to the individual's personal services income included in the entity's ordinary income or statutory income; or (b) vary such a determination. (2) The Commissioner may, in the notice, specify: (a) the day on which the determination or variation takes effect, or took effect; (b) the period for which the determination has effect; (c) conditions to which the determination is subject. Matters about which the Commissioner must be satisfied (3) The Commissioner must not make the determination unless satisfied that, in the income year during which the determination first has effect, or is taken to have first had effect, the conditions in one or more of subsections (3A), (3B), (5) and (6) are met. First alternative--results, employment or business premises test met or reasonably expected to be met (3A) The conditions in this subsection are that: (a) the entity could reasonably be expected to meet, or met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's *personal services income included in the entity's *ordinary income or *statutory income could reasonably be expected to be, or was, from the entity conducting activities that met one or more of those tests. Second alternative-unusual circumstances prevented the results, employment or business premises test from being met (3B) The conditions in this subsection are that: (a) but for unusual circumstances applying to the entity in that year, the entity could reasonably have been expected to meet, or would have met, the results test under section 87-18, the employment test under section 87-25, the business premises test under section 87-30 or more than one of those tests; and (b) the individual's *personal services income included in the entity's *ordinary income or *statutory income could reasonably be expected to be, or was, from the entity conducting activities that met one or more of those tests. (4) For the purposes of paragraph (3B)(a) but without limiting the scope of that paragraph, unusual circumstances include providing services to an insufficient number of entities to meet the unrelated clients test under section 87-20 if: (a) the*personal services entity starts a *business during the income year, and can reasonably be expected to meet that test in subsequent income years; or (b) the personal services entity provides services to only one entity during the income year, but met the test in one or more preceding income years and can reasonably be expected to meet the test in subsequent income years. Third alternative-unrelated clients test was met but 80% or more of income from same source because of unusual circumstances (5) The conditions in this subsection are that: (a) the entity could reasonably be expected to meet, or met, the unrelated clients test under section 87-20; and (b) because of unusual circumstances applying to the entity in the income year, 80% or more of the individual's *personal services income (not including income mentioned in subsection 87-15(4)) included in the entity's *ordinary income or *statutory income could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates); and (c) the individual's personal services income included in the entity's ordinary income or statutory income could reasonably be expected to be, or was, from the entity conducting activities that met the unrelated clients test under section 87- 20. Fourth alternative-unrelated clients test not met because of unusual circumstances (6) The conditions in this subsection are that: (a) but for unusual circumstances applying to the entity in that year, the entity could reasonably have been expected to meet, or would have met, the unrelated clients test under section 87- 20; and (b) if 80% or more of the individual's *personal services income (not including income mentioned in subsection 87-15(4)) included in the entity's *ordinary income or *statutory income could reasonably have been expected to be, or would have been, income from the same entity (or one entity and its *associates)- that is the case only because of unusual circumstances applying to the entity in the income year; and (c) the individual's personal services income included in the entity's ordinary income or statutory income could reasonably be expected to be, or was, from the entity conducting activities that met the unrelated clients test under section 87- 20. 87-70 Applying etc. for personal services business determinations (1) An individual or a *personal services entity may apply to the Commissioner, in the *approved form: (a) for a *personal services business determination; or (b) for a variation of a personal services business determination. (2) The Commissioner may request the applicant to give the Commissioner specified information, or a specified document, that the Commissioner needs to decide the application. (3) If the Commissioner has not decided the application within 60 days after it is made, the applicant may, at any time, give the Commissioner written notice that the applicant wishes to treat the application as having been refused. (4) If the applicant gives notice under subsection (3), the Commissioner is taken, for the purposes of section 87-85, to have refused the application on the day on which the notice is given. (5) For the purposes of measuring the 60 days mentioned in subsection (3), disregard each period (if any): (a) starting on the day when the Commissioner requests the applicant under subsection (2) to give the Commissioner specified information or a specified document; and (b) ending at the end of the day the applicant gives the Commissioner the specified information or document. 87-75 When personal services business determinations have effect (1) The determination, or a variation of the determination, has effect, or is taken to have had effect, on and from: (a) the day specified in the notice as the day on which the determination or variation takes effect, or took effect; or (b) if a day is not specified-the day on which the notice is given. (2) The determination ceases to have effect at the end of the earliest day on which one or more of these occurs: (a) one or more conditions to which the determination is subject are not met; (b) the Commissioner revokes the determination; (c) the period for which the determination has effect comes to an end. 87-80 Revoking personal services business determinations The Commissioner must, by giving written notice to the individual or *personal services entity on whose application a *personal services business determination was made, revoke the determination if the Commissioner is no longer satisfied that there are grounds on which the determination could be made. 87-85 Review of decisions A person who is dissatisfied with; (a) a decision of the Commissioner to make, vary or revoke a *personal services business determination; or (b) the Commissioner's refusal of an application for a personal services business determination or for a variation of a personal services business determination; may object against the decision in the manner set out in Part IVC of the Taxation Administration Act 1953. Chapter 3-Specialist liability rules Part 3-1-Capital gains and losses: general topics Division 100-A Guide to capital gains and losses General overview 100-1 What this Division is about This Division is a simplified outline of the capital gains and capital losses provisions, commonly referred to as capital gains tax (CGT). It will help you to understand your current liabilities, and to factor CGT into your on-going financial affairs. Table of sections 100-5 Effect of this Division 100-10 Fundamentals of CGT 100-15 Overview of Steps 1 and 2 Step 1-Have you made a capital gain or a capital loss? 100-20 What events attract CGT? 100-25 What are CGT assets? 100-30 Does an exception or exemption apply? 100-33 Can there be a roll-over? Step 2-Work out the amount of the capital gain or loss 100-35 What is a capital gain or loss? 100-40 What factors come into calculating a capital gain or loss? 100-45 How to calculate the capital gain or loss for most CGT events Step 3-Work out your net capital gain or loss for the income year 100-50 How to work out your net capital gain or loss 100-55 How do you comply with CGT? Keeping records for CGT purposes 100-60 Why keep records? 100-65 What records? 100-70 How long you need to keep records 100-5 Effect of this Division This Division is a *Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. 100-10 Fundamentals of CGT (1) CGT affects your income tax liability because your assessable income includes your net capital gain for the income year. Your net capital gain is the total of your capital gains for the income year, reduced by certain capital losses you have made. See later in this Guide (section 100-50) for more detail. (2) When you prepare your income tax return, you need to check whether you have made any capital gains for the income year. You also need to check whether you have made any capital losses. You cannot deduct a capital loss from your assessable income, but it will reduce your capital gain in the current income year or later income years. (3) You will also need to consider the impact of CGT when doing your financial planning. In particular, you will need adequate record-keeping to deal most effectively with any immediate or future CGT liability. To give you a sense of the range of things affected by CGT, if you are involved with any of the following, you may have a CGT liability now or at some time in the future: |leases |marriage or relationship | | |breakdown | |inheritance |working from home | |subdividing land |shares | |goodwill |a civil court case | |contracts |trusts | |options |bankruptcy | |a company |incorporating a company | |liquidation | | |leaving Australia | 100-15 Overview of Steps 1 and 2 [pic] Note: Capital proceeds and cost base are not relevant for some CGT events, for example CGT event K7 or any of the CGT events created by Subdivision 104-L. Step 1-Have you made a capital gain or a capital loss? 100-20 What events attract CGT? (1) You can make a capital gain or loss only if a CGT event happens. (2) There are a wide range of CGT events. Some happen often and affect many different taxpayers. Others are rare and affect only a few. |Some examples of CGT events | |Situation |Event |Which CGT | | | |event? | |You own shares you |You sell them |CGT event A1 | |acquired on or after | | | |20 September 1985 | | | |You sell a business |You agree with |CGT event D1 | | |the purchaser not| | | |to operate a | | | |similar business | | | |in the same area | | |You are a lessor |You receive a |CGT event F5 | | |payment for | | | |changing the | | | |lease | | |You own shares in a |The company makes|CGT event G1 | |company |a payment (not a | | | |dividend) to you | | | |as a shareholder | | A summary of all the CGT events is in section 104-5. Identifying the time of a CGT event (3) The specific time when a CGT event happens is important for various reasons: in particular, for working out whether a capital gain or loss from the event affects your income tax for the current or another income year. If a CGT event involves a contract, the time of the event will often be when the contract is made, not when it is completed. The time of each CGT event is explained early in the relevant section in Division 104. 100-25 What are CGT assets? (1) Most CGT events involve a CGT asset. (For many, there is an exception if the CGT asset was acquired before 20 September 1985.) However, many CGT events are concerned directly with capital receipts and do not involve a CGT asset. See the summary of the CGT events in section 104-5. (2) Some CGT assets are reasonably well-known: . land and buildings, for example, a weekender; . shares; . units in a unit trust; . collectables which cost over $500, for example, jewellery or an artwork; . personal use assets which cost over $10,000, for example, a boat. (3) Other CGT assets are not so well-known. For example: . your home; . contractual rights; . goodwill; . foreign currency. For a full explanation of what things are CGT assets: see Division 108. 100-30 Does an exception or exemption apply? (1) Once you identify a CGT event which applies to you, you need to know if there is an exception or exemption that would reduce the capital gain or loss or allow you to disregard it. (2) There are 4 categories of exemptions: 1. exempt assets: for example, cars; 2. exempt or loss-denying transactions: for example, compensation for personal injury or your tenancy comes to an end; 3. anti-overlap provisions (that reduce your capital gain by the amount that is otherwise assessable); 4. small business relief. Note: Most of the exceptions are in Division 104. You will find most of the possible exemptions in Division 118. The small business relief provisions are in Division 152. Some exemptions are limited (3) Take the family home for example. Generally, you are exempt from CGT when you make a capital gain on disposing of your main residence. But this can change depending on how you came to own the house and what you have done with it. For example, if you rent it out, you may be liable to CGT when you sell it. For the limits on the general exemption of your main residence: see Subdivision 118-B. 100-33 Can there be a roll-over? (1) Roll-overs allow you to defer or disregard a capital gain or loss from a CGT event. They apply in specific situations. Some require a choice (for example, where an asset is compulsorily acquired: see Subdivision 124-B) and some are automatic (for example, where an asset is transferred because of marriage or relationship breakdown: see Subdivision 126-A). (2) There are 2 types of roll-over: 1. a replacement-asset roll-over allows you to defer a capital gain or loss from one CGT event until a later CGT event happens where a CGT asset is replaced with another one; 2. a same-asset roll-over allows you to disregard a capital gain or loss from a CGT event where the same CGT asset is involved. Note: The replacement-asset roll-overs are listed in section 112- 115, and the same-asset roll-overs are listed in section 112- 150. Step 2-Work out the amount of the capital gain or loss 100-35 What is a capital gain or loss? For most CGT events: . You make a capital gain if you receive (or are entitled to receive) capital amounts from the CGT event which exceed your total costs associated with that event. . You make a capital loss if your total costs associated with the CGT event exceed the capital amounts you receive (or are entitled to receive) from the event. 100-40 What factors come into calculating a capital gain or loss? Capital proceeds (1) For most CGT events, the capital amounts you receive (or are entitled to receive) from the event are called the capital proceeds. To work out the capital proceeds: see Division 116. Cost base and reduced cost base (2) For most CGT events, your total costs associated with the event are worked out in 2 different ways: . For the purpose of working out a capital gain, those costs are called the cost base of the CGT asset. . For the purpose of working out a capital loss, those costs are called the reduced cost base of the asset. One of the main differences is that the costs may be indexed for inflation occurring before 1 October 1999 in working out a capital gain for a CGT asset acquired at or before 11.45 am on 21 September 1999 (which reduces the size of the gain), but not in working out a capital loss. To work out the cost base and reduced cost base: see Division 110. 100-45 How to calculate the capital gain or loss for most CGT events 1. Work out your capital proceeds from the CGT event. 2. Work out the cost base for the CGT asset. 3. Subtract the cost base from the capital proceeds. 4. If the proceeds exceed the cost base, the difference is your capital gain. 5. If not, work out the reduced cost base for the asset. 6. If the reduced cost base exceeds the capital proceeds, the difference is your capital loss. 7. If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss. Step 3-Work out your net capital gain or loss for the income year 100-50 How to work out your net capital gain or loss 1. Reduce your capital gains for the income year, in the order you choose, by your capital losses for the income year. (If the capital losses for the income year exceed the capital gains, the difference is your net capital loss. You cannot deduct a net capital loss from your assessable income.) 2. Reduce any remaining capital gains, in the order you choose, by any unapplied net capital losses for previous income years. 3. Reduce any remaining discount capital gains by the discount percentage. To find out what is a discount capital gain and the discount percentage: see Division 115. 4. If you carry on a small business, apply the small business concessions in further reduction of your capital gains (whether or not the gains are discount capital gains). For the small business concessions: see Division 152. 5. Add up: (a) any remaining capital gains that are not discount capital gains; and (b) any remaining discount capital gains. The total is your net capital gain. For the rules on working out your net capital gain or loss: see Division 102. 100-55 How do you comply with CGT? Declare any net capital gain as assessable income in your income tax return. Defer any net capital loss to the next income year for which you have capital gains that exceed the capital losses for that income year. Keeping records for CGT purposes 100-60 Why keep records? 1. To ensure you do not disadvantage yourself. 2. To comply as easily as possible. 3. To plan for your CGT position in future income years. 4. The law requires you to: see Division 121. 100-65 What records? Keeping full records will make it easier for you to comply. For example, keep records of: . receipts of purchase or transfer; . interest on money you borrowed; . costs of agents, accountants, legal, advertising etc.; . insurance costs and land rates or taxes; . any market valuations; . costs of maintenance, repairs or modifications; . brokerage on shares; . legal costs. 100-70 How long you need to keep records The law requires you to keep records for 5 years after a CGT event has happened. Division 102-Assessable income includes net capital gain Guide to Division 102 102-1 What this Division is about This Division tells you how to work out if you have made a net capital gain or a net capital loss for the income year. A net capital gain is included in your assessable income. However, you cannot deduct a net capital loss. (Amounts otherwise included in your assessable income do not form part of a net capital gain.) 102-3 Concessions in working out your net capital gain (1) Concessional rules apply to working out the net capital gain of some entities (see subsection (2)) if: (a) they have a capital gain (a discount capital gain) from a CGT asset acquired at least 12 months before the CGT event that caused the capital gain; and (b) they have not chosen to include indexation in the cost base of the asset for working out the capital gain (if relevant). Note 1: Division 115 explains what is a discount capital gain. Note 2: Under Division 110, the entity can choose to include indexation in the cost base of a CGT asset acquired at or before 11.45 am on 21 September 1999. (2) Only these entities get the concession: (a) individuals; (b) complying superannuation entities; (c) trusts; (d) life insurance companies, in relation to discount capital gains for CGT events in respect of CGT assets that are complying superannuation/FHSA assets. Note: Shareholders in a listed investment company can also receive a concession equivalent to a discount capital gain: see Subdivision 115-D. (3) The concession is that the net capital gain includes only part of the amount of the discount capital gain left after applying capital losses and net capital losses from earlier income years. See subsection 102-5(1). Table of sections Operative provisions 102-5 Assessable income includes net capital gain 102-10 How to work out your net capital loss 102-15 How to apply net capital losses 102-20 Ways you can make a capital gain or a capital loss 102-22 Amounts of capital gains and losses 102-23 CGT event still happens even if gain or loss disregarded 102-25 Order of application of CGT events 102-30 Exceptions and modifications Operative provisions 102-5 Assessable income includes net capital gain (1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way: Working out your net capital gain Step 1. Reduce the *capital gains you made during the income year by the *capital losses (if any) you made during the income year. Note 1: You choose the order in which you reduce your capital gains. You have a net capital loss for the income year if your capital losses exceed your capital gains: see section 102-10. Note 2: Some provisions of this Act (such as Divisions 104 and 118) permit or require you to disregard certain capital gains or losses when working out your net capital gain. Subdivision 152-B permits you, in some circumstances, to disregard a capital gain on an asset you held for at least 15 years. Step 2. Apply any previously unapplied *net capital losses from earlier income years to reduce the amounts (if any) remaining after the reduction of *capital gains under step 1 (including any capital gains not reduced under that step because the *capital losses were less than the total of your capital gains). Note 1: Section 102-15 explains how to apply net capital losses. Note 2: You choose the order in which you reduce the amounts. Step 3. Reduce by the *discount percentage each amount of a *discount capital gain remaining after step 2 (if any). Note: Only some entities can have discount capital gains, and only if they have capital gains from CGT assets acquired at least a year before making the gains. See Division 115. Step 4. If any of your *capital gains (whether or not they are *discount capital gains) qualify for any of the small business concessions in Subdivisions 152-C, 152-D and 152-E, apply those concessions to each capital gain as provided for in those Subdivisions. Note 1: The basic conditions for getting these concessions are in Subdivision 152-A. Note 2: Subdivision 152-C does not apply to CGT events J2, J5 and J6. In addition, Subdivision 152-E does not apply to CGT events J5 and J6. Step 5. Add up the amounts of *capital gains (if any) remaining after step 4. The sum is your net capital gain for the income year. Note: For exceptions and modifications to these rules: see section 102-30. (2) However, if during the income year: (a) you became bankrupt; or (b) you were released from debts under a law relating to bankruptcy; any *net capital loss you made for an earlier income year must be disregarded in working out whether you made a *net capital gain for the income year or a later one. (3) Subsection (2) applies even though your bankruptcy is annulled if: (a) the annulment happens under section 74 of the Bankruptcy Act 1966; and (b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy. 102-10 How to work out your net capital loss (1) You work out if you have a net capital loss for the income year in this way: Working out your net capital loss Step 1. Add up the *capital losses you made during the income year. Also add up the *capital gains you made. Step 2. Subtract your *capital gains from your *capital losses. Step 3. If the Step 2 amount is more than zero, it is your net capital loss for the income year. Note: For exceptions and modifications to these rules: see section 102-30. (2) You cannot deduct from your assessable income a *net capital loss for any income year. 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: The gain or loss may be affected by an exemption, or may be able to be rolled-over. For exemptions generally, see Division 118. For roll-overs, see Divisions 122, 123, 124 and 126. Note 3: You may make a capital gain or capital loss as a result of a CGT event happening to another entity: see subsections 115- 215(3), 170-275(1) and 170-280(3). Note 4: You cannot make a capital loss from a CGT event that happens to your original interests during a trust restructuring period if you choose a roll-over under Subdivision 124-N. Note 5: The capital loss may be affected if the CGT asset was owned by a member of a demerger group just before a demerger: see section 125-170. Note 5: Under subsection 230-310(4) gains and losses are taken to arise from a CGT event in particular circumstances. 102-22 Amounts of capital gains and losses Most *CGT events provide for calculating a *capital gain or *capital loss by comparing 2 different amounts. The amount of the gain or loss is the difference between those amounts. 102-23 CGT event still happens even if gain or loss disregarded A *CGT event still happens even if: (a) it does not result in a *capital gain or *capital loss; or (b) a capital gain or capital loss from the event is disregarded. Example: Lindy sells a car. Section 118-5 says that any capital gain or loss from a CGT event happening to a car is disregarded. However, the sale is still an example of CGT event A1. 102-25 Order of application of CGT events (1) Work out if a *CGT event (except *CGT events D1 and H2) happens to your situation. If more than one event can happen, the one you use is the one that is the most specific to your situation. (2) However, there are 3 exceptions: one for *CGT event J2, one for CGT event K5 and one for CGT event K12. (2A) If the circumstances that gave rise to *CGT event J2 constitute another CGT event, CGT event J2 applies in addition to the other event. Example: CGT event J2 happens because a replacement asset for a small business roll-over under Subdivision 152-E becomes your trading stock (in circumstances where CGT event K4 happens). Both CGT events apply. (2B) *CGT event K5 happens if CGT event A1, C2 or E8 happens. CGT event K5 applies in addition to the other event. (2C) If: (a) *CGT events happen for which you make *capital gains or *capital losses; and (b) the capital gains or losses are taken into account in working out a *foreign hybrid net capital loss amount; and (c) the foreign hybrid net capital loss amount is itself taken into account in determining that *CGT event K12 happens; CGT event K12 applies in addition to the other CGT events. (3) If no *CGT event (except *CGT events D1 and H2) happens: (a) work out if CGT event D1 happens and use that event if it does; and (b) if it does not, work out if CGT event H2 happens and use that event if it does. Note: The full list of CGT events is in section 104-5. 102-30 Exceptions and modifications Provisions of this Act are in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. |Special rules affecting capital gains and capital losses| | |For this | | | |Item |kind of |There are these special |See: | | |entity: |rules: | | |1 |All |You can subtract capital |section 10| | |entities |losses from collectables |8-10 | | | |only from your capital | | | | |gains from collectables. | | |2 |All |Disregard capital losses |section 10| | |entities |you make from personal use |8-20 | | | |assets. | | |2AA |Beneficiar|The beneficiary is treated |Subdivisio| | |y of trust|as having: |n | | |whose net |(a) an extra capital gain |115-C | | |income |equal to each amount of the| | | |includes a|beneficiary's share of the | | | |net |net income that is | | | |capital |attributable to the trust's| | | |gain |capital gains that are not | | | | |reduced under step 3 of the| | | | |method statement in | | | | |subsection 102-5(1) or | | | | |Subdivision 152-C; and | | | | |(b) an extra capital gain | | | | |of double each amount of | | | | |the beneficiary's share of | | | | |the net income that is | | | | |attributable to the trust's| | | | |capital gains that are | | | | |reduced under either step 3| | | | |of the method statement or | | | | |Subdivision 152-C but not | | | | |both; and | | | | |(c) an extra capital gain | | | | |of 4 times each amount of | | | | |the beneficiary's share of | | | | |the net income that is | | | | |attributable to the trust's| | | | |capital gains that are | | | | |reduced under both step 3 | | | | |of the method statement and| | | | |Subdivision 152-C. | | |3 |All |If any of your commercial |sections | | |entities |debts have been forgiven in|245-130 | | | |the income year, your net |and | | | |capital losses (including |245-135 of| | | |net capital losses from |Schedule 2| | | |collectables) may be |C to the | | | |reduced. |Income Tax| | | | |Assessment| | | | |Act 1936 | |4 |A company |If it has a change of |Subdivisio| | | |ownership or control during|n | | | |the income year, and has |165-CB | | | |not satisfied the same | | | | |business test, it works out| | | | |its net capital gain and | | | | |net capital loss in a | | | | |special way. | | |5 |A company |It cannot apply a net |Subdivisio| | | |capital loss unless: |n | | | |. the same people owned the|165-CA | | | |company during the loss | | | | |year, the income year and | | | | |any intervening year; and | | | | |. no person controlled the | | | | |company's voting power at | | | | |any time during the income | | | | |year who did not also | | | | |control it during the whole| | | | |of the loss year and any | | | | |intervening year; | | | | |or the company has | | | | |satisfied the same business| | | | |test. | | |6 |A company |If one or more of these |Division 1| | | |things happen: |75 | | | |. 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 |Subdivisio| | | |surplus amount of its net |n | | | |capital loss to another |170-B | | | |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.) | | |7A |The head |The head company of a |section | | |company of|consolidated group or a MEC|104-500 | | |a |group must apply the | | | |consolidat|capital loss from CGT event| | | |ed group |L1 over at least 5 income | | | |or a MEC |years | | | |group | | | |8 |A PDF |If it is a PDF at the end |section 19| | | |of an income year for which|5-25 | | | |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. | | |9 |A PDF |If it becomes a PDF during |section 19| | | |an income year, it works |5-35 | | | |out its net capital gain | | | | |and net capital loss for | | | | |the income year in a | | | | |special way. | | |10 |Body that |Net capital losses made |section 24| | |has ceased|before cessation |AX | | |to be an |disregarded. Special rules | | | |STB |apply in cessation year | | | | |where net capital gain | | | | |before cessation and net | | | | |capital loss after | | | | |cessation. | | |10A |All |Division 316 contains |Division 3| | |entities |special rules affecting |16 | | | |capital gains and capital | | | | |losses connected with | | | | |demutualisation of friendly| | | | |society health or life | | | | |insurers. | | |11 |A life |Division 320 contains |Division 3| | |insurance |special rules that apply to|20 | | |company |capital gains and capital | | | | |losses | | |12 |A company |The capital gain or capital|Subdivisio| | | |loss a company makes from a|n | | | |CGT event that happened to |768-G | | | |a share in a company that | | | | |is a foreign resident may | | | | |be reduced. | | |13 |A PDF |Sections 102-5 and 102-10 |Subdivisio| | | |do not apply to the |n C of | | | |calculation of net capital |Division 1| | | |gains and losses. Capital |0E of Part| | | |gains and losses are |III | | | |instead allocated to | | | | |separate classes of income.| | |14 |A CFC |In calculating the CFC's |section 40| | | |attributable income, |9 | | | |pre-1 July 1990 capital | | | | |losses are disregarded. | | Division 103-General rules Guide to Division 103 103-1 What this Division is about This Division sets out some general rules that apply to the provisions dealing with capital gains and capital losses. Table of sections Operative provisions 103-5 Giving property as part of a transaction 103-10 Entitlement to receive money or property 103-15 Requirement to pay money or give property 103-25 Choices 103-30 Reduction of cost base etc. by net input tax credits Operative provisions 103-5 Giving property as part of a transaction There are a number of provisions in this Part and Part 3-3 that say that a payment, cost or expenditure can include giving property. To the extent that such a provision does say that a payment, cost or expenditure can include giving property, use the *market value of the property in working out the amount of the payment, cost or expenditure. 103-10 Entitlement to receive money or property (1) This Part and Part 3-3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct. (2) Those Parts apply to you as if you are entitled to receive money or other property: (a) if you are entitled to have it so applied; or (b) if: (i) you will not receive it until a later time; or (ii) the money is payable by instalments. 103-15 Requirement to pay money or give property This Part and Part 3-3 apply to you as if you are required to pay money or give other property even if: (a) you do not have to pay or give it until a later time; or (b) the money is payable by instalments. 103-25 Choices (1) A choice you can make under this Part or Part 3-3 must be made: (a) by the day you lodge your *income tax return for the income year in which the relevant *CGT event happened; or (b) within a further time allowed by the Commissioner. (2) The way you (and any other entity making the choice) prepare your *income tax returns is sufficient evidence of the making of the choice. (3) However, there are some exceptions: (aa) subsection 115-230(3) (relating to assessment of *capital gains of resident testamentary trusts) requires a trustee to make a choice by the time specified in subsection 115-230(5); and (a) subsections 124-380(7) and 124-465(5) (relating to replacement asset roll-overs) require a company to make the choice at the earlier time specified in those subsections; and (b) subsections 152-315(4) and (5) (relating to the small business retirement exemption) require a choice to be made in writing. Note: This section is modified in calculating the attributable income of a CFC: see section 421 of the Income Tax Assessment Act 1936. 103-30 Reduction of cost base etc. by net input tax credits Reduce the *cost base and *reduced cost base of a *CGT asset, and any other amount that could be involved in the calculation of an entity's *capital gain or *capital loss, by the amount of any *net input tax credit of the entity in relation to that amount. Example: The other amount could be expenditure in the case of some CGT events (see, for example, CGT event D1). Note: Subsection 116-20(5) deals with the effect of net GST on supplies for the purposes of capital proceeds. Division 104-CGT events Table of Subdivisions Guide to Division 104 104-A Disposals 104-B Use and enjoyment before title passes 104-C End of a CGT asset 104-D Bringing into existence a CGT asset 104-E Trusts 104-F Leases 104-G Shares 104-H Special capital receipts 104-I Australian residency ends 104-J CGT events relating to roll-overs 104-K Other CGT events 104-L Consolidated groups and MEC groups Guide to Division 104 104-1 What this Division is about This Division sets out all the CGT events for which you can make a capital gain or loss. It tells you how to work out if you have made a gain or loss from each event and the time of each event. It also contains exceptions for gains and losses for many events (such as the exception for CGT assets acquired before 20 September 1985) and some cost base adjustment rules. 104-5 Summary of the CGT events |CGT events | |Event number and | | | | |description |Time of |Capital |Capital | | |event is: |gain is: |loss is: | |A1 Disposal of a CGT|when |capital |asset's | |asset |disposal |proceeds |reduced | | |contract is |from |cost base| | |entered into|disposal |less | | |or, if none,|less |capital | |[See section 104-10]|when entity |asset's |proceeds | | |stops being |cost base | | | |asset's | | | | |owner | | | |B1 Use and enjoyment|when use of |capital |asset's | |before title passes |CGT asset |proceeds |reduced | | |passes |less |cost base| |[See section 104-15]| |asset's |less | | | |cost base |capital | | | | |proceeds | |C1 Loss or |when |capital |asset's | |destruction of a CGT|compensation|proceeds |reduced | |asset |is first |less |cost base| | |received or,|asset's |less | | |if none, |cost base |capital | | |when loss | |proceeds | | |discovered | | | |[See section 104-20]|or | | | | |destruction | | | | |occurred | | | |C2 Cancellation, |when |capital |asset's | |surrender and |contract |proceeds |reduced | |similar endings |ending asset|from ending|cost base| | |is entered |less |less | |[See section 104-25]|into or, if |asset's |capital | | |none, when |cost base |proceeds | | |asset ends | | | |C3 End of option to |when option |capital |expenditu| |acquire shares etc. |ends |proceeds |re in | | | |from |granting | | | |granting |option | |[See section 104-30]| |option less|less | | | |expenditure|capital | | | |in granting|proceeds | | | |it | | |D1 Creating |when |capital |incidenta| |contractual or other|contract is |proceeds |l costs | |rights |entered into|from |of | | |or right is |creating |creating | |[See section 104-35]|created |right less |right | | | |incidental |less | | | |costs of |capital | | | |creating it|proceeds | |D2 Granting an |when option |capital |expenditu| |option |is granted |proceeds |re to | | | |from grant |grant | | | |less |option | |[See section 104-40]| |expenditure|less | | | |to grant it|capital | | | | |proceeds | |D3 Granting a right |when |capital |expenditu| |to income from |contract is |proceeds |re to | |mining |entered into|from grant |grant | | |or, if none,|of right |right | | |when right |less |less | |[See section 104-45]|is granted |expenditure|capital | | | |to grant it|proceeds | |D4 Entering into a |when |capital |reduced | |conservation |covenant is |proceeds |cost base| |covenant |entered into|from |apportion| | | |covenant |ed to the| | | |less cost |covenant | | | |base |less | |[See section 104-47]| |apportioned|capital | | | |to the |proceeds | | | |covenant |from | | | | |covenant | |E1 Creating a trust |when trust |capital |asset's | |over a CGT asset |is created |proceeds |reduced | | | |from |cost base| |[See section 104-55]| |creating |less | | | |trust less |capital | | | |asset's |proceeds | | | |cost base | | |E2 Transferring a |when asset |capital |asset's | |CGT asset to a trust|transferred |proceeds |reduced | | | |from |cost base| |[See section 104-60]| |transfer |less | | | |less |capital | | | |asset's |proceeds | | | |cost base | | |E3 Converting a |when trust |market |asset's | |trust to a unit |is converted|value of |reduced | |trust | |asset at |cost base| |[See section 104-65]| |that time |less that| | | |less its |market | | | |cost base |value | |E4 Capital payment |when trustee|non-assessa|no | |for trust interest |makes |ble part of|capital | | |payment |the payment|loss | | | |less cost | | |[See section 104-70]| |base of the| | | | |trust | | | | |interest | | |E5 Beneficiary |when |for |for | |becoming entitled to|beneficiary |trustee-mar|trustee-r| |a trust asset |becomes |ket value |educed | | |absolutely |of CGT |cost base| | |entitled |asset at |of CGT | | | |that time |asset at | | | |less its |that time| | | |cost base; |less that| | | | |market | | | |for |value; | | | |beneficiary|for | | | |-that |beneficia| |[See section 104-75]| |market |ry-reduce| | | |value less |d cost | | | |cost base |base of | | | |of |beneficia| | | |beneficiary|ry's | | | |'s capital |capital | | | |interest |interest | | | | |less that| | | | |market | | | | |value | |E6 Disposal to |the time of |for |for | |beneficiary to end |the disposal|trustee-mar|trustee-r| |income right | |ket value |educed | | | |of CGT |cost base| | | |asset at |of CGT | | | |that time |asset at | | | |less its |that time| | | |cost base; |less that| | | | |market | | | |for |value; | | | |beneficiary|for | | | |-that |beneficia| |[See section 104-80]| |market |ry-reduce| | | |value less |d cost | | | |cost base |base of | | | |of |beneficia| | | |beneficiary|ry's | | | |'s right to|right to | | | |income |income | | | | |less that| | | | |market | | | | |value | |E7 Disposal to |the time of |for |for | |beneficiary to end |the disposal|trustee-mar|trustee-r| |capital interest | |ket value |educed | | | |of CGT |cost base| | | |asset at |of CGT | | | |that time |asset at | | | |less its |that time| | | |cost base; |less that| | | | |market | | | |for |value; | | | |beneficiary|for | | | |-that |beneficia| |[See section 104-85]| |market |ry-reduce| | | |value less |d cost | | | |cost base |base of | | | |of |beneficia| | | |beneficiary|ry's | | | |'s capital |capital | | | |interest |interest | | | | |less that| | | | |market | | | | |value | |E8 Disposal by |when |capital |appropria| |beneficiary of |disposal |proceeds |te | |capital interest |contract |less |proportio| | |entered into|appropriate|n of the | | |or, if none,|proportion |trust's | |[See section 104-90]|when |of the |net | | |beneficiary |trust's net|assets | | |ceases to |assets |less | | |own CGT | |capital | | |asset | |proceeds | |E9 Creating a trust |when entity |market |incidenta| |over future property|makes |value of |l costs | | |agreement |the |in making| | | |property |agreement| | | |(as if it |less | | | |existed |market | | | |when |value of | |[See | |agreement |the | |section 104-105] | |made) less |property | | | |incidental |(as if it| | | |costs in |existed | | | |making |when | | | |agreement |agreement| | | | |made) | |F1 Granting a lease |for grant of|capital |expenditu| | |lease-when |proceeds |re on | | |entity |less |grant, | | |enters into |expenditure|renewal | | |lease |on grant, |or | | |contract or,|renewal or |extension| | |if none, at |extension |less | | |start of | |capital | | |lease; | |proceeds | | |for lease | | | |[See |renewal or | | | |section 104-110] |extension-at| | | | |start of | | | | |renewal or | | | | |extension | | | |F2 Granting a long |for grant of|capital |reduced | |term lease |lease-when |proceeds |cost base| | |lessor |from grant,|of leased| | |grants |renewal or |property | | |lease; |extension |less | | |for lease |less cost |capital | | |renewal or |base of |proceeds | |[See |extension-at|leased |from | |section 104-115] |start of |property |grant, | | |renewal or | |renewal | | |extension | |or | | | | |extension| |F3 Lessor pays |when lease |no capital |amount of| |lessee to get lease |term is |gain |expenditu| |changed |varied or | |re to get| | |waived | |lessee's | |[See | | |agreement| |section 104-120] | | | | |F4 Lessee receives |when lease |capital |no | |payment for changing|term is |proceeds |capital | |lease |varied or |less cost |loss | |[See |waived |base of | | |section 104-125] | |lease | | |F5 Lessor receives |when lease |capital |expenditu| |payment for changing|term is |proceeds |re in | |lease |varied or |less |relation | | |waived |expenditure|to | |[See | |in relation|variation| |section 104-130] | |to |or waiver| | | |variation |less | | | |or waiver |capital | | | | |proceeds | |G1 Capital payment |when company|payment |no | |for shares |pays |less cost |capital | |[See |non-assessab|base of |loss | |section 104-135] |le amount |shares | | |G3 Liquidator or |when |no capital |shares' | |administrator |declaration |gain |or | |declares shares or |was made | |financial| |financial | | |instrumen| |instruments | | |ts' | |worthless | | |reduced | |[See | | |cost base| |section 104-145] | | | | |H1 Forfeiture of a |when deposit|deposit |expenditu| |deposit |is forfeited|less |re in | | | |expenditure|connectio| |[See | |in |n with | |section 104-150] | |connection |prospecti| | | |with |ve sale | | | |prospective|less | | | |sale |deposit | |H2 Receipt for event|when act, |capital |incidenta| |relating to a CGT |transaction |proceeds |l costs | |asset |or event |less |less | |[See |occurred |incidental |capital | |section 104-155] | |costs |proceeds | |I1 Individual or |when |for each |for each | |company stops being |individual |CGT asset |CGT asset| |an Australian |or company |the person |the | |resident |stops being |owns, its |person | | |Australian |market |owns, its| | |resident |value less |reduced | |[See | |its cost |cost base| |section 104-160] | |base |less its | | | | |market | | | | |value | |I2 Trust stops being|when trust |for each |for each | |a resident trust |ceases to be|CGT asset |CGT asset| | |resident |the trustee|the | | |trust for |owns, its |trustee | | |CGT purposes|market |owns, its| |[See | |value of |reduced | |section 104-170] | |asset less |cost base| | | |its cost |less its | | | |base |market | | | | |value | |J1 Company stops |when the |market |reduced | |being member of |company |value of |cost base| |wholly-owned group |stops |asset at |of asset | |after roll-over | |time of |less that| |[See | |event less |market | |section 104-175] | |its cost |value | | | |base | | |J2 Change in |when the |the amount |no | |relation to |change |mentioned |capital | |replacement asset or|happens |in |loss | |improved asset after| |subsection | | |a roll-over under | |104-185(5) | | |Subdivision 152-E | | | | |[See | | | | |section 104-185] | | | | |J4 Trust fails to |when the |market |reduced | |cease to exist after|failure |value of |cost base| |a roll-over under |happens |asset less |of asset | |Subdivision 124-N | |asset's |less | |[See | |cost base |asset's | |section 104-195] | | |market | | | | |value | |J5 Failure to |at the end |the amount |no | |acquire replacement |of the |of the |capital | |asset and to incur |replacement |capital |loss | |fourth element |asset period|gain that | | |expenditure after a | |you | | |roll-over under | |disregarded| | |Subdivision 152-E | |under | | |[See | |Subdivision| | |section 104-197] | | 152-E | | |J6 Cost of |at the end |the amount |no | |acquisition of |of the |mentioned |capital | |replacement asset or|replacement |in |loss | |amount of fourth |asset period|subsection | | |element expenditure,| |104-198(3) | | |or both, not | | | | |sufficient to cover | | | | |disregarded capital | | | | |gain | | | | |[See | | | | |section 104-198] | | | | |K2 Bankrupt pays |when payment|no capital |so much | |amount in relation |is made |gain |of | |to debt | | |payment | | | | |as | |[See | | |relates | |section 104-210] | | |to denied| | | | |part of a| | | | |net | | | | |capital | | | | |loss | |K3 Asset passing to |when |market |reduced | |tax-advantaged |individual |value of |cost base| |entity |dies |asset at |of asset | | | |death less |less that| |[See | |its cost |market | |section 104-215] | |base |value | |K4 CGT asset starts |when asset |market |reduced | |being trading stock |starts being|value of |cost base| |[See |trading |asset less |of asset | |section 104-220] |stock |its cost |less its | | | |base |market | | | | |value | |K5 Special capital |when CGT |no capital |market | |loss from |event A1, C2|gain |value of | |collectable that has|or E8 | |the | |fallen in market |happens to | |shares or| |value |shares in | |interest | | |the company,| |(as if | | |or an | |the | | |interest in | |collectab| | |the trust, | |le had | | |that owns | |not | |[See |the | |fallen in| |section 104-225] |collectable | |market | | | | |value) | | | | |less the | | | | |capital | | | | |proceeds | | | | |from CGT | | | | |event A1,| | | | |C2 or E8 | |K6 Pre-CGT shares or|when another|capital |no | |trust interest |CGT event |proceeds |capital | | |involving |from the |loss | | |the shares |shares or | | | |or interest |trust | | | |happens |interest | | | | |(so far as | | | | |attributabl| | | | |e to | | |[See | |post-CGT | | |section 104-230] | |assets | | | | |owned by | | | | |the company| | | | |or trust) | | | | |less the | | | | |assets' | | | | |cost bases | | |K7 Balancing |When |Termination|Cost less| |adjustment occurs |balancing |value less |terminati| |for a depreciating |adjustment |cost times |on value | |asset that you used |event occurs|fraction |times | |for purposes other | | |fraction | |than taxable | | | | |purposes | | | | |[See | | | | |section 104-235] | | | | |K8 Direct value |the decrease|the gain |no | |shifts affecting |time for the|worked out |capital | |your equity or loan |interests |under |loss | |interests in a | |section 725| | |company or trust | |-365 | | |[See section 104-250| | | | |and Division 725] | | | | |K9 Entitlement to |when you |capital |no | |receive payment of a|become |proceeds |capital | |carried interest |entitled to |from |loss | |[See |receive |entitlement| | |section 104-255] |payment | | | |K10 You make a forex|when the |the forex |no | |realisation gain |forex |realisation|capital | |covered by item 1 of|realisation |gain |loss | |the table in |event | | | |subsection 775-70(1)|happens | | | | | | | | |[See | | | | |section 104-260] | | | | |K11 You make a forex|when the |no capital |the forex| |realisation loss |forex |gain |realisati| |covered by item 1 of|realisation | |on loss | |the table in |event | | | |subsection 775-75(1)|happens | | | | | | | | |[See | | | | |section 104-265] | | | | |K12 Foreign hybrid |just before |no capital |the | |loss exposure |the end of |gain |amount | |adjustment |the income | |stated in| |[See |year | |subsectio| |section 104-270] | | |n | | | | |104-270(3| | | | |) | |L1 Reduction under |Just after |no capital |amount of| |section 705-57 in |entity |gain |reduction| |tax cost setting |becomes | | | |amount of assets of |subsidiary | | | |entity becoming |member | | | |subsidiary member of| | | | |consolidated group | | | | |or MEC group | | | | |[See | | | | |section 104-500] | | | | |L2 Amount remaining |Just after |amount |no | |after step 3A etc. |entity |remaining |capital | |of joining allocable|becomes | |loss | |cost amount is |subsidiary | | | |negative |member | | | |[See | | | | |section 104-505] | | | | |L3 Tax cost setting |Just after |amount of |no | |amounts for retained|entity |excess |capital | |cost base assets |becomes | |loss | |exceed joining |subsidiary | | | |allocable cost |member | | | |amount | | | | |[See | | | | |section 104-510] | | | | |L4 No reset cost |Just after |no capital |amount of| |base assets against |entity |gain |excess | |which to apply |becomes | | | |excess of net |subsidiary | | | |allocable cost |member | | | |amount on joining | | | | |[See | | | | |section 104-515] | | | | |L5 Amount remaining |When entity |amount |no | |after step 4 of |ceases to be|remaining |capital | |leaving allocable |subsidiary | |loss | |cost amount is |member | | | |negative | | | | |[See | | | | |section 104-520] | | | | |L6 Error in |start of the|the net |the net | |calculation of tax |income year |overstated |understat| |cost setting amount |when the |amount |ed amount| |for joining entity's|Commissioner|resulting |resulting| |assets: CGT event L6|becomes |from the |from the | | |aware of the|errors, or |errors, | |[See |errors |a portion |or a | |section 104-525] | |of that |portion | | | |amount |of that | | | | |amount | |L7 Discharged amount|start of the|your |what your| |of liability differs|income year |allocable |allocable| |from amount for |in which the|cost amount|cost | |allocable cost |liability is|less what |amount | |amount purposes: CGT|realised |it would |would | |event L7 | |have been |have been| |[See | |had you |had you | |section 104-530] | |used the |used the | | | |correct |correct | | | |amount for |amount | | | |the |for the | | | |liability |liability| | | | |less your| | | | |allocable| | | | |cost | | | | |amount | |L8 Reduction in tax |Just after |no capital |amount of| |cost setting amount |entity |gain |reduction| |for reset cost base |becomes | |that | |assets on joining |subsidiary | |cannot be| |cannot be allocated |member | |allocated| |[See | | | | |section 104-535] | | | | Note: Subsection 230-310(4) (which deals with hedging financial arrangements) provides that in certain circumstances a CGT event is taken to have occurred in relation to a hedging financial arrangement at the same time as a CGT event actually occurs in relation to a hedged item covered by the arrangement. Subdivision 104-A-Disposals 104-10 Disposal of a CGT asset: CGT event A1 (1) CGT event A1 happens if you *dispose of a *CGT asset. (2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur: (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 that you granted: (i) it was granted before that day; or (ii) if it has been renewed or extended-the start of the last renewal or extension occurred before that day. Note 1: You can make a gain if you dispose of shares in a company, or an interest in a trust, that you acquired before that day: see CGT event K6. Note 2: A capital gain or loss you make because you assign a right under or in relation to a general insurance policy you held with an HIH company to the Commonwealth, the trustee of the HIH Trust or a prescribed entity is also disregarded: see section 322-15. Note 3: A capital gain or loss made by a demerging entity from CGT event A1 happening as a result of a demerger is also disregarded: see section 125-155. Note 4: A capital gain or loss you make because of section 16AI of the Banking Act 1959 is disregarded: see section 253-10 of this Act. Section 16AI of the Banking Act 1959: (a) reduces your right to be paid an amount by an ADI in connection with an account to the extent of your entitlement under Division 2AA of Part II of that Act to be paid an amount by APRA; and (b) provides that, to the extent of the reduction, the right becomes a right of APRA. Note 5: A capital gain or loss you make because, under section 62ZZL of the Insurance Act 1973, you dispose of a CGT asset consisting of your rights against a general insurance company to APRA is disregarded: see section 322-30 of this Act. Compulsory acquisition (6) If the asset was *acquired from you by an entity under a power of compulsory acquisition conferred by an *Australian law or a *foreign law, the time of the event is the earliest of: (a) when you received compensation from the entity; or (b) when the entity became the asset's owner; or (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: (a) to provide or redeem a security; or (b) because of the vesting of the asset in a trustee under the Bankruptcy Act 1966 or under a similar *foreign law; or (c) because of the vesting of the asset in a liquidator of a company, or the holder of a similar office under a foreign law. Subdivision 104-B-Use and enjoyment before title passes 104-15 Use and enjoyment before title passes: CGT event B1 (1) CGT event B1 happens if you enter into an agreement with another entity under which: (a) the right to the use and enjoyment of a *CGT asset you own passes to the other entity; and (b) title in the asset will or may pass to the other entity at or before the end of the agreement. Note: Division 240 provides for the inclusion of amounts under hire purchase agreements in assessable income. (2) The time of the event is when the other entity first obtains the use and enjoyment of the asset. (3) You make a capital gain if the *capital proceeds from the agreement are more than the asset's *cost base. You make a capital loss if those capital proceeds are less than the asset's *reduced cost base. Exceptions (4) A *capital gain or *capital loss you make is disregarded if: (a) title in the asset does not pass to the other entity at or before the end of the agreement; or (b) you *acquired the asset before 20 September 1985. Subdivision 104-C-End of a CGT asset Table of sections 104-20 Loss or destruction of a CGT asset: CGT event C1 104-25 Cancellation, surrender and similar endings: CGT event C2 104-30 End of option to acquire shares etc.: CGT event C3 104-20 Loss or destruction of a CGT asset: CGT event C1 (1) CGT event C1 happens if a *CGT asset you own is lost or destroyed. Note: This event can apply to part of a CGT asset: see section 108-5 (definition of CGT asset). (2) The time of the event is: (a) when you first receive compensation for the loss or destruction; or (b) if you receive no compensation-when the loss is discovered or the destruction occurred. (3) You make a capital gain if the *capital proceeds from the loss or destruction are more than the asset's *cost base. You make a capital loss if those capital proceeds are less than the asset's *reduced cost base. Exception (4) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104-25 Cancellation, surrender and similar endings: CGT event C2 (1) CGT event C2 happens if your ownership of an intangible *CGT asset ends by the asset: (a) being redeemed or cancelled; or (b) being released, discharged or satisfied; or (c) expiring; or (d) being abandoned, surrendered or forfeited; or (e) if the asset is an option-being exercised; or (f) if the asset is a *convertible interest-being converted. (2) The time of the event is: (a) when you enter into the contract that results in the asset ending; or (b) if there is no contract-when the asset ends. (3) You make a capital gain if the *capital proceeds from the ending are more than the asset's *cost base. You make a capital loss if those capital proceeds are less than the asset's *reduced cost base. Note: The capital proceeds referred to in this subsection are reduced if the gain or loss was for shares and an amount was taken into account as a capital gain for the shares under former section 160ZL of the Income Tax Assessment Act 1936 for the 1997-98 income year or an earlier income year: see section 104-25 of the Income Tax (Transitional Provisions) Act 1997. (4) A lease is taken to have expired even if it is extended or renewed. Exceptions (5) A *capital gain or *capital loss you make is disregarded if: (a) you *acquired the asset before 20 September 1985; or (b) for a lease that you granted: (i) it was granted before that day; or (ii) if it has been renewed or extended-the start of the last renewal or extension occurred before that day. Note 1: There are other exceptions if: . your lease expires and you did not use it mainly to produce assessable income: see section 118-40; or . you exercise rights to acquire shares or units: see section 130-40; or . you acquire shares or units by converting a convertible interest: see section 130-60; or . you exercise an option: see section 134-1. Note 2: A company can agree to forgo any capital loss it makes as a result of forgiving a commercial debt owed to it by another company where the companies are under common ownership: see section 245-90 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. Note 4: A capital gain on the repayment of certain debt given to an ultimate holding company is disregarded where an entity obtains a roll-over under Subdivision 124-M for interests acquired or cancelled: see section 124-784. Note 5: Cost base adjustments are made only under Subdivision 125- B if there is a roll-over under that Subdivision for CGT event C2 happening as a result of a demerger. Note 6: A capital gain or loss made by a demerging entity from CGT event C2 happening as a result of a demerger is also disregarded: see section 125-155. Note 7: A capital gain or loss you make from the meeting of your entitlement under Division 2AA (Financial claims scheme for account-holders with insolvent ADIs) of Part II of the Banking Act 1959 or Part VC (Financial claims scheme for account-holders with insolvent general insurers) of the Insurance Act 1973 is disregarded: see sections 253-10 and 322-30 of this Act. 104-30 End of option to acquire shares etc.: CGT event C3 (1) CGT event C3 happens if an option a company or a trustee of a unit trust granted to an entity to *acquire a *CGT asset that is: (a) *shares in the company or units in the unit trust; or (b) *debentures of the company or unit trust; ends in one of these ways: (c) it is not exercised by the latest time for its exercise; (d) it is cancelled; (e) it is released or abandoned. (2) The time of the event is when the option ends. (3) The company or trustee makes a capital gain if the *capital proceeds from the grant of the option are more than the expenditure incurred in granting it. It makes a capital loss if those capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income. Exception (5) A *capital gain or *capital loss the company or trustee makes is disregarded if it granted the option before 20 September 1985. Note: This subsection is modified for the purpose of calculating the attributable income of a CFC: see section 418 of the Income Tax Assessment Act 1936. Subdivision 104-D-Bringing into existence a CGT asset Table of sections 104-35 Creating contractual or other rights: CGT event D1 104-40 Granting an option: CGT event D2 104-45 Granting a right to income from mining: CGT event D3 104-47 Conservation covenants: CGT event D4 104-35 Creating contractual or other rights: CGT event D1 (1) CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity. Example: You enter into a contract with the purchaser of your business not to operate a similar business in the same town. The contract states that $20,000 was paid for this. You have created a contractual right in favour of the purchaser. If you breach the contract, the purchaser can enforce that right. (2) The time of the event is when you enter into the contract or create the other right. (3) You make a capital gain if the *capital proceeds from creating the right are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those capital proceeds are less. Example: To continue the example: If you paid your lawyer $1,500 to draw up the contract, you make a capital gain of: [pic] (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 *equity interests or *non-equity shares in the company; or (d) the trustee of a unit trust issues units in the trust; or (e) a company grants an option to acquire equity interests, non- equity shares or *debentures in the company; or (f) the trustee of a unit trust grants an option to acquire units or debentures in the trust. Example: You agree to sell land. You have created a contractual right in the buyer to enforce completion of the transaction. The sale results in you disposing of the land, an example of CGT event A1. This means that CGT event D1 does not happen. 104-40 Granting an option: CGT event D2 (1) CGT event D2 happens if you grant an option to an entity, or renew or extend an option you had granted. Note: Some options are not covered: see subsections (6) and (7). (2) The time of the event is when you grant, renew or extend the option. (3) You make a capital gain if the *capital proceeds from the grant, renewal or extension of the option are more than the expenditure you incurred to grant, renew or extend it. You make a capital loss if those capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exceptions (5) A *capital gain or *capital loss you make from the grant, renewal or extension of the option is disregarded if the option is exercised. Note 1: Section 134-1 sets out the consequences of an option being exercised. Note 2: A capital gain or capital loss you made for the 1997-98 income year or an earlier income year under former Part IIIA of the Income Tax Assessment Act 1936 is also disregarded where the option is exercised in the 1998-99 income year or a later one: see section 104-40 of the Income Tax (Transitional Provisions) Act 1997. (6) This section does not apply to an option granted, renewed or extended by a company or the trustee of a unit trust to *acquire a *CGT asset that is: (a) *shares in the company or units in the unit trust; or (b) debentures of the company or unit trust. Note: Section 104-30 deals with this situation. (7) Nor does it apply to an option relating to a *personal use asset or a *collectable. 104-45 Granting a right to income from mining: CGT event D3 (1) CGT event D3 happens if you own a *prospecting entitlement or *mining entitlement, or an interest in one, and you grant another entity a right to receive *ordinary income or *statutory income from operations permitted to be carried on by the entitlement. Note: If this event applies, there is no disposal of the entitlement. (2) The time of the event is: (a) when you enter into the contract with the other entity; or (b) if there is no contract-when you grant the right to receive *ordinary income or *statutory income. (3) You make a capital gain if the *capital proceeds from the grant of the right are more than the expenditure you incurred in granting it. You make a capital loss if those capital proceeds are less. (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. 104-47 Conservation covenants: CGT event D4 (1) CGT event D4 happens if you enter into a *conservation covenant over land you own. (2) The time of the event is when you enter into the covenant. (3) You make a *capital gain if the *capital proceeds from entering into the covenant are more than that part of the *cost base of the land that is apportioned to the covenant. You make a *capital loss if those capital proceeds are less than the part of the *reduced cost base of the land that is apportioned to the covenant. Note: The capital proceeds from entering into the covenant are modified if you do not receive anything for entering into the covenant: see section 116-105. (4) The part of the *cost base of the land that is apportioned to the covenant is worked out in this way: [pic] The part of the *reduced cost base of the land that is apportioned to the covenant is worked out similarly. (5) The *cost base and *reduced cost base of the land are reduced by the part of the cost base or reduced cost base of the land that is apportioned to the covenant. Example: Lisa receives $10,000 for entering into a conservation covenant that covers 15% of the land she owns. Lisa uses the following figures in calculating the cost base of the land that is apportioned to the covenant: The cost base of the entire land is $200,000. The market value of the entire land before entering into the covenant is $300,000, and its market value after entering into the covenant is $285,000. Lisa calculates the cost base of the land that is apportioned to the covenant to be: [pic] She reduces the cost base of the land by the part that is apportioned to the covenant: [pic] Exceptions (6) *CGT event D4 does not happen if: (a) you did not receive any *capital proceeds for entering into the covenant; and (b) you cannot deduct an amount under Division 31 for entering into the covenant. Note: In this case, CGT event D1 will apply. (7) A *capital gain or *capital loss you make is disregarded if you *acquired the land before 20 September 1985. Subdivision 104-E-Trusts Table of sections 104-55 Creating a trust over a CGT asset: CGT event E1 104-60 Transferring a CGT asset to a trust: CGT event E2 104-65 Converting a trust to a unit trust: CGT event E3 104-70 Capital payment for trust interest: CGT event E4 104-71 Adjustment of non-assessable part 104-72 Reducing your capital gain under CGT event E4 if you are a trustee 104-75 Beneficiary becoming entitled to a trust asset: CGT event E5 104-80 Disposal to beneficiary to end income right: CGT event E6 104-85 Disposal to beneficiary to end capital interest: CGT event E7 104-90 Disposal by beneficiary of capital interest: CGT event E8 104-95 Making a capital gain 104-100 Making a capital loss 104-105 Creating a trust over future property: CGT event E9 104-55 Creating a trust over a CGT asset: CGT event E1 (1) CGT event E1 happens if you create a trust over a *CGT asset by declaration or settlement. (2) The time of the event is when the trust over the asset is created. (3) You make a capital gain if the *capital proceeds from the creation are more than the asset's *cost base. You make a capital loss if those capital proceeds are less than the asset's *reduced cost base. Cost base rule (4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's *cost base and *reduced cost base in your hands is its *market value when the trust is created. Exceptions (5) CGT event E1 does not happen if: (a) you are the sole beneficiary of the trust and: (i) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (ii) the trust is not a unit trust; or (b) the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same. (6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104-60 Transferring a CGT asset to a trust: CGT event E2 (1) CGT event E2 happens if you transfer a *CGT asset to an existing trust. (2) The time of the event is when the asset is transferred. (3) You make a capital gain if the *capital proceeds from the transfer are more than the asset's *cost base. You make a capital loss if those capital proceeds are less than the asset's *reduced cost base. (4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's *cost base and *reduced cost base in your hands is its *market value when the asset is transferred. Exceptions (5) CGT event E2 does not happen if: (a) you are the sole beneficiary of the trust and: (i) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (ii) the trust is not a unit trust; or (b) you transferred the asset from another trust and the beneficiaries and terms of both trusts are the same. Note: There is also an exception for employee share trusts: see section 130-90. (6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104-65 Converting a trust to a unit trust: CGT event E3 (1) CGT event E3 happens if: (a) a trust (that is not a unit trust) over a *CGT asset is converted to a unit trust; and (b) just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under). (2) The time of the event is when the trust is converted. (3) The beneficiary makes a capital gain if the*market value of the asset (when the trust is converted) is more than the asset's *cost base. The beneficiary makes a capital loss if that market value is less than the asset's *reduced cost base. Exception (4) A *capital gain or *capital loss the beneficiary makes is disregarded if it *acquired the asset before 20 September 1985. 104-70 Capital payment for trust interest: CGT event E4 (1) CGT event E4 happens if: (a) the trustee of a trust makes a payment to you in respect of your unit or your interest in the trust (except for *CGT event A1, C2, E1, E2, E6 or E7 happening in relation to it); and (b) some or all of the payment (the non-assessable part) is not included in your assessable income. To avoid doubt, in applying paragraph (b) to work out what part of the payment is included in your assessable income, disregard your share of the trust's net income that is subject to the rules in subsection 115-215(3). Note 1: Subsections 104-71(1) (tax-exempted amounts), 104-71(3) (tax-free amounts) and 104-71(4) (CGT concession amounts) can affect the calculation of the non-assessable part. Note 2: The non-assessable part includes amounts (tax-deferred amounts) associated with the small business 50% reduction, frozen indexation, building allowance and accounting differences in income. Note 3: A payment made to you after you stop owning the unit or interest in the trust forms part of the capital proceeds for the CGT event that happened when you stopped owning it. (2) The payment can include giving property (see section 103-5). (3) The time of the event is: (a) just before the end of the income year in which the trustee makes the payment; or (b) if another *CGT event (except CGT event E4) happens in relation to the unit or interest or part of it after the trustee makes the payment but before the end of that income year-just before the time of that other CGT event. (4) You make a capital gain if the sum of the amounts of the non- assessable parts of the payments made in the income year made by the trustee in respect of the unit or interest is more than its *cost base. Note: You cannot make a capital loss. (5) If you make a *capital gain, the *cost base and *reduced cost base of the unit or interest are reduced to nil. Note: A capital gain under former section 160ZM of the Income Tax Assessment Act 1936 is also taken into account for the purposes of this subsection: see subsection 104-70(3) of the Income Tax (Transitional Provisions) Act 1997. (6) However, if that sum is not more than the *cost base: (a) the cost base is reduced by that sum; and (b) the *reduced cost base is reduced by that sum (without the adjustment in subsection 104-71(3)). Example: Mandy owns units in a unit trust that she bought on 1 July 1998 for $10 each. During the 1999-2000 income year the trustee makes 4 non-assessable payments of $0.50 per unit. If at the end of the income year Mandy's cost base for each unit (including indexation) would otherwise be $10.10, the payments require that it be reduced by $2, giving a new cost base of $8.10. If Mandy sells the units (CGT event A1) in the 2000-01 year for more than their cost base at that time, she will make a capital gain equal to the difference. Note: Cost base adjustments are made only under Subdivision 125- B if there is a roll-over under that Subdivision for CGT event E4 happening as a result of a demerger. Exceptions (7) A *capital gain you make from *CGT event E4 is disregarded if you *acquired the *CGT asset that is the unit or interest before 20 September 1985. (8) CGT event E4 does not happen to the extent that the payment is reasonably attributable to a *LIC capital gain. (9) CGT event E4 does not happen for a payment made to a foreign resident to the extent that the payment is reasonably attributable to *ordinary income or *statutory income from sources other than an *Australian source. However, this exception does not apply if the trust is a *corporate unit trust or a *public trading trust. 104-71 Adjustment of non-assessable part (1) In working out the non-assessable part referred to in section 104-70, disregard any part of the payment that is: (a) *non-assessable non-exempt income; or (c) paid from an amount that has been assessed to the trustee; or (d) paid from an amount that is *personal services income included in your assessable income, or another entity's assessable income, under section 86-15; or (e) repaid by you; or (f) compensation you paid that can reasonably be regarded as a repayment of all or part of the payment; or (g) an amount referred to in section 152-125 (which exempts a payment of a small business 15-year exemption amount) as an exempt amount. The payment can include giving property (see section 103-5). (2) However, the non-assessable part is not reduced by any part of the payment that you can deduct. (3) The amount of the non-assessable part referred to in section 104-70 is adjusted to exclude any part of it that is attributable to: (a) an amount that is not included in the assessable income of an entity because of: (i) section 124ZM or 124ZN (which exempt income arising from *shares in a *PDF) of the Income Tax Assessment Act 1936; or (ii) section 159GZZZZE (which exempts certain payments related to infrastructure borrowings) of that Act; or (b) proceeds from a *CGT event that happens in relation to *shares in a company that was a *PDF when that event happened. (4) The amount of the non-assessable part referred to in section 104-70 for an entity shown in the table is adjusted to exclude the amount or amounts applicable to the entity under the table. |Adjustment of non-assessable part | |Item |Entity |Amount excluded | |1 |Any entity |So much of the | | | |amount of a | | | |*discount capital | | | |gain excluded from| | | |the *net capital | | | |gain of the trust | | | |making the payment| | | |because of step 3 | | | |of the method | | | |statement in | | | |subsection | | | |102-5(1) and that | | | |is reflected in | | | |the payment to the| | | |entity | |2 |Individual, company or trust |1/2 of the amount | | |that has a *capital loss or |of the capital | | |*net capital loss to reduce |loss or net | | |its *capital gain described in|capital loss | | |paragraph 115-215(3)(b) where | | | |the trust gain referred to in | | | |subsection 115-215(3) is | | | |reduced under | | | |Subdivision 152-C | | |3 |Individual or trust that has a|1/4 of the amount | | |*capital loss or *net capital |of the capital | | |loss to reduce its *capital |loss or net | | |gain described in paragraph |capital loss | | |115-215(3)(c) | | |4 |Company that has a *capital |The excess of the | | |loss or *net capital loss to |reduction amount | | |reduce its *capital gain |over the | | |described in paragraph |Subdivision 152-C | | |115-215(3)(c) where: |reduction to the | | |(a) that capital loss or net |paragraph | | |capital loss is more than 1/2 |115-215(3)(c) | | |of the trust gain referred to |amount | | |in subsection 115-215(3); and | | | |(b) that trust gain is reduced| | | |by an amount (the reduction | | | |amount) under | | | |Subdivision 152-C | | |5 |*Complying superannuation |1/2 of the amount | | |entity that has a *capital |of the capital | | |loss or *net capital loss to |loss or net | | |reduce its *capital gain |capital loss | | |described in paragraph | | | |115-215(3)(b) where: | | | |(a) that capital loss or net | | | |capital loss is more than 1/2 | | | |of the trust gain referred to | | | |in subsection 115-215(3); and | | | |(b) that trust gain is reduced| | | |under Subdivision 152-C | | |6 |*Complying superannuation |The excess of the | | |entity that has a *capital |reduction amount | | |loss or *net capital loss to |over the | | |reduce its *capital gain |Subdivision 152-C | | |described in paragraph |reduction to the | | |115-215(3)(c) where: |paragraph | | |(a) that capital loss or net |115-215(3)(c) | | |capital loss is more than 1/4 |amount | | |of the trust gain referred to | | | |in subsection 115-215(3); and | | | |(b) that trust gain is reduced| | | |by an amount (also the | | | |reduction amount) under | | | |Subdivision 152-C | | |7 |Any entity receiving the |The proportion of | | |payment where the trust making|the capital loss | | |the payment, or another trust |or net capital | | |that is part of the same |loss reflected in | | |*chain of trusts, has a |the payment | | |*capital loss or *net capital | | | |loss to reduce its *capital | | | |gain described in subsection | | | |115-215(3) | | Example: Claude is paid $100 by the trustee of a unit trust. The trustee advises that the amount comprises $50 CGT discount, $25 small business 50% reduction and $25 net income from a capital gain made by the trust. In applying the rules in Subdivision 115-C of the Income Tax Assessment Act 1997, Claude reduces his capital gain of $100 by a $20 net capital loss from an earlier year. He then reduces the remaining $80 gain by $40 (CGT discount) and $20 (small business 50% reduction) leaving a net capital gain of $20. In applying the rules in CGT event E4, the $100 payment is reduced by $25 (being the amount assessed under section 97 of the Income Tax Assessment Act 1936). It is further reduced by $50 under item 1 of the table and $5 under item 3. Claude's non-assessable part is $20. Effectively, CGT event E4 applies to the $20 small business 50% reduction allowed to Claude in applying Subdivision 115-C of the Income Tax Assessment Act 1997. Note 1: Step 3 of the method statement in subsection 102-5(1) (see table item 1) reduces by 50% the trust's discount capital gains remaining after applying capital losses and earlier net capital losses. That 50% is excluded from the trust's net capital gain. Note 2: Subdivision 152-C (small business 50% reduction-see table items 2, 3, 4, 5, 6 and 7) reduces by 50% the trust's capital gains or discount capital gains remaining after applying step 3 of the method statement in subsection 102- 5(1). That 50% is also excluded from the trust's net capital gain. Note 3: Paragraph 115-215(3)(b) or (c) (see table items 2, 3, 4, 5 and 6) treats a beneficiary as having an extra capital gain if an amount of the trust's net income that is included in the beneficiary's assessable income is attributable to trust gains that were reduced by step 3 of the method statement in subsection 102-5(1) and/or the small business 50% reduction. (5) A chain of trusts consists of 2 or more trusts where at least one of these conditions is satisfied for each of the trusts: (a) the trustee of the trust owns units or interests in another of the trusts; or (b) the trustee of another of the trusts owns units or interests in the trust. 104-72 Reducing your capital gain under CGT event E4 if you are a trustee (1) A *capital gain you make under subsection 104-70(4) is reduced if: (a) you are the trustee of another trust that is a *fixed trust and is not a *complying superannuation entity; and (b) you are taken to have a *capital gain under paragraph 115- 215(3)(b) or (c) (your notional gain) in respect of a corresponding trust gain (the trust gain); and (c) some or all (the attributable amount) of the total of the non- assessable parts referred to in subsection 104-70(4) is attributable to proceeds from the trust gain. (2) The *capital gain is reduced (but not below 0) by the lesser of: (a) your notional gain; and (b) the attributable amount. 104-75 Beneficiary becoming entitled to a trust asset: CGT event E5 (1) CGT event E5 happens if a beneficiary becomes absolutely entitled to a *CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee (disregarding any legal disability the beneficiary is under). Note: Division 128 deals with the effect of death. (2) The time of the event is when the beneficiary becomes absolutely entitled to the asset. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the *market value of the asset (at the time of the event) is more than its *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base. Exception for trustee (4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Note: There is also an exception for employee share trusts: see section 130-90. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the *market value of the asset (at the time of the event) is more than the *cost base of the beneficiary's interest in the trust capital to the extent it relates to the asset. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that beneficiary's interest in the trust capital to the extent it relates to the asset. Exceptions for beneficiary (6) A *capital gain or *capital loss the beneficiary makes is disregarded if the beneficiary: (a) *acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or (b) acquired it before 20 September 1985. Expenditure can include giving property: see section 103-5. Note: There is also an exception for employee share trusts: see section 130-90. 104-80 Disposal to beneficiary to end income right: CGT event E6 (1) CGT event E6 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's right, or part of it, to receive *ordinary income or *statutory income from the trust. Note: Division 128 deals with the effect of death. (2) The time of the event is when the disposal occurs. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the *market value of the asset (at the time of the disposal) is more than its *cost base. It makes a capital loss if that market value is less than the asset's *reduced cost base. Exception for trustee (4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the *market value of the asset (at the time of the disposal) is more than the *cost base of the right, or the part of it. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of the right or part. Note: If the beneficiary did not pay anything for the right, the market value substitution rule does not apply: see section 112-20. Exception for beneficiary (6) A *capital gain or *capital loss the beneficiary makes is disregarded if it *acquired the *CGT asset that is the right before 20 September 1985. 104-85 Disposal to beneficiary to end capital interest: CGT event E7 (1) CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital. Note: Division 128 deals with the effect of death. (2) The time of the event is when the disposal occurs. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the *market value of the asset (at the time of the disposal) is more than its *cost base. It makes a capital loss if that market value is less than the asset's *reduced cost base. Exception for trustee (4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the *market value of the asset (at the time of the disposal) is more than the *cost base of the interest, or the part of it, being satisfied. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that interest or part. Exceptions for beneficiary (6) A *capital gain or *capital loss the beneficiary makes is disregarded if the beneficiary: (a) *acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or (b) acquired it before 20 September 1985. Expenditure can include giving property: see section 103-5. 104-90 Disposal by beneficiary of capital interest: CGT event E8 (1) CGT event E8 happens if: (a) you are the beneficiary under a trust (except a unit trust or a trust to which Division 128 applies); and (b) you did not give any money or property to *acquire the *CGT asset that is your interest in the trust capital and you did not acquire it by assignment; and (c) you *dispose of the interest, or part of it (but not to the trustee). Note: Division 128 deals with the effect of death. (2) The time of the event is: (a) when you enter into the contract for the *disposal; or (b) if there is no contract-when you stop owning the interest or part. Note 1: You work out if you have made a capital gain or capital loss under sections 104-95 and 104-100. Note 2: There is a special indexation rule for this event: see section 114-10. 104-95 Making a capital gain You are the only beneficiary (1) If you are the only beneficiary with an interest in the trust capital and you *dispose of that interest, you work out if you have made a *capital gain in this way: Working out your capital gain Step 1. Work out the *capital proceeds from the *disposal. Step 2. Work out the *net asset amount. Step 3. If the Step 1 amount is greater, you make a capital gain equal to the difference. (2) The net asset amount is worked out in this way: Working out the net asset amount Step 1. Work out the total of the *cost bases (at the time of the disposal) of the *CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time. Step 2. Work out the total of the *market values (at the time of the disposal) of the *CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time. Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal. Step 4. Add up the Step 1, 2 and 3 amounts. Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal. Step 6. The result is the net asset amount. Example: You dispose of your interest in the trust capital for $10,000 (the capital proceeds). The total of the cost bases of the CGT assets that the trustee acquired on or after 20 September 1985 is $6,000. The total of the market values of the CGT assets that the trustee acquired before 20 September 1985 is $2,500. There is $1,000 in the trust. The trust liabilities are $500. The net asset amount is: [pic] You make a capital gain of: [pic] (3) If you *dispose of only part of that interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: [pic] Example: To vary the example in subsection (2), suppose you dispose of 50% of your interest for $5,000 (the capital proceeds). The Step 2 amount becomes: [pic] You make a capital gain of: [pic] There is more than one beneficiary (4) If you are not the only beneficiary with an interest in the trust capital and you *dispose of your interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: [pic] Example: To vary the example in subsection (2), suppose you have a 20% interest in the trust capital and you dispose of it for $4,000 (the capital proceeds). The Step 2 amount becomes: [pic] You make a capital gain of: [pic] (5) If you are not the only beneficiary with an interest in the trust capital and you *dispose of part of your interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: [pic] Example: To vary the example in subsection (2), suppose you have a 50% interest in the trust capital. You dispose of 20% of it for $1,000 (the capital proceeds). The Step 2 amount becomes: [pic] You make a capital gain of: [pic] Exception (6) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the interest in the trust capital before 20 September 1985. Note: You can make a gain if you dispose of an interest in a trust that you acquired before that day: see CGT event K6. 104-100 Making a capital loss You are the only beneficiary (1) If you are the only beneficiary with an interest in the trust capital and you *dispose of that interest, you work out if you have made a *capital loss in this way: Working out your capital loss Step 1. Work out the *capital proceeds from the *disposal. Step 2. Work out the *reduced net asset amount. Step 3. If the Step 1 amount is less, you make a capital loss equal to the difference. (2) The reduced net asset amount is worked out in this way: Working out the reduced net asset amount Step 1. Work out the total of the *reduced cost bases (at the time of the disposal) of the *CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time. Step 2. Work out the total of the *market values (at the time of the disposal) of the *CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time. Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal. Step 4. Add up the Step 1, 2 and 3 amounts. Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal. Step 6. The result is the reduced net asset amount. (3) If you *dispose of only part of that interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: [pic] There is more than one beneficiary (4) If you are not the only beneficiary with an interest in the trust capital and you *dispose of your interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: [pic] (5) If you are not the only beneficiary with an interest in the trust capital and you *dispose of part of your interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by: [pic] Exception (6) A *capital loss you make is disregarded if you *acquired the *CGT asset that is the interest in the trust capital before 20 September 1985. 104-105 Creating a trust over future property: CGT event E9 (1) CGT event E9 happens if: (a) you agree for consideration that when property comes into existence you will hold it on trust; and (b) at the time of the agreement, no potential beneficiary under the trust has a beneficial interest in the rights created by the agreement. (2) The time of the event is when you made the agreement. (3) You make a capital gain if the *market value the property would have had if it had existed when you made the agreement is more than any *incidental costs you incurred that relate to the event. You make a capital loss if that market value is less. (4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Subdivision 104-F-Leases Table of sections 104-110 Granting a lease: CGT event F1 104-115 Granting a long-term lease: CGT event F2 104-120 Lessor pays lessee to get lease changed: CGT event F3 104-125 Lessee receives payment for changing lease: CGT event F4 104-130 Lessor receives payment for changing lease: CGT event F5 104-110 Granting a lease: CGT event F1 (1) CGT event F1 happens if a lessor grants, renews or extends a lease. Note 1: Other CGT events can apply to leases. An assignment of a lease is an example of CGT event A1. Note 2: There are special rules that apply to some lease transactions: see Division 132. (2) The time of the event is: (a) for the grant of a lease: (i) when the contract for the lease is entered into; or (ii) if there is no contract-at the start of the lease; or (b) for a renewal or extension-at the start of the renewal or extension. (3) The lessor makes a capital gain if the *capital proceeds from the grant, renewal or extension are more than the expenditure it incurred on the grant, renewal or extension. It makes a capital loss if those capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exception (5) The lessor can choose to apply section 104-115 to certain long term leases. If it does so, this section does not apply. 104-115 Granting a long-term lease: CGT event F2 (1) CGT event F2 happens if: (a) a lessor grants a lease over land (whether or not the lessor owns an estate in fee simple in the land), or renews or extends a lease over land; and (b) the lease, renewal or extension is for at least 50 years and: (i) at the time of the grant, renewal or extension, it was reasonable to expect that it would continue for at least 50 years; and (ii) the terms of the lease, renewal or extension as they apply to the lessee are substantially the same as those under which the lessor owned the land or held a lease of the land; and (c) the lessor chooses to apply this section instead of section 104- 110. Note: Section 103-25 tells you when the choice must be made. (2) The time of the event is when the lessor grants the lease, or at the start of the renewal or extension, as appropriate. (3) The lessor makes a capital gain if the *capital proceeds from the event are more than the *cost base of the lessor's interest in the land. The lessor makes a capital loss if those capital proceeds are less than the *reduced cost base of that interest. Exceptions (4) A *capital gain or *capital loss the lessor makes is disregarded if: (a) it *acquired the *CGT asset that is the land, or the lease to the lessor was granted, before 20 September 1985; or (b) the lease to the lessor has been renewed or extended and the last renewal or extension started before that day. Note: For any later CGT event that happens to the land or the lessor's lease of it: see section 132-10. 104-120 Lessor pays lessee to get lease changed: CGT event F3 (1) CGT event F3 happens if a lessor incurs expenditure in getting the lessee's agreement to vary or waive a term of the lease. The lessor makes a capital loss equal to the amount of expenditure it incurred. (The expenditure can include giving property: see section 103-5.) (2) The time of the event is when the term is varied or waived. Exception (3) However, this event does not apply to expenditure for a lease to which the lessor has chosen to apply section 104-115. 104-125 Lessee receives payment for changing lease: CGT event F4 (1) CGT event F4 happens if a lessee receives a payment from the lessor for agreeing to vary or waive a term of the lease. The payment can include giving property: see section 103-5. (2) The time of the event is when the term is varied or waived. (3) The lessee makes a capital gain if the *capital proceeds from the event are more than the lease's *cost base (at the time of the event). If the lessee makes a *capital gain, the lease's cost base is also reduced to nil. Note: The lessee cannot make a capital loss. (4) On the other hand, if those *capital proceeds are less, the lease's *cost base is reduced by that amount at the time of the event. Example: On 1 January 1999 a lessee enters a lease. On 1 May 1999 the lessee agrees to waive a term. The lessor pays the lessee $1,000 for this. If the lease's cost base at the time of the waiver is $2,500, it is reduced from $2,500 to $1,500. On 1 September 1999 the lessee agrees to waive another term. The lessor pays the lessee $2,000 for this. If the lease's cost base at the time of the waiver is $1,500, the lessee makes a capital gain of $500, and the cost base is reduced to nil. Exceptions (5) A *capital gain the lessee makes is disregarded if: (a) the lease was granted before 20 September 1985; or (b) for a lease that has been renewed or extended-the start of the last renewal or extension occurred before that day. 104-130 Lessor receives payment for changing lease: CGT event F5 (1) CGT event F5 happens if a lessor receives a payment from the lessee for agreeing to vary or waive a term of the lease. The payment can include giving property: see section 103-5. (2) The time of the event is when the term is varied or waived. (3) The lessor makes a capital gain if the *capital proceeds from the event are more than the expenditure the lessor incurs in relation to the variation or waiver. The lessor makes a capital loss if those capital proceeds are less. Example: You own a shopping centre. The lessee of a shop in the centre pays you $10,000 for agreeing to change the terms of its lease. You incur expenses of $1,000 for a solicitor and $500 for a valuer. You make a capital gain of $8,500. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income. Exceptions (5) A *capital gain or *capital loss the lessor makes is disregarded if: (a) the lease was granted before 20 September 1985; or (b) for a lease that has been renewed or extended-the start of the last renewal or extension occurred before that day. Subdivision 104-G-Shares Table of sections 104-135 Capital payment for shares: CGT event G1 104-145 Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 104-135 Capital payment for shares: CGT event G1 (1) CGT event G1 happens if: (a) a company makes a payment to you in respect of a *share you own in the company (except for *CGT event A1 or C2 happening in relation to the share); and (b) some or all of the payment (the non-assessable part) is not a *dividend, or an amount that is taken to be a dividend under section 47 of the Income Tax Assessment Act 1936; and (c) the payment is not included in your assessable income. The payment can include giving property: see section 103-5. (1A) In working out the non-assessable part, disregard any part of the payment that is: (aa) *non-assessable non-exempt income; or (a) repaid by you; or (b) compensation you paid that can reasonably be regarded as a repayment of all or part of the payment; or (c) an amount referred to in section 152-125 (which exempts a payment of a small business 15-year exemption amount) as an exempt amount. The payment can include giving property: see section 103-5. (1B) However, the non-assessable part is not reduced by any part of the payment that you can deduct. (2) The time of the event is when the company makes the payment. (3) You make a capital gain if the amount of the non-assessable part is more than the *share's *cost base. If you make a *capital gain, the share's *cost base and *reduced cost base are reduced to nil. Note 1: You cannot make a capital loss. Note 2: A capital gain under former section 160ZL of the Income Tax Assessment Act 1936 is also taken into account for the purposes of this subsection: see section 104-135 of the Income Tax (Transitional Provisions) Act 1997. (4) However, if the amount of the non-assessable part is not more than the *share's *cost base, that cost base and its *reduced cost base are reduced by the amount of the non-assessable part. Note: Cost base adjustments are made only under Subdivision 125- B if there is a roll-over under that Subdivision for CGT event G1 happening as a result of a demerger. Exceptions (5) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the *share before 20 September 1985. (6) You disregard a payment by a liquidator for the purposes of this section if the company ceases to exist within 18 months of the payment. Note: The payment will be part of your capital proceeds for CGT event C2 happening when the share ends. (7) You also disregard a payment that is *personal services income included in your assessable income, or another entity's assessable income, under section 86-15. 104-145 Liquidator or administrator declares shares or financial instruments worthless: CGT event G3 (1) CGT event G3 happens if you own *shares in a company, or financial instruments issued by or created by or in relation to a company, and a liquidator or administrator of the company declares in writing that the liquidator or administrator has reasonable grounds to believe (as at the time of the declaration) that: (a) for shares-there is no likelihood that shareholders in the company, or shareholders of the relevant class of shares, will receive any further distribution for their shares; or (b) for financial instruments-the instruments, or a class of instruments that includes instruments of that kind, have no value or have only negligible value. (2) The time of the event is when the declaration was made. (3) Examples of financial instruments referred to in subsection (1) are: (a) *debentures, bonds or promissory notes issued by the company; and (b) loans to the company; and (c) futures contracts, forward contracts or currency swap contracts relating to the company; and (d) rights or options to acquire an asset referred to in a preceding paragraph of this subsection; and (e) rights or options to acquire *shares in the company. (4) You can choose to make a capital loss equal to the *reduced cost base of your *shares or financial instruments (as at the time of the declaration). (5) If you make the choice, the *cost base and *reduced cost base of the *shares or financial instruments are reduced to nil just after the declaration was made. Note: This is for the purpose of working out if you make a capital gain or loss from any later CGT event in relation to the shares or financial instruments. Exceptions (6) You cannot choose to make a *capital loss if: (a) you *acquired the shares or financial instruments before 20 September 1985; or (b) the shares or financial instruments were *revenue assets at the time when the declaration was made. (7) You cannot choose to make a *capital loss for a *qualifying share if: (a) you did not make an election for the *share under section 139E of the Income Tax Assessment Act 1936 for the income year in which you acquired (within the meaning of Subdivision C of Division 13A of Part III of that Act) the share; and (b) the declaration was made no later than 30 days after the *cessation time for the share. (8) You cannot choose to make a *capital loss for a financial instrument that is a right you acquired (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936), or would have so acquired apart from section 139DD of that Act, under an *employee share scheme. Subdivision 104-H-Special capital receipts Table of sections 104-150 Forfeiture of deposit: CGT event H1 104-155 Receipt for event relating to a CGT asset: CGT event H2 104-150 Forfeiture of deposit: CGT event H1 (1) CGT event H1 happens if a deposit paid to you is forfeited because a prospective sale or other transaction does not proceed. The payment can include giving property: see section 103-5. Example: You decide to sell land. Before entering into a contract of sale, the prospective purchaser pays you a 2 month holding deposit of $1,000. The negotiations fail and the deposit is forfeited. (1A) The amount of the deposit is reduced by any part of the deposit that is: (a) repaid by you; or (b) compensation you paid that can reasonably be regarded as a repayment of all or part of the deposit. The payment can include giving property: see section 103-5. (1B) However, the deposit is not reduced by any part of the payment that you can deduct. (2) The time of the event is when the deposit is forfeited. (3) You make a capital gain if the deposit is more than the expenditure you incur in connection with the prospective sale or other transaction. You make a capital loss if the deposit is less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income. Example: To continue the example: if you gave a lawyer wine worth $400 in connection with the prospective sale, you make a capital gain of: [pic] 104-155 Receipt for event relating to a CGT asset: CGT event H2 (1) CGT event H2 happens if: (a) an act, transaction or event occurs in relation to a *CGT asset that you own; and (b) the act, transaction or event does not result in an adjustment being made to the asset's *cost base or *reduced cost base. Example: You own land on which you intend to construct a manufacturing facility. A business promotion organisation pays you $50,000 as an inducement to start construction early. No contractual rights or obligations are created by the arrangement. The payment is made because of an event (the inducement to start construction early) in relation to your land. Note: This event does not apply if any other CGT event applies: see section 102-25. (2) The time of the event is when the act, transaction or event occurs. (3) You make a capital gain if the *capital proceeds because of the *CGT event are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those capital proceeds are less. (4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income. Exceptions (5) CGT event H2 does not happen if: (a) the act, transaction or event is the borrowing of money or the obtaining of credit from another entity; or (b) the act, transaction or event requires you to do something that is another *CGT event that happens to you; or (c) a company issues or allots *equity interests or *non-equity shares in the company; or (d) the trustee of a unit trust issues units in the trust; or (e) a company grants an option to acquire equity interests, non- equity shares or *debentures in the company; or (ea) a company grants an option to dispose of *shares in the company to the company; or (f) the trustee of a unit trust grants an option to acquire units or debentures in the trust; or (g) a company or a trust that is a member of a *demerger group issues new *ownership interests under a *demerger. Note: For demergers, see Division 125. Subdivision 104-I-Australian residency ends Table of sections 104-160 Individual or company stops being an Australian resident: CGT event I1 104-165 Exception for individuals 104-170 Trust stops being a resident trust: CGT event I2 104-160 Individual or company stops being an Australian resident: CGT event I1 (1) CGT event I1 happens if you stop being an Australian resident. (2) The time of the event is when you stop being one. (3) You need to work out if you have made a *capital gain or a *capital loss for each *CGT asset that you owned just before the time of the event, except one that is *taxable Australian property: (a) covered by item 1 or 3 of the table in section 855-15; or (b) covered by item 4 of that table because it is an option or right to *acquire a *CGT asset covered by item 1 or 3 of that table. (4) You make a capital gain if the *market value of the asset (at the time of the event) is more than its *cost base. You make a capital loss if that market value is less than the asset's *reduced cost base. (4A) If the asset is an *indirect Australian real property interest, or an option or right to acquire such an interest, this Part and Part 3-3 apply to the asset as if the first element of the *cost base and *reduced cost base of the asset (just after the time of the event) were its *market value at the time of the event. (4B) Subsection (4A) does not apply if the *capital gain or *capital loss you make is disregarded under subsection (5) or (6), or subsection 104-165(2). Exceptions (5) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. (6) A *capital gain or *capital loss you make is disregarded if: (a) the asset is a *qualifying share or *qualifying right; and (b) the asset is not covered by an election under section 139E of the Income Tax Assessment Act 1936; and (c) the *cessation time for the share or right has not occurred. Note 1: An individual may be able disregard the gain or loss if he or she was a short term Australian resident: see section 104- 166. Note 1A: An individual may disregard the gain or loss if he or she was a temporary resident immediately before he or she stopped being an Australian resident: see section 768-915. Note 2: An individual can choose to disregard a capital gain or loss he or she makes until another CGT event happens in relation to the asset where he or she ceases to own the asset or he or she becomes an Australian resident again: see section 104-165. 104-165 Exception for individuals Choosing to disregard making a gain or loss (2) If you are an individual, you can choose to disregard making a *capital gain or a *capital loss from all *CGT assets covered by *CGT event I1. (3) If you do so choose, each of those assets is taken to be *taxable Australian property until the earlier of: (a) a *CGT event happening in relation to the asset, if the CGT event involves you ceasing to own the asset; (b) you again becoming an Australian resident. Note: If you are an individual who was in Australia on 6 April 2006, and you remain an Australian resident from that day until you stop being one, and you were an Australian resident for less than 5 years during the 10 years before you stopped being one, see section 104-166 of the Income Tax (Transitional Provisions) Act 1997. 104-170 Trust stops being a resident trust: CGT event I2 (1) CGT event I2 happens if a trust stops being a *resident trust for CGT purposes. (2) The time of the event is when the trust stops being one. (3) The trustee needs to work out if it has made a *capital gain or a *capital loss for each *CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event except one that is *taxable Australian property: (a) covered by item 1 or 3 of the table in section 855-15; or (b) covered by item 4 of that table because it is an option or right to *acquire a *CGT asset covered by item 1 or 3 of that table. (4) The trustee makes a capital gain if the *market value of the asset (at the time of the event) is more than the asset's *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base. (4A) If the asset is an *indirect Australian real property interest, or an option or right to acquire such an interest, this Part and Part 3-3 apply to the asset as if the first element of the *cost base and *reduced cost base of the asset (just after the time of the event) were its *market value at the time of the event. (4B) Subsection (4A) does not apply if the *capital gain or *capital loss the trustee makes is disregarded under subsection (5). Exception (5) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Subdivision 104-J-CGT events relating to roll-overs Table of sections 104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 104-180 Sub-group break-up 104-182 Consolidated group break-up 104-185 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2 104-190 Modifying or extending the replacement asset period 104-195 Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 104-197 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5 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 104-175 Company ceasing to be member of wholly-owned group after roll- over: CGT event J1 (1) CGT event J1 happens if: (a) there is a roll-over under Subdivision 126-B for a *CGT event (the roll-over event) that happens in relation to a *CGT asset (the roll-over asset) involving 2 companies that are members of the same *wholly-owned group; and (b) the company (the recipient company) that owns the roll-over asset just after the roll-over stops being a 100% subsidiary of a company in the group in the circumstances set out in subsection (2) or (3); and (c) at the time of the roll-over, the recipient company was a *100% subsidiary of: (i) the other company involved in the roll-over event (the originating company); or (ii) another member of the same *wholly-owned group. Note: If the roll-over was under former section 160ZZO of the Income Tax Assessment Act 1936, CGT event J1 does not happen if there would not have been a deemed disposal and re- acquisition under that Act: see section 104-175 of the Income Tax (Transitional Provisions) Act 1997. (2) This condition applies if there has been only one roll-over within the *wholly-owned group under Subdivision 126-B involving the roll-over asset. The recipient company must stop, at a time (the break-up time) when it still owns the roll-over asset, being a *100% subsidiary of a member of the group (the ultimate holding company) that is not a 100% subsidiary of any other member of the group at the time of the roll-over event. (3) This condition applies if the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events. The recipient company must stop, at a time (also the break-up time) when it still owns the roll-over asset, being a *100% subsidiary of another member of the group (also the ultimate holding company) that was not a 100% subsidiary of any other member of the group at the time of the first of the events. (4) The time of the event is the break-up time. (5) The recipient company makes a capital gain if the roll-over asset's *market value (at the break-up time) is more than its *cost base. It makes a capital loss if that market value is less than its *reduced cost base. Exceptions (6) CGT event J1 does not happen if the conditions in section 104- 180 or 104-182 are satisfied. (7) A *capital gain or *capital loss the recipient company makes is disregarded if the roll-over asset is taken to have been *acquired by it before 20 September 1985 under Subdivision 126-B (except where the roll-over asset has stopped being a *pre-CGT asset, for example, because of Division 149). Note: CGT event J1 does not happen to a demerged entity or a member of a demerger group if CGT event A1 or C2 happens to a demerging entity under a demerger: see section 125-160. Acquisition rule (8) The recipient company is taken to have *acquired the roll-over asset at the break-up time. Cost base adjustment (9) The first element of the recipient company's *cost base and *reduced cost base of the roll-over asset (just after the break-up time) is its *market value (at the break-up time). 104-180 Sub-group break-up (1) The condition in subsection (2) must have been satisfied at each time when there is a roll-over within the *wholly-owned group under Subdivision 126-B for a *CGT event happening in relation to the roll-over asset. (2) The originating company and the recipient company must have been members of a group of 2 or more companies (the sub-group) within the *wholly-owned group (excluding the ultimate holding company) for which one of these is satisfied: (a) if the sub-group consists of 2 companies, either the recipient company is a 100% subsidiary of the other company (the holding company), or the other company is a 100% subsidiary of the recipient company (also the holding company); (b) if the sub-group consists of 3 or more companies: (i) the recipient company is a 100% subsidiary of one of those other companies (also the holding company) and so are the other companies (except the holding company) in the sub- group; or (ii) each of the companies in the sub-group (except the recipient company) is a 100% subsidiary of the recipient company (also the holding company). (3) If the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events, each company that was the originating company or the recipient company for the purposes of that Subdivision for one of those roll- overs must have been members of the sub-group at the time of each of the roll-overs. (4) The conditions in subsection (5) or (6) must be satisfied just after the break-up time. (5) If the recipient company was the holding company of the sub- group, none of its *shares can be owned by: (a) the ultimate holding company; or (b) a company that is a *100% subsidiary of the ultimate holding company just after the break-up time. (6) If the recipient company was not the holding company of the sub- group, no *shares in it or in the holding company can be owned by: (a) the ultimate holding company; or (b) a company that is a *100% subsidiary of the ultimate holding company just after the break-up time. 104-182 Consolidated group break-up *CGT event J1 does not happen if the recipient company ceases to be a *subsidiary member of a *consolidated group at the break-up time (whether or not it becomes a subsidiary member of another consolidated group at that time). 104-185 Change in relation to replacement asset or improved asset after a roll-over under Subdivision 152-E: CGT event J2 (1) CGT event J2 happens if you choose a small business roll-over under Subdivision 152-E for a *CGT event that happens in relation to a *CGT asset in an income year and: (a) you *acquire a replacement asset (the replacement asset), or you incur *fourth element expenditure in relation to a CGT asset (also the replacement asset), or you do both, by the end of the period (the replacement asset period) starting one year before, and ending 2 years after, the last CGT event in the income year for which you obtain the roll-over; and (b) the replacement asset is your *active asset at the end of the replacement asset period; and (c) if the replacement asset is a *share in a company or an interest in a trust, at the end of the replacement asset period: (i) either you, or an entity *connected with you, is a *CGT concession stakeholder in the company or trust; or (ii) CGT concession stakeholders in the company or trust have a *small business participation percentage in you of at least 90%; and (d) a change of a kind specified in subsection (2) or (3) happens after the end of the replacement asset period. Note 1: The replacement asset period may be modified or extended, see section 104-190. Note 2: There is an exception: see subsection (8). Note 3: There may be 2 or more replacement assets. Note 4: CGT event J2 can also happen in relation to a capital gain you rolled-over under Division 17A of former Part IIIA of the Income Tax Assessment Act 1936 or Division 123 of the Income Tax Assessment Act 1997 if the status of the replacement asset changes: see section 104-185 of the Income Tax (Transitional Provisions) Act 1997. (2) For any replacement asset that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c), the change is: (a) the asset stops being your *active asset; or (b) the asset becomes your *trading stock; or (c) you make a testamentary gift of the asset under the Cultural Bequests Program; or (d) you start to use the asset solely to produce your *exempt income or *non-assessable non-exempt income. (3) In addition, for a *share in a company or an interest in a trust, the change is: (a) *CGT event G3 or I1 happens in relation to it; or (b) paragraph (1)(c) stops being satisfied. Note: The full list of CGT events is in section 104-5. (4) The time of the event is when the change happens. (5) You make a capital gain equal to: (a) if there is only one replacement asset that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c)-the amount of the capital gain that you disregarded under Subdivision 152-E (the 152-E amount); or (b) if there are 2 or more replacement assets that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c) and a change of a kind specified in subsection (2) or (3) occurs for all of them-the 152-E amount; or (c) if there are 2 or more replacement assets that satisfied paragraph (1)(b) and, if applicable, paragraph (1)(c) and such a change occurs for one or more but not all of them-so much (if any) of the 152-E amount as exceeds the sum of the following: (i) the first element of the *cost base of each of those replacement assets *acquired; (ii) the *incidental costs you incurred to acquire each of those replacement assets (which can include giving property, see section 103-5); (iii) the amount of *fourth element expenditure incurred in relation to each of those replacement assets; in relation to which such a change did not occur. (6) If *CGT event J6 has happened in relation to the small business roll-over under Subdivision 152-E, subsection (5) applies to the 152-E amount reduced by the amount of the capital gain under that event. (7) If *CGT event J2 happens again in a later income year in relation to the small business roll-over under Subdivision 152-E, subsection (5) applies to any remaining part of the 152-E amount reduced by the amount of the capital gain under the earlier event. (8) CGT event J2 does not happen because of paragraph (2)(a) for a *share in a company or an interest in a trust if the share or interest ceased to be an *active asset only because of changes in the *market values of assets that were owned by the company or trust when you *acquired the share or interest or incurred the *fourth element expenditure. (9) You incur fourth element expenditure in relation to a *CGT asset if you incur capital expenditure that is included, under subsection 110-25(5), in the fourth element of the *cost base of the asset. 104-190 Modifying or extending the replacement asset period (1) The replacement asset period is modified if your *capital proceeds for the *CGT event are increased under subsection 116- 45(2) or 116-60(3) after the end of that period. Instead, you have until 12 months after you receive those additional proceeds to *acquire a replacement asset, or incur *fourth element expenditure in relation to a *CGT asset, or do both. Note: Section 116-45 applies if you do not receive your capital proceeds despite having taken all reasonable steps to get them, and section 116-60 applies if your capital proceeds are misappropriated by your employee or agent. (2) The Commissioner may extend the replacement asset period, or that period as modified by subsection (1). 104-195 Trust failing to cease to exist after roll-over under Subdivision 124-N: CGT event J4 (1) CGT event J4 happens if: (a) there is a roll-over under Subdivision 124-N for a trust *disposing of a *CGT asset to a company under a trust restructure; and (b) the trust fails to cease to exist: (i) within 6 months after the start of the *trust restructuring period; or (ii) if that is not possible because of circumstances outside the control of the trustee-as soon as practicable after the end of that 6 month period; and (c) the company owns the asset when the failure happens. Example: Circumstances would be outside the control of the trustee if the trustee is involved in litigation concerning the trust and cannot wind up the trust until the litigation is finished. (2) CGT event J4 also happens if: (a) there is a roll-over under Subdivision 124-N for an entity (the shareholding entity) receiving a *share in a company in exchange for a unit or interest in a trust under a trust restructure; and (b) the trust fails to cease to exist: (i) within 6 months after the start of the *trust restructuring period; or (ii) if that is not possible because of circumstances outside the control of the trustee-as soon as practicable after the end of that 6 month period; and (c) the shareholding entity owns the share when the failure happens. (3) The time of the event is when the failure to cease to exist happens. (4) The company makes a capital gain if the *CGT asset's *market value at the time the company *acquired the asset is more than its *cost base at that time. The company makes a capital loss if that market value is less than the asset's *reduced cost base at that time. (5) This Part and Part 3-3 apply to the company from just after the time of the event as if the first element of the *cost base and *reduced cost base of the asset were its *market value at the time the company *acquired the asset. (6) The shareholding entity makes a capital gain if the *share's *market value at the time the entity *acquired the share is more than its *cost base at that time. The shareholding entity makes a capital loss if that market value is less than the share's *reduced cost base at that time. (7) This Part and Part 3-3 apply to the shareholding entity from just after the time of the event as if the first element of the *cost base and *reduced cost base of the *share were its *market value at the time the entity *acquired the share. Exception (8) This section does not apply to a *CGT asset acquired under a trust restructure that happened before the day on which the Taxation Laws Amendment Act (No. 4) 2002 received the Royal Assent. 104-197 Failure to acquire replacement asset and to incur fourth element expenditure after a roll-over under Subdivision 152-E: CGT event J5 (1) CGT event J5 happens if you choose a small business roll-over under Subdivision 152-E for a *CGT event that happens in relation to a *CGT asset in an income year and, by the end of the replacement asset period: (a) you have not *acquired a replacement asset (the replacement asset), and have not incurred *fourth element expenditure in relation to a CGT asset (also the replacement asset); or (b) the replacement asset does not satisfy the conditions set out in subsection (2). Note: You do not have to satisfy the basic conditions in Subdivision 152-A for the gain in relation to CGT event J5 (see subsection 152-305(4)). (2) The conditions are: (a) the replacement asset must be your *active asset; and (b) if the replacement asset is a *share in a company or an interest in a trust: (i) you, or an entity *connected with you, must be a *CGT concession stakeholder in the company or trust; or (ii) CGT concession stakeholders in the company or trust must have a *small business participation percentage in you of at least 90%. Example: Joseph owns 50% of the shares in Company A and Company B. He is therefore a CGT concession stakeholder in the companies: see section 152-60. The companies are connected with Joseph (see section 328-125) because he controls both of them. Company A owns land which it leases to Joseph for use in a business. It sells the land at a profit and buys shares in Company B. Subsection (2) is satisfied for the shares because Joseph is connected with Company A and is a CGT concession stakeholder in Company B. (3) The time of the event is at the end of the replacement asset period. (4) You make a capital gain equal to the amount of the *capital gain that you disregarded under Subdivision 152-E. (5) The replacement asset period may be modified or extended as mentioned in section 104-190. 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 (1) CGT event J6 happens if you choose a small business roll-over under Subdivision 152-E for a *CGT event that happens in relation to a *CGT asset in an income year and: (a) by the end of the replacement asset period, you have done either or both of the following: (i) *acquired a replacement asset (the replacement asset); (ii) incurred *fourth element expenditure in relation to a CGT asset (also the replacement asset); and (b) at the end of the replacement asset period, the replacement asset is your *active asset; and (c) if the replacement asset is a *share in a company or an interest in a trust, at the end of the replacement asset period: (i) you, or an entity *connected with you, are a *CGT concession stakeholder in the company or trust; or (ii) CGT concession stakeholders in the company or trust have a *small business participation percentage in you of at least 90%; and (d) the total (the amount incurred) of the following, in relation to each replacement asset that satisfied paragraph (b) and, if applicable, paragraph (c), is less than the amount of the capital gain that you disregarded: (i) the first element of the *cost base; (ii) the *incidental costs you incurred (which can include giving property, see section 103-5); (iii) the amount of fourth element expenditure incurred. Note: You do not have to satisfy the basic conditions in Subdivision 152-A for the gain in relation to CGT event J6 (see subsection 152-305(4)). (2) The time of the event is at the end of the replacement asset period. (3) You make a capital gain equal to the difference between: (a) the amount of the *capital gain that you disregarded under Subdivision 152-E; and (b) the amount incurred. (4) The replacement asset period may be modified or extended as mentioned in section 104-190. Subdivision 104-K-Other CGT events Table of sections 104-210 Bankrupt pays amount in relation to debt: CGT event K2 104-215 Asset passing to tax-advantaged entity: CGT event K3 104-220 CGT asset starts being trading stock: CGT event K4 104-225 Special collectable losses: CGT event K5 104-230 Pre-CGT shares or trust interest: CGT event K6 104-235 Balancing adjustment events for depreciating assets and section 73BA depreciating assets: CGT event K7 104-240 Working out capital gain or loss for CGT event K7: general case 104-245 Working out capital gain or loss for CGT event K7: pooled assets 104-250 Direct value shifts: CGT event K8 104-255 Carried interests: CGT event K9 104-260 Certain short-term forex realisation gains: CGT event K10 104-265 Certain short-term forex realisation losses: CGT event K11 104-270 Foreign hybrids: CGT event K12 104-210 Bankrupt pays amount in relation to debt: CGT event K2 (1) CGT event K2 happens if: (a) you made a *net capital loss for an income year that, because of subsection 102-5(2), cannot be applied in working out whether you made a *net capital gain for the income year or a later one; and (b) you make a payment in an income year (the payment year) in respect of a debt that was taken into account in working out the amount of that net capital loss; and (c) ignoring subsection 102-5(2), some part of the net capital loss (the denied part) would have been applied (if you had made sufficient *capital gains) in working out whether you had made a *net capital gain for the payment year. The payment can include giving property: see section 103-5. (2) The time of the event is when you make the payment. (3) You make a capital loss equal to the smallest of: (a) the amount you paid; or (b) that part of it that was taken into account in working out the denied part; or (c) the denied part less the sum of *capital losses you made as a result of previous payments you made in respect of the debt that was taken into account in working out the denied part. (4) In calculating that capital loss, disregard any amount you have received as *recoupment of the payment and that is not included in your assessable income. 104-215 Asset passing to tax-advantaged entity: CGT event K3 (1) CGT event K3 happens if you die and a *CGT asset you owned just before dying *passes to a beneficiary in your estate who (when the asset passes): (a) is an *exempt entity; or (b) is the trustee of a *complying superannuation entity; or (c) is a foreign resident. (2) If the asset passes to a beneficiary who is a foreign resident, CGT event K3 happens only if: (a) you were an Australian resident just before dying; and (b) the asset (in the hands of the beneficiary) is not *taxable Australian property. (3) The time of the event is just before you die. (4) A capital gain is made if the *market value of the asset on the day you died is more than the asset's *cost base. A capital loss is made if that market value is less than the asset's *reduced cost base. Note: The trustee of the estate mus