TAX LAW IMPROVEMENT ACT (NO. 1) 1998 TAX LAW IMPROVEMENT ACT (NO. 1) 1998 - TABLE OF PROVISIONS 1. Short title 2. Commencement 3. Schedules 4. Application of amendments SCHEDULE 1 - Amendment of the Income Tax Assessment Act 1997 SCHEDULE 2 - Net capital losses and the Income Tax Assessment Act 1997 SCHEDULE 3 - Company bad debts SCHEDULE 4 - Intellectual property (new Division 373) SCHEDULE 5 - Horticultural plants (new Subdivision 387-C) SCHEDULE 6 - Averaging primary producers' tax liability (new Division 392) SCHEDULE 7 - Environment (new Division 400) SCHEDULE 8 - Above-average special professional income (new Division 405) SCHEDULE 9 - Consequential amendments relating to indexation SCHEDULE 10 - Amendment of Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997 TAX LAW IMPROVEMENT ACT (NO. 1) 1998 - LONG TITLE An Act to amend the law about income tax, and for related purposes Assented to 22 June 1998 The Parliament of Australia enacts: TAX LAW IMPROVEMENT ACT (No. 1) 1998 - SECT 1 Short title This Act may be cited as the Tax Law Improvement Act (No. 1) 1998. TAX LAW IMPROVEMENT ACT (No. 1) 1998 - SECT 2 Commencement (1) Subject to this section, this Act commences on the day on which it receives the Royal Assent. (2) Schedule 2 (except item 3 of it) commences immediately after the commencement of Schedule 1. (3) Schedule 3 commences immediately after the commencement of Schedule 2 (except item 4 of it). (4) Each of Schedules 4 to 8 commences immediately after the commencement of the immediately preceding Schedule. (5) Item 3 of Schedule 2 commences immediately after the commencement of Schedule 8. TAX LAW IMPROVEMENT ACT (No. 1) 1998 - SECT 3 Schedules Subject to section 2, each Act specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned. Any other item in a Schedule to this Act has effect according to its terms. TAX LAW IMPROVEMENT ACT (No. 1) 1998 - SECT 4 Application of amendments An amendment made by an item in a Schedule (except an item in Schedule 1 or in Part 1 of any of Schedules 2 to 8) applies to assessments for the 1998-99 income year and later income years, unless otherwise indicated in the Schedule in which the item appears. TAX LAW IMPROVEMENT ACT (NO. 1) 1998 - SCHEDULE 1 - Amendment of the Income Tax Assessment Act 1997 1 Before Part 3-5 Insert: Part 3-1--Capital gains and losses: general topics Division 100--A Guide to capital gains and losses General overview 100-1 What this Division is about This Division is a simplified outline of the capital gains and capital losses provisions, commonly referred to as capital gains tax (CGT). It will help you to understand your current liabilities, and to factor CGT into your on-going financial affairs. Table of sections 100-5 Effect of this Division 100-10 Fundamentals of CGT 100-15 Overview of Steps 1 and 2 Step 1--Have you made a capital gain or a capital loss? 100-20 What events attract CGT? 100-25 What are CGT assets? 100-30 Does an exception or exemption apply? 100-33 Can there be a roll-over? Step 2--Work out the amount of the capital gain or loss 100-35 What is a capital gain or loss? 100-40 What factors come into calculating a capital gain or loss? 100-45 How to calculate the capital gain or loss for most CGT events Step 3--Work out your net capital gain or loss for the income year 100-50 How to work out your net capital gain or loss 100-55 How do you comply with CGT? Keeping records for CGT purposes 100-60 Why keep records? 100-65 What records? 100-70 How long you need to keep records 100-5 Effect of this Division This Division is a *Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. 100-10 Fundamentals of CGT (1) CGT affects your income tax liability because your assessable income includes your net capital gain for the income year. Your net capital gain is the total of your capital gains for the income year, reduced by certain capital losses you have made. See later in this Guide (section 100-50) for more detail. (2) When you prepare your income tax return, you need to check whether you have made any capital gains for the income year. You also need to check whether you have made any capital losses. You cannot deduct a capital loss from your assessable income, but it will reduce your capital gain in the current income year or later income years. (3) You will also need to consider the impact of CGT when doing your financial planning. In particular, you will need adequate record-keeping to deal most effectively with any immediate or future CGT liability. To give you a sense of the range of things affected by CGT, if you are involved with any of the following, you may have a CGT liability now or at some time in the future: * leases * marriage breakdown * inheritance * working from home * subdividing land * shares * goodwill * a civil court case * contracts * trusts * options * bankruptcy * a company liquidation * incorporating a company * leaving Australia 100-15 Overview of Steps 1 and 2 Step 1--Have you made a capital gain or a capital loss? 100-20 What events attract CGT? (1) You can make a capital gain or loss only if a CGT event happens. (2) There are a wide range of CGT events. Some happen often and affect many different taxpayers. Others are rare and affect only a few. Some examples of CGT events Situation Event Which CGT event? You own shares you acquired on or after 20 September 1985 You sell them CGT event A1 You sell a business You agree with the purchaser not to operate a similar business in the same area CGT event D1 You are a lessor You receive a payment for changing the lease CGT event F5 You own shares in a company The company makes a payment (not a dividend) to you as a shareholder CGT event G1 A summary of all the CGT events is in section 104-5. Identifying the time of a CGT event (3) The specific time when a CGT event happens is important for various reasons: in particular, for working out whether a capital gain or loss from the event affects your income tax for the current or another income year. If a CGT event involves a contract, the time of the event will often be when the contract is made, not when it is completed. The time of each CGT event is explained early inthe relevant section in Division 104. 100-25 What are CGT assets? (1) Most CGT events involve a CGT asset. (For many, there is an exception if the CGT asset was acquired before 20 September 1985.) However, many CGT events are concerned directly with capital receipts and do not involve a CGT asset. See the summary of the CGT events in section 104-5. (2) Some CGT assets are reasonably well-known: * land and buildings, for example, a weekender; * shares; * units in a unit trust; * collectables which cost over $500, for example, jewellery or an artwork; * personal use assets which cost over $10,000, for example, a boat. (3) Other CGT assets are not so well-known. For example: * your home; * contractual rights; * goodwill; * foreign currency. For a full explanation of what things are CGT assets: see Division 108. 100-30 Does an exception or exemption apply? (1) Once you identify a CGT event which applies to you, you need to know if there is an exception or exemption that would reduce the capital gain or loss or allow you to disregard it. (2) There are 4 categories of exemptions: 1. exempt assets: for example, cars; 2. exempt receipts: for example, compensation for personal injury; 3. exempt transactions: for example, your tenancy comes to an end; 4. anti-overlap provisions (that reduce your capital gain by the amount that is otherwise assessable). Note: Most of the exceptions are in Division 104. You will find a full explanation of the possible exemptions in Division 118. Some exemptions are limited (3) Take the family home for example. Generally, you are exempt from CGT when you make a capital gain on disposing of your main residence. But this can change depending on how you came to own the house and what you have done with it. For example, if you rent it out, you may be liable to CGT when you sell it. For the limits on the general exemption of your main residence:see Subdivision 118-B. 100-33 Can there be a roll-over? (1) Roll-overs allow you to defer or disregard a capital gain or loss from a CGT event. They apply in specific situations. Some require a choice (for example, where an asset is compulsorily acquired: see Subdivision 124-B) and some are automatic (for example, where an asset is transferred because of marriage breakdown: see Subdivision 126-A). (2) There are 2 types of roll-over: 1. a replacement-asset roll-over allows you to defer a capital gain or loss from one CGT event until a later CGT event happens where a CGT asset is replaced with another one; 2. a same-asset roll-over allows you to disregard a capital gain or loss from a CGT event where the same CGT asset is involved. Note: The replacement-asset roll-overs are listed in section 112-115, and the same-asset roll-overs are listed in section 112-150. Step 2--Work out the amount of the capital gain or loss 100-35 What is a capital gain or loss? For most CGT events: * You make a capital gain if you receive (or are entitled to receive) capital amounts from the CGT event which exceed your total costs associated with that event. * You make a capital loss if your total costs associated with the CGT event exceed the capital amounts you receive (or are entitled to receive) from the event. 100-40 What factors come into calculating a capital gain or loss? Capital proceeds (1) For most CGT events, the capital amounts you receive (or are entitled to receive) from the event are called the capital proceeds. To work out the capital proceeds: see Division 116. Cost base and reduced cost base (2) For most CGT events, your total costs associated with the event are worked out in 2 different ways: * For the purpose of working out a capital gain, those costs are called the cost base of the CGT asset. * For the purpose of working out a capital loss, those costs are called the reduced cost base of the asset. One of the main differences is that the costs are indexed for inflation in working out a capital gain (which reduces the size of the gain), but not in working out a capital loss. To work out the cost base and reduced cost base: see Division 110. 100-45 How to calculate the capital gain or loss for most CGT events 1. Work out your capital proceeds from the CGT event. 2. Work out the cost base for the CGT asset. 3. Subtract the cost base from the capital proceeds. 4. If the proceeds exceed the cost base, the difference is your capital gain. 5. If not, work out the reduced cost base for the asset. 6. If the reduced cost base exceeds the capital proceeds, the difference is your capital loss. 7. If the capital proceeds are less than the cost base but more than the reduced cost base, you have neither a capital gain nor a capital loss. Step 3--Work out your net capital gain or loss for the income year 100-50 How to work out your net capital gain or loss 1. Add up your capital gains for the income year. Then add up your capital losses for the income year. 2. Subtract the total losses from the total gains. 3. If the gains exceed the losses, then also subtract any unapplied net capital losses for previous income years. If the result is still more than zero, then this is your net capital gain. 4. If the capital losses for the income year exceed the capital gains, the difference is your net capital loss. (You cannot deduct a net capital loss from your assessable income.) For the rules on working out your net capital gain or loss:see Division 102. 100-55 How do you comply with CGT? Declare any net capital gain as assessable income in your income tax return. Defer any net capital loss to the next income year for which you have capital gains that exceed the capital losses for that income year. Keeping records for CGT purposes 100-60 Why keep records? 1. To ensure you do not disadvantage yourself. 2. To comply as easily as possible. 3. To plan for your CGT position in future income years. 4. The law requires you to: see Division 121. 100-65 What records? Keeping full records will make it easier for you to comply. For example, keep records of: * receipts of purchase or transfer; * interest on money you borrowed; * costs of agents, accountants, legal, advertising etc.; * insurance costs and land rates or taxes; * any market valuations; * costs of maintenance, repairs or modifications; * brokerage on shares; * legal costs. 100-70 How long you need to keep records The law requires you to keep records for 5 years after a CGT event has happened. Division 102--Assessable income includes net capital gain Guide to Division 102 102-1 What this Division is about This Division tells you how to work out if you have made a net capital gain or a net capital loss for the income year. A net capital gain is included in your assessable income. However, you cannot deduct a net capital loss. (Amounts otherwise included in your assessable income do not form part of a net capital gain.) Table of sections Operative provisions 102-5 Assessable income includes net capital gain 102-10 How to work out your net capital loss 102-15 How to apply net capital losses 102-20 Ways you can make a capital gain or a capital loss 102-22 Amounts of capital gains and losses 102-23 CGT event still happens even if gain or loss disregarded 102-25 Order of application of CGT events 102-30 Exceptions and modifications Operative provisions 102-5 Assessable income includes net capital gain (1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way: Working out your net capital gain Step 1. Add up the *capital gains you made during the income year. Also add up the *capital losses you made. Step 2. Subtract your *capital losses from your *capital gains. (If your capital losses exceed your capital gains, you have no net capital gain for the income year.) Note: You do have a net capital loss if your capital losses exceed your capital gains: see section 102-10. Step 3. If the Step 2 amount is more than zero, reduce it by applying any unapplied *net capital losses from previous income years. (If this reduces it to zero, you have no net capital gain for the income year.) Note: To apply net capital losses: see section 102-15. Step 4. If the Step 3 amount is more than zero, it is your net capital gain for the income year. Note: For exceptions and modifications to these rules: see section 102-30. (2) However, if during the income year: (a) you became bankrupt; or (b) you were released from debts under a law relating to bankruptcy; any *net capital loss you made for an earlier income year must be disregarded in working out whether you made a *net capital gain for the income year or a later one. (3) Subsection (2) applies even though your bankruptcy is annulled if: (a) the annulment happens under section 74 of the Bankruptcy Act 1966; and (b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy. 102-10 How to work out your net capital loss (1) You work out if you have a net capital loss for the income year in this way: Working out your net capital loss Step 1. Add up the *capital losses you made during the income year. Also add up the *capital gains you made. Step 2. Subtract your *capital gains from your *capital losses. Step 3. If the Step 2 amount is more than zero, it is your net capital loss for the income year. Note: For exceptions and modifications to these rules: see section 102-30. (2) You cannot deduct from your assessable income a *net capital loss for any income year. Note: However, it can be applied against your capital gains for a later income year: see section 102-5 and subsection 102-15(3). 102-15 How to apply net capital losses (1) In working out if you have a *net capital gain, your *net capital losses are applied in the order in which you made them. (2) A *net capital loss can be applied only to the extent that it has not already been applied. (3) To the extent that a *net capital loss cannot be applied in an income year, it can be carried forward to a later income year. Example: You have capital gains for the income year of $1,000 and capital losses for the income year of $600. Your capital losses are subtracted from your capital gains to leave a balance of $400. You have available net capital losses of $300 (for last year) and $200 (for the year before that). The $400 is reduced to zero by applying the available net capital losses in the order in which you made them. This leaves $100 of the $300 to be carried forward and extinguishes the $200. Note: For applying a net capital loss for the 1997-98 income year or an earlier income year: see section 102-15 of the Income Tax (Transitional Provisions) Act 1997. 102-20 Ways you can make a capital gain or a capital loss You can make a *capital gain or *capital loss if and only if a *CGT event happens. The gain or loss is made at the time of the event. Note 1: The full list of CGT events is in section 104-5. Note 2: These Divisions of Part IIIA of the Income Tax Assessment Act 1936 continue to have effect for the purposes of working out capital gains and capital losses under this Part and Part 3-3: * Division 17A (about roll-over relief on certain disposals of assets of small businesses); * Division 17B (about disposal of small business assets where the proceeds are used for retirement); * Division 19A (about transfers of assets between companies under common ownership). See sections 160ZZPJA, 160ZZPZAA and 160ZZRAAAA of that Act. 102-22 Amounts of capital gains and losses Most *CGT events provide for calculating a *capital gain or *capital loss by comparing 2 different amounts. The amount of the gain or loss is the difference between those amounts. 102-23 CGT event still happens even if gain or loss disregarded A *CGT event still happens even if: (a) it does not result in a *capital gain or *capital loss; or (b) a capital gain or capital loss from the event is disregarded. Example: Lindy sells a car. Section 118-5 says that any capital gain or loss from a CGT event happening to a car is disregarded. However, the sale is still an example of CGT event A1. 102-25 Order of application of CGT events (1) Work out if a *CGT event (except *CGT events D1 and H2) happens to your situation. If more than one event can happen, the one you use is the one that is the most specific to your situation. (2) However, there is an exception for *CGT event K5 (which depends on CGT event A1, C2 or E8 happening). In that case, CGT event K5 happens in addition to the other event. (3) If no *CGT event (except *CGT events D1 and H2) happens: (a) work out if CGT event D1 happens and use that event if it does; and (b) if it does not, work out if CGT event H2 happens and use that event if it does. Note: The full list of CGT events is in section 104-5. 102-30 Exceptions and modifications Provisions of this Act are in normal text, the other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Special rules affecting capital gains and capital losses Item For this kind of entity: There are these special rules: See: 1 All entities You can subtract capital losses from collectables only from your capital gains from collectables. section 108-10 2 All entities Disregard capital losses you make from personal use assets. section 108-20 3 All entities If any of your commercial debts have been forgiven in the income year, your net capital losses (including net capital losses from collectables) may be reduced. sections 245-130 and 245-135 of Schedule 2C to the Income Tax Assessment Act 1936 4 A company If it has a change of ownership or control during the income year, and has not carried on the same business, it works out its net capital gain and net capital loss in a special way. Subdivision 165-CB 5 A company It cannot apply a net capital loss unless: the same people owned the company during both the loss year and the income year; and no person controlled the company's voting power at any time during the income year who did not also control it during the whole of the loss year; or the company has carried on the same business and commenced no additional business or new transactions. Subdivision 165-CA 6 A company If one or more of these things happen: a capital gain or loss is injected into it; a tax benefit is obtained from its available net capital losses or current year capital losses; a tax benefit is obtained because of its available capital gains; the Commissioner can disallow its net capital losses or current year capital losses, and it may have to work out its net capital loss in a special way. Division 175 7 A company A company can transfer a surplus amount of its net capital loss to another company so that the other company can apply the amount in the income year of the transfer. (Both companies must be members of the same wholly-owned group.) Subdivision 170-B 8 A PDF If it is a PDF at the end of an income year for which it has a net capital loss, it can apply the loss in a later income year only if it is a PDF throughout the last day of the later income year. section 195-25 9 A PDF If it becomes a PDF during an income year, it works out its net capital gain and net capital loss for the income year in a special way. section 195-35 10 Body that has ceased to be an STB Net capital losses made before cessation disregarded. Special rules apply in cessation year where net capital gain before cessation and net capital loss after cessation. section 24AX 11 A life assurance company Sections 102-5 and 102-10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income. section 116CD 12 A registered organisation Sections 102-5 and 102-10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income. section 116GB 13 A PDF Sections 102-5 and 102-10 do not apply to the calculation of net capital gains and losses. Capital gains and losses are instead allocated to separate classes of income. Subdivision C of Division 10E of Part III 14 A CFC In calculating the CFC's attributable income, pre-1 July 1990 capital losses are disregarded. section 409 Division 103--General rules Guide to Division 103 103-1 What this Division is about This Division sets out some general rules that apply to the provisions dealing with capital gains and capital losses. Table of sections Operative provisions 103-5 Giving property as part of a transaction 103-10 Entitlement to receive money or property 103-15 Requirement to pay money or give property 103-20 Amounts to be expressed in Australian currency 103-25 Choices Operative provisions 103-5 Giving property as part of a transaction There are a number of provisions in this Part and Part 3-3 that say that a payment, cost or expenditure can include giving property. To the extent that one does, use the market value of the property in working out the amount of the payment, cost or expenditure. 103-10 Entitlement to receive money or property (1) This Part and Part 3-3 apply to you as if you had received money or other property if it has been applied for your benefit (including by discharging all or part of a debt you owe) or as you direct. (2) Those Parts apply to you as if you are entitled to receive money or other property: (a) if you are entitled to have it so applied; or (b) if: (i) you will not receive it until a later time; or (ii) the money is payable by instalments. 103-15 Requirement to pay money or give property This Part and Part 3-3 apply to you as if you are required to pay money or give other property even if: (a) you do not have to pay or give it until a later time; or (b) the money is payable by instalments. 103-20 Amounts to be expressed in Australian currency If an amount of money or the market value of other property: (a) is to be taken into account at a particular time under this Part or Part 3-3; and (b) is in a foreign currency; it is to be converted into the equivalent amount of Australian currency at that time. 103-25 Choices (1) A choice you can make under this Part or Part 3-3 must be made: (a) by the day you lodge your *income tax return for the income year in which the relevant *CGT event happened; or (b) within a further time allowed by the Commissioner. (2) The way you (and any other entity making the choice) prepare your *income tax returns is sufficient evidence of the making of the choice. (3) However, there are 2 exceptions: see subsections 124-380(5) and 124-465(5). These relate to *replacement-asset roll-over events where there is an interposed company. The company is required to make the choice at an earlier time specified in that subsection. Note: This section is modified in calculating the attributable income of a CFC: see section 421 of the Income Tax Assessment Act 1936. Division 104--CGT events Table of Subdivisions Guide to Division 104 104-A Disposals 104-B Use and enjoyment before title passes 104-C End of a CGT asset 104-D Bringing into existence a CGT asset 104-E Trusts 104-F Leases 104-G Shares 104-H Special capital receipts 104-I Australian residency ends 104-J Reversals of roll-overs 104-K Other CGT events Guide to Division 104 104-1 What this Division is about This Division sets out all the CGT events for which you can make a capital gain or loss. It tells you how to work out if you have made a gain or loss from each event and the time of each event. It also contains exceptions for gains and losses for many events (such as the exception for CGT assets acquired before 20 September 1985) and some cost base adjustment rules. 104-5 Summary of the CGT events CGT events Event number and description Time of event is: Capital gain is: Capital loss is: A1 Disposal of a CGT asset [See section 104-10] when disposal contract is entered into or, if none, when entity stops being asset's owner capital proceeds from disposal less asset's cost base asset's reduced cost base less capital proceeds B1 Use and enjoyment before title passes[See section 104-15] when use of CGT asset passes capital proceeds less asset's cost base asset's reduced cost base less capital proceeds C1 Loss or destruction of a CGT asset [See section 104-20] when compensation is first received or, if none, when loss discovered or destruction occurred capital proceeds less asset's cost base asset's reduced cost base less capital proceeds C2 Cancellation, surrender and similar endings[See section 104-25] when contract ending asset is entered into or, if none, when asset ends capital proceeds from ending less asset's cost base asset's reduced cost base less capital proceeds C3 End of option to acquire shares etc.[See section 104-30] when option ends capital proceeds from granting option less expenditure in granting it expenditure in granting option less capital proceeds D1 Creating contractual or other rights[See section 104-35] when contract is entered into or right is created capital proceeds from creating right less incidental costs of creating it incidental costs of creating right less capital proceeds D2 Granting an option[See section 104-40] when option is granted capital proceeds from grant less expenditure to grant it expenditure to grant option less capital proceeds D3 Granting a right to income from mining [See section 104-45] when contract is entered into or, if none, when right is granted capital proceeds from grant of right less expenditure to grant it expenditure to grant right less capital proceeds E1 Creating a trust over a CGT asset[See section 104-55] when trust is created capital proceeds from creating trust less asset's cost base asset's reduced cost base less capital proceeds E2 Transferring a CGT asset to a trust[See section 104-60] when asset transferred capital proceeds from transfer less asset's cost base asset's reduced cost base less capital proceeds E3 Converting a trust to a unit trust[See section 104-65] when trust is converted market value of asset at that time less its cost base asset's reduced cost base less that market value E4 Capital payment for trust interest[See section 104-70] when trustee makes payment non-assessable part of the payment less cost base of the trust interest no capital loss E5 Beneficiary becoming entitled to a trust asset[See section 104-75] when beneficiary becomes absolutely entitled for trustee--market value of CGT asset at that time less its cost base; for beneficiary--that market value less cost base of beneficiary's capital interest for trustee--reduced cost base of CGT asset at that time less that market value; for beneficiary--reduced cost base of beneficiary's capital interest less that market value E6 Disposal to beneficiary to end income right[See section 104-80] the time of the disposal for trustee--market value of CGT asset at that time less its cost base; for beneficiary--that market value less cost base of beneficiary's right to income for trustee--reduced cost base of CGT asset at that time less that market value; for beneficiary--reduced cost base of beneficiary's right to income less that market value E7 Disposal to beneficiary to end capital interest[See section 104-85] the time of the disposal for trustee--market value of CGT asset at that time less its cost base; for beneficiary--that market value less cost base of beneficiary's capital interest for trustee--reduced cost base of CGT asset at that time less that market value; for beneficiary--reduced cost base of beneficiary's capital interest less that market value E8 Disposal by beneficiary of capital interest[See section 104-90] when disposal contract entered into or, if none, when beneficiary ceases to own CGT asset capital proceeds less appropriate proportion of the trust's net assets appropriate proportion of the trust's net assets less capital proceeds E9 Creating a trust over future property [See section 104-105] when entity makes agreement market value of the property (as if it existed when agreement made) less incidental costs in making agreement incidental costs in making agreement less market value of the property (as if it existed when agreement made) F1 Granting a lease [See section 104-110] for grant of lease--when entity enters into lease contract or, if none, at start of lease;for lease renewal or extension--at start of renewal or extension capital proceeds less expenditure on grant, renewal or extension expenditure on grant, renewal or extension less capital proceeds F2 Granting a long term lease [See section 104-115] for grant of lease--when lessor grants lease;for lease renewal or extension--at start of renewal or extension capital proceeds from grant, renewal or extension less cost base of leased property reduced cost base of leased property less capital proceeds from grant, renewal or extension F3 Lessor pays lessee to get lease changed [See section 104-120] when lease term is varied or waived no capital gain amount of expenditure to get lessee's agreement F4 Lessee receives payment for changing lease[See section 104-125] when lease term is varied or waived capital proceeds less cost base of lease no capital loss F5 Lessor receives payment for changing lease [See section 104-130] when lease term is varied or waived capital proceeds less expenditure in relation to variation or waiver expenditure in relation to variation or waiver less capital proceeds G1 Capital payment for shares [See section 104-135] when company pays non-assessable amount payment less cost base of shares no capital loss G2 Shifts in share values[See section 104-140 and Division 140] when the shift happens the decrease in the shares' market value (so far as it has shifted into certain other shares) less the corresponding proportion of the shares' cost base no capital loss G3 Liquidator declares shares worthless[See section 104-145] when liquidator makes declaration no capital gain shares' reduced cost base H1 Forfeiture of a deposit [See section 104-150] when deposit is forfeited deposit less expenditure in connection with prospective sale expenditure in connection with prospective sale less deposit H2 Receipt for event relating to a CGT asset [See section 104-155] when act, transaction or event occurred capital proceeds less incidental costs incidental costs less capital proceeds I1 Individual or company stops being a resident[See section 104-160] when individual or company stops being Australian resident for each CGT asset the person owns, its market value less its cost base for each CGT asset the person owns, its reduced cost base less its market value I2 Trust stops being a resident trust[See section 104-170] when trust ceases to be resident trust for CGT purposes for each CGT asset the trustee owns, its market value of asset less its cost base for each CGT asset the trustee owns, its reduced cost base less its market value J1 Company stops being member of wholly-owned group after roll-over[See section 104-175] when the company stops market value of asset at time of event less its cost base reduced cost base of asset less that market value K1 Partial realisation of intellectual property right [See section 104-205] when contract is entered into or, if none, when partial realisation happens capital proceeds from partial realisation less cost base of the item of intellectual property no capital loss K2 Bankrupt pays amount in relation to debt [See section 104-210] when payment is made no capital gain so much of payment as relates to denied part of a net capital loss K3 Asset passing to tax-advantaged entity[See section 104-215] when individual dies market value of asset at death less its cost base reduced cost base of asset less that market value K4 CGT asset starts being trading stock[See section 104-220] when asset starts being trading stock market value of asset less its cost base reduced cost base of asset less its market value K5 Special capital loss from collectable that has fallen in market value[See section 104-225] when CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable no capital gain market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8 K6 Pre-CGT shares or trust interest [See section 104-230] when another CGT event involving the shares or interest happens capital proceeds from the shares or trust interest (so far as attributable to post-CGT assets owned by the company or trust) less the assets' cost bases no capital loss [This is the end of the Guide] Subdivision 104-A--Disposals 104-10 Disposal of a CGT asset: CGT event A1 (1) CGT event A1 happens if you *dispose of a *CGT asset. (2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur: (a) if you stop being the legal owner of the asset but continue to be its beneficial owner; or (b) merely because of a change of trustee. (3) The time of the event is: (a) when you enter into the contract for the *disposal; or (b) if there is no contract--when the change of ownership occurs. Example: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000. The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place). Note 1: If the contract falls through before completion, this event does not happen because no change in ownership occurs. Note 2: If the asset was compulsorily acquired from you: see subsection (6). (4) You make a capital gain if the *capital proceeds from the disposal are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Exceptions (5) A *capital gain or *capital loss you make is disregarded if: (a) you *acquired the asset before 20 September 1985; or (b) for a lease: (i) it was granted before that day; or (ii) if it has been renewed or extended--the start of the last renewal or extension occurred before that day. Note: You can make a gain if you dispose of shares in a company, or an interest in a trust, that you acquired before that day: see CGT event K6. Compulsory acquisition (6) If the asset was *acquired from you by an entity under a power of compulsory acquisition conferred by an *Australian law or a *foreign law, the time of the event is the earliest of: (a) when you received compensation from the entity; or (b) when the entity became the asset's owner; or (c) when the entity entered it under that power; or (d) when the entity took possession under that power. Note: You may be able to choose a roll-over if an asset is compulsorily acquired: see Subdivision 124-B. (7) CGT event A1 does not happen if the *disposal of the asset was done to provide or redeem a security. Subdivision 104-B--Use and enjoyment before title passes 104-15 Use and enjoyment before title passes: CGT event B1 (1) CGT event B1 happens if you enter into an agreement with another entity under which: (a) the right to the use and enjoyment of a *CGT asset you own passes to the other entity; and (b) title in the asset will or may pass to the other entity at the end of the agreement. (2) The time of the event is when the other entity first obtains the use and enjoyment of the asset. (3) You make a capital gain if the *capital proceeds from the agreement are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Exceptions (4) A *capital gain or *capital loss you make is disregarded if: (a) title in the asset does not pass to the other entity when the agreement ends; or (b) you *acquired the asset before 20 September 1985. Subdivision 104-C--End of a CGT asset Table of sections 104-20 Loss or destruction of a CGT asset: CGT event C1 104-25 Cancellation, surrender and similar endings: CGT event C2 104-30 End of option to acquire shares etc.: CGT event C3 104-20 Loss or destruction of a CGT asset: CGT event C1 (1) CGT event C1 happens if a *CGT asset you own is lost or destroyed. Note: This event can apply to part of a CGT asset: see section 108-5 (definition of CGT asset). (2) The time of the event is: (a) when you first receive compensation for the loss or destruction; or (b) if you receive no compensation--when the loss is discovered or the destruction occurred. (3) You make a capital gain if the *capital proceeds from the loss or destruction are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Exception (4) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104-25 Cancellation, surrender and similar endings: CGT event C2 (1) CGT event C2 happens if your ownership of an intangible *CGT asset ends by the asset: (a) being redeemed or cancelled; or (b) being released, discharged or satisfied; or (c) expiring; or (d) being abandoned, surrendered or forfeited. (2) The time of the event is: (a) when you enter into the contract that results in the asset ending; or (b) if there is no contract--when the asset ends. (3) You make a capital gain if the *capital proceeds from the ending are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. (4) A lease is taken to have expired even if it is extended or renewed. Exceptions (5) A *capital gain or *capital loss you make is disregarded if: (a) you *acquired the asset before 20 September 1985; or (b) for a lease: (i) it was granted before that day; or (ii) if it has been renewed or extended--the start of the last renewal or extension occurred before that day. Note 1: There are other exceptions if: * your lease expires and you did not use it mainly to produce assessable income: see section 118-40; or * you exercise rights to acquire shares or units: see section 130-40; or * you acquire shares or units by converting a convertible note: see section 130-60; or * you exercise an option: see section 134-1. Note 2: A company can agree to forgo any capital loss it makes as a result of forgiving a commercial debt owed to it by another company where the companies are under common ownership: see section 245-90 of Schedule 2C to the Income Tax Assessment Act 1936. Note 3: A capital gain or loss a company makes because shares in its 100% subsidiary are cancelled (an example of CGT event C2) on the liquidation of the subsidiary may be reduced if there was a roll-over for a CGT asset under Subdivision 126-B: see section 126-85. 104-30 End of option to acquire shares etc.: CGT event C3 (1) CGT event C3 happens if an option a company or a trustee of a unit trust granted to an entity to *acquire a *CGT asset that is: (a) *shares in the company or units in the unit trust; or (b) *debentures of the company or unit trust; ends in one of these ways: (c) it is not exercised by the latest time for its exercise; (d) it is cancelled; (e) the entity releases or abandons it. (2) The time of the event is when the option ends. (3) The company or trustee makes a capital gain if the *capital proceeds from the grant of the option are more than the expenditure incurred in granting it. It makes a capital loss if those *capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income. Exception (5) A *capital gain or *capital loss the company or trustee makes is disregarded if it granted the option before 20 September 1985. Note: This subsection is modified for the purpose of calculating the attributable income of a CFC: see section 418 of the Income Tax Assessment Act 1936. Subdivision 104-D--Bringing into existence a CGT asset Table of sections 104-35 Creating contractual or other rights: CGT event D1 104-40 Granting an option: CGT event D2 104-45 Granting a right to income from mining: CGT event D3 104-35 Creating contractual or other rights: CGT event D1 (1) CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity. Example: You enter into a contract with the purchaser of your business not to operate a similar business in the same town. The contract states that $20,000 was paid for this. You have created a contractual right in favour of the purchaser. If you breach the contract, the purchaser can enforce that right. (2) The time of the event is when you enter into the contract or create the other right. (3) You make a capital gain if the *capital proceeds from creating the right are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those *capital proceeds are less. Example: To continue the example: If you paid your lawyer $1,500 to draw up the contract, you make a capital gain of: [GRAPHIC] (4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exceptions (5) CGT event D1 does not happen if: (a) you created the right by borrowing money or obtaining credit from another entity; or (b) the right requires you to do something that is another *CGT event that happens to you; or (c) a company issues or allots *shares to you; or (d) the trustee of a unit trust issues units in the trust to you. Example: You agree to sell land. You have created a contractual right in the buyer to enforce completion of the transaction. The sale results in you disposing of the land, an example of CGT event A1. This means that a gain or loss from CGT event D1 is disregarded. 104-40 Granting an option: CGT event D2 (1) CGT event D2 happens if you grant an option to an entity, or renew or extend an option you had granted. Note: Some options are not covered: see subsections (6) and (7). (2) The time of the event is when you grant, renew or extend the option. (3) You make a capital gain if the *capital proceeds from the grant, renewal or extension of the option are more than the expenditure you incurred to grant, renew or extend it. You make a capital loss if those *capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Exceptions (5) A *capital gain or *capital loss you make from the grant, renewal or extension of the option is disregarded if the other entity exercises the option. Note: Section 134-1 sets out the consequences of an option being exercised. (6) This section does not apply to an option granted, renewed or extended by a company or the trustee of a unit trust to *acquire a *CGT asset that is: (a) *shares in the company or units in the unit trust; or (b) debentures of the company or unit trust. Note: Section 104-30 deals with this situation. (7) Nor does it apply to an option relating to a *personal use asset or a *collectable. 104-45 Granting a right to income from mining: CGT event D3 (1) CGT event D3 happens if you own a *prospecting entitlement or *mining entitlement, or an interest in one, and you grant another entity a right to receive *ordinary income or *statutory income from operations permitted to be carried on by the entitlement. Note: If this event applies, there is no disposal of the entitlement. (2) The time of the event is: (a) when you enter into the contract with the other entity; or (b) if there is no contract--when you grant the right to receive *ordinary income or *statutory income. (3) You make a capital gain if the *capital proceeds from the grant of the right are more than the expenditure you incurred in granting it. You make a capital loss if those *capital proceeds are less. (4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it. Subdivision 104-E--Trusts Table of sections 104-55 Creating a trust over a CGT asset: CGT event E1 104-60 Transferring a CGT asset to a trust: CGT event E2 104-65 Converting a trust to a unit trust: CGT event E3 104-70 Capital payment for trust interest: CGT event E4 104-75 Beneficiary becoming entitled to a trust asset: CGT event E5 104-80 Disposal to beneficiary to end income right: CGT event E6 104-85 Disposal to beneficiary to end capital interest: CGT event E7 104-90 Disposal by beneficiary of capital interest: CGT event E8 104-95 Making a capital gain 104-100 Making a capital loss 104-105 Creating a trust over future property: CGT event E9 104-55 Creating a trust over a CGT asset: CGT event E1 (1) CGT event E1 happens if you create a trust over a *CGT asset by declaration or settlement. (2) The time of the event is when the trust over the asset is created. (3) You make a capital gain if the *capital proceeds from the creation are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. Cost base rule (4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's *cost base and *reduced cost base in your hands is its market value when the trust is created. Exceptions (5) CGT event E1 does not happen if: (a) you are the sole beneficiary of the trust and: (i) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (ii) the trust is not a unit trust; or (b) the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same. (6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104-60 Transferring a CGT asset to a trust: CGT event E2 (1) CGT event E2 happens if you transfer a *CGT asset to an existing trust. (2) The time of the event is when the asset is transferred. (3) You make a capital gain if the *capital proceeds from the transfer are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base. (4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's *cost base and *reduced cost base in your hands is its market value when the asset is transferred. Exceptions (5) CGT event E2 does not happen if: (a) you are the sole beneficiary of the trust and: (i) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and (ii) the trust is not a unit trust; or (b) the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same. Note: There is also an exception for employee share trusts: see section 130-90. (6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104-65 Converting a trust to a unit trust: CGT event E3 (1) CGT event E3 happens if: (a) a trust (that is not a unit trust) over a *CGT asset is converted to a unit trust; and (b) just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under). (2) The time of the event is when the trust is converted. (3) The trustee of the original trust makes a capital gain if the market value of the asset (when the trust is converted) is more than the asset's *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base. Exception (4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. 104-70 Capital payment for trust interest: CGT event E4 (1) CGT event E4 happens if: (a) the trustee of a trust makes a payment to you in respect of a unit or an interest in the trust (except for *CGT event A1, C2, E1, E2, E6 or E7 happening in relation to it); and (b) some or all of the payment (the non-assessable part) is not included in your assessable income. The payment can include giving property: see section 103-5. (2) In working out the non-assessable part, disregard any part of the payment that is: (a) *excluded exempt income; or (b) *exempt income subject to withholding tax; or (c) paid from an amount that has been assessed to the trustee. (3) The time of the event is: (a) just before the end of the income year in which the trustee makes the payment; or (b) if another *CGT event (except CGT event E4) happens in relation to the unit or interest or part of it after the trustee makes the payment but before the end of that income year--just before the time of that CGT event. (4) You make a capital gain if the sum of the amounts of the non-assessable parts (adjusted by subsection (7)) of the payments made in the income year made by the trustee in respect of the unit or interest is more than its *cost base. Note: You cannot make a capital loss. (5) If you make a *capital gain, the *cost base and *reduced cost base of the unit or interest are reduced to nil. (6) However, if that sum is not more than the *cost base: (a) the cost base is reduced by that sum; and (b) the *reduced cost base is reduced by that sum (without the subsection (7) adjustment). Example: Mandy owns units in a unit trust that she bought on 1 July 1999 for $10 each. During the 1999-2000 income year the trustee makes 4 non-assessable payments of $0.50 per unit. If at the end of the income year Mandy's cost base for each unit (including indexation) would otherwise be $10.10, the payments require that it be reduced by $2, giving a new cost base of $8.10. If Mandy sells the units (CGT event A1) in the 2000-01 year for more than their cost base at that time, she will make a capital gain equal to the difference. (7) The amount of the non-assessable part is adjusted to exclude any part of it that is attributable to: (a) deductions under Division 43 (about capital works); or (b) an amount that is not included in the assessable income of an entity because of: (i) section 124ZM or 124ZN (which exempt income arising from *shares in a *PDF) of the Income Tax Assessment Act 1936; or (ii) section 159GZZZZE (which exempts certain payments related to infrastructure borrowings) of that Act; or (c) proceeds from a *CGT event that happens in relation to *shares in a company that was a *PDF when that event happened. Note 1: Deductions under Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 (about capital works) are also relevant: see section 104-72 of the Income Tax (Transitional Provisions) Act 1997. Note 2: In working out the cost base of the unit or interest, the non-assessable part does not exclude any part attributable to a deduction under Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 (about capital works) if the payment was made before 18 December 1986: see section 104-70 of the Income Tax (Transitional Provisions) Act 1997. Exception (8) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the unit or interest before 20 September 1985. 104-75 Beneficiary becoming entitled to a trust asset: CGT event E5 (1) CGT event E5 happens if a beneficiary becomes absolutely entitled to a *CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee (disregarding any legal disability the beneficiary is under). Note: Division 128 deals with the effect of death. (2) The time of the event is when the beneficiary becomes absolutely entitled to the asset. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the market value of the asset (at the time of the event) is more than its *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base. Exception for trustee (4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Note: There is also an exception for employee share trusts: see section 130-90. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the market value of the asset (at the time of the event) is more than the *cost base of the beneficiary's interest in the trust capital to the extent it relates to the asset. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that beneficiary's interest in the trust capital to the extent it relates to the asset. Exceptions for beneficiary (6) A *capital gain or *capital loss the beneficiary makes is disregarded if the beneficiary: (a) *acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or (b) acquired it before 20 September 1985. Expenditure can include giving property: see section 103-5. 104-80 Disposal to beneficiary to end income right: CGT event E6 (1) CGT event E6 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's right, or part of it, to receive *ordinary income or *statutory income from the trust. Note: Division 128 deals with the effect of death. (2) The time of the event is when the disposal occurs. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the market value of the asset (at the time of the disposal) is more than its *cost base. It makes a capital loss if that market value is less than the asset's *reduced cost base. Exception for trustee (4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the market value of the asset (at the time of the disposal) is more than the *cost base of the right, or the part of it. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of the right or part. Note: If the beneficiary did not pay anything for the right, the market value substitution rule does not apply: see section 112-20. Exception for beneficiary (6) A *capital gain or *capital loss the beneficiary makes is disregarded if it *acquired the *CGT asset that is the right before 20 September 1985. 104-85 Disposal to beneficiary to end capital interest: CGT event E7 (1) CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital. Note: Division 128 deals with the effect of death. (2) The time of the event is when the disposal occurs. Trustee makes a capital gain or loss (3) The trustee makes a capital gain if the market value of the asset (at the time of the disposal) is more than its *cost base. It makes a capital loss if that market value is less than the asset's *reduced cost base. Exception for trustee (4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Beneficiary makes a capital gain or loss (5) The beneficiary makes a capital gain if the market value of the asset (at the time of the disposal) is more than the *cost base of the interest, or the part of it, being satisfied. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that interest or part. Exceptions for beneficiary (6) A *capital gain or *capital loss the beneficiary makes is disregarded if the beneficiary: (a) *acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or (b) acquired it before 20 September 1985. Expenditure can include giving property: see section 103-5. 104-90 Disposal by beneficiary of capital interest: CGT event E8 (1) CGT event E8 happens if: (a) you are the beneficiary under a trust (except a unit trust or a trust to which Division 128 applies); and (b) you did not give any money or property to *acquire the *CGT asset that is your interest in the trust capital and you did not acquire it by assignment; and (c) you *dispose of the interest, or part of it (but not to the trustee). Note: Division 128 deals with the effect of death. (2) The time of the event is: (a) when you enter into the contract for the *disposal; or (b) if there is no contract--when you stop owning the interest or part. Note 1: You work out if you have made a capital gain or capital loss under sections 104-95 and 104-100. Note 2: There is a special indexation rule for this event: see section 114-10. 104-95 Making a capital gain You are the only beneficiary (1) If you are the only beneficiary with an interest in the trust capital and you *dispose of that interest, you work out if you have made a *capital gain in this way: Working out your capital gain Step 1. Work out the *capital proceeds from the *disposal. Step 2. Work out the *net asset amount. Step 3. If the Step 1 amount is greater, you make a capital gain equal to the difference. (2) The net asset amount is worked out in this way: Working out the net asset amount Step 1. Work out the total of the *cost bases (at the time of the disposal) of the *CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time. Step 2. Work out the total of the market values (at the time of the disposal) of the *CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time. Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal. Step 4. Add up the Step 1, 2 and 3 amounts. Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal. Step 6. The result is the net asset amount. Example: You dispose of your interest in the trust capital for $10,000 (the capital proceeds). The total of the cost bases of the CGT assets that the trustee acquired on or after 20 September 1985 is $6,000. The total of the market values of the CGT assets that the trustee acquired before 20 September 1985 is $2,500. There is $1,000 in the trust. The trust liabilities are $500. The net asset amount is: [GRAPHIC] You make a capital gain of: [GRAPHIC] (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: [GRAPHIC] 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: [GRAPHIC] You make a capital gain of: [GRAPHIC]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: [GRAPHIC] 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: [GRAPHIC] You make a capital gain of: [GRAPHIC] (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: [GRAPHIC] 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: [GRAPHIC] You make a capital gain of: [GRAPHIC]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: [GRAPHIC]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: [GRAPHIC] (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: [GRAPHIC]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; 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 104-140 Shifts in share values: CGT event G2 104-145 Liquidator declares shares worthless: CGT event G3 104-135 Capital payment for shares: CGT event G1 (1) CGT event G1 happens if: (a) a company makes a payment to you for a *share you own in the company (except for *CGT event A1 or C2 happening in relation to the share); and (b) some or all of the payment (the non-assessable part) is not a *dividend, or an amount that is taken to be a dividend under section 47 of the Income Tax Assessment Act 1936. The payment can include giving property: see section 103-5. (2) The time of the event is when the company makes the payment. (3) You make a capital gain if the amount of the non-assessable part is more than the *share's *cost base. If you make a *capital gain, the share's *cost base and *reduced cost base are reduced to nil. Note: You cannot make a capital loss. (4) However, if the amount of the non-assessable part is not more than the *share's *cost base, that cost base and its *reduced cost base are reduced by the amount of the non-assessable part. Exceptions (5) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the *share before 20 September 1985. (6) You disregard a payment by a liquidator for the purposes of this section if the company is dissolved within 18 months of the payment. The payment will be part of your *capital proceeds for *CGT event C2 happening when the share ends. 104-140 Shifts in share values: CGT event G2 (1) CGT event G2 happens if: (a) a *share value shift occurs under a *scheme involving a company and an entity (or the entity's *associate); and (b) the entity is a *controller (for CGT purposes) of the company at any time from when the scheme is entered into to when it has been implemented; and (c) there is a *material decrease in the market value of a share in the company that is owned by the entity or the entity's associate. Note 1: Other matters relevant to this event are set out in Division 140. Note 2: Division 140 is also relevant to interests in shares and rights or options to acquire shares: see section 140-30. (2) The time of the event is when the *share value shift happens. (3) An entity makes a capital gain in the circumstances set out in sections 140-55 and 140-90. Note 1: The entity cannot make a capital loss. Note 2: The entity will not make a capital gain unless: * for value shifted into shares acquired before 20 September 1985--value is shifted into shares owned by the entity or an associate or, in certain circumstances, owned by an associate of an associate; or * for value shifted into shares acquired on or after 20 September 1985--value is shifted into shares owned by an associate of the entity or, in certain circumstances, owned by an associate of an associate. 104-145 Liquidator declares shares worthless: CGT event G3 (1) CGT event G3 happens if you own a *share in a company and its liquidator declares in writing that he or she has reasonable grounds to believe (as at the time of the declaration) there is no likelihood that the shareholders in the company, or shareholders of the relevant class of shares, will receive any further distribution in the course of winding up the company. (2) The time of the event is when the liquidator makes the declaration. (3) You can choose to make a capital loss equal to the *reduced cost base of your *share (as at the time of the declaration). (4) If you make the choice, the *cost base and *reduced cost base of the *share are reduced to nil just after the liquidator makes the declaration. Note: This is for the purpose of working out if you make a capital gain or loss from any later CGT event in relation to the share. Exception (5) You cannot choose to make a *capital loss if you *acquired the *CGT asset that is the *share before 20 September 1985. Subdivision 104-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. (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: [GRAPHIC]104-155 Receipt for event relating to a CGT asset: CGT event H2 (1) CGT event H2 happens if: (a) an act, transaction or event occurs in relation to a *CGT asset that you own; and (b) the act, transaction or event does not result in an adjustment being made to the asset's *cost base or *reduced cost base. Example: You own land on which you intend to construct a manufacturing facility. A business promotion organisation pays you $50,000 as an inducement to start construction early. No contractual rights or obligations are created by the arrangement. The payment is made because of an event (the inducement to start construction early) in relation to your land. Note: This event does not apply if any other CGT event applies: see section 102-25. (2) The time of the event is when the act, transaction or event occurs. (3) You make a capital gain if the *capital proceeds because of the *CGT event are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those *capital proceeds are less. (4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income. Exceptions (5) CGT event H2 does not happen if: (a) the act, transaction or event is the borrowing of money or the obtaining of credit from another entity; or (b) the act, transaction or event requires you to do something that is another *CGT event that happens to you; or (c) a company issues or allots *shares to you; or (d) the trustee of a unit trust issues units in the trust to you. Subdivision 104-I--Australian residency ends Table of sections 104-160 Individual or company stops being resident: CGT event I1 104-165 Exception for individual who stops being resident 104-170 Trust stops being a resident trust: CGT event I2 104-160 Individual or company stops being resident: CGT event I1 (1) CGT event I1 happens if you stop being an *Australian resident. (2) The time of the event is when you stop being one. (3) You need to work out if you have made a *capital gain or a *capital loss for each *CGT asset that you owned just before the time of the event, except one having the *necessary connection with Australia. (4) You make a capital gain if the market value of the asset (at the time of the event) is more than its *cost base. You make a capital loss if that market value is less than the asset's *reduced cost base. Exception (5) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. Note 1: An individual may be able disregard the gain or loss if he or she was a short term resident: see section 104-165. Note 2: An individual can choose to disregard a capital gain or loss he or she makes until another CGT event happens in relation to the asset or he or she becomes a resident again: see section 104-165. 104-165 Exception for individual who stops being resident Short term residents (1) A *capital gain or *capital loss from a *CGT asset covered by *CGT event I1 is disregarded if you are an individual and you were an *Australian resident for less than 5 years during the 10 years before you stopped being one and: (a) you owned the asset before last becoming one; or (b) you *acquired the asset (after last becoming one) because of someone's death. Choosing to disregard making a gain or loss (2) If you are an individual, you can choose to disregard making a *capital gain or a *capital loss from all *CGT assets covered by *CGT event I1. (3) If you do so choose, each of those assets is taken to have the *necessary connection with Australia until the earlier of: (a) a *CGT event happening in relation to the asset; (b) you again becoming an *Australian resident. 104-170 Trust stops being a resident trust: CGT event I2 (1) CGT event I2 happens if a trust stops being a *resident trust for CGT purposes. (2) The time of the event is when the trust stops being one. (3) The trustee needs to work out if it has made a *capital gain or a *capital loss for each *CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event (except one having the *necessary connection with Australia). (4) The trustee makes a capital gain if the market value of the asset (at the time of the event) is more than the asset's *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base. Exception (5) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985. Subdivision 104-J--Reversal of roll-overs Table of sections 104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 104-180 Sub-group break-up 104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1 (1) CGT event J1 happens if: (a) there is a roll-over under Subdivision 126-B for a *CGT event (the roll-over event) that happens in relation to a *CGT asset (the roll-over asset) involving 2 companies that are members of the same *wholly-owned group; and (b) the company (the recipient company) that owns the roll-over asset just after the roll-over stops being a 100% subsidiary of a company in the group in the circumstances set out in subsection (2) or (3); and (c) at the time of the roll-over, the recipient company was a *100% subsidiary of: (i) the other company involved in the roll-over event (the originating company); or (ii) another member of the same *wholly-owned group. Note: If the roll-over was under section 160ZZO of the Income Tax Assessment Act 1936, CGT event J1 does not happen if there would not have been a deemed disposal and re-acquisition under that Act: see section 104-175 of the Income Tax (Transitional Provisions) Act 1997. (2) This condition applies if there has been only one roll-over within the *wholly-owned group under Subdivision 126-B involving the roll-over asset. The recipient company must stop, at a time (the break-up time) when it still owns the roll-over asset, being a *100% subsidiary of a member of the group (the ultimate holding company) that is not a 100% subsidiary of any other member of the group at the time of the roll-over event. (3) This condition applies if the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events. The recipient company must stop, at a time (also the break-up time) when it still owns the roll-over asset, being a *100% subsidiary of another member of the group (also the ultimate holding company) that was not a 100% subsidiary of any other member of the group at the time of the first of the events. (4) The time of the event is the break-up time. (5) The recipient company makes a capital gain if the roll-over asset's market value (at the break-up time) is more than its *cost base. It makes a capital loss if that market value is less than its *reduced cost base. Exceptions (6) CGT event J1 does not happen if the conditions in section 104-180 are satisfied. (7) A *capital gain or *capital loss the recipient company makes is disregarded if the roll-over asset is taken to have been *acquired by it before 20 September 1985 under Subdivision 126-B. Acquisition rule (8) The recipient company is taken to have *acquired the roll-over asset at the break-up time. Cost base adjustment (9) The first element of the recipient company's *cost base and *reduced cost base of the roll-over asset (just after the break-up time) is its market value (at the break-up time). 104-180 Sub-group break-up (1) The condition in subsection (2) must have been satisfied at each time when there is a roll-over within the *wholly-owned group under Subdivision 126-B for a *CGT event happening in relation to the roll-over asset. (2) The originating company and the recipient company must have been members of a group of 2 or more companies (the sub-group) within the *wholly-owned group (excluding the ultimate holding company) for which one of these is satisfied: (a) if the sub-group consists of 2 companies, either the recipient company is a 100% subsidiary of the other company (the holding company), or the other company is a 100% subsidiary of the recipient company (also the holding company); (b) if the sub-group consists of 3 or more companies: (i) the recipient company is a 100% subsidiary of one of those other companies (also the holding company) and so are the other companies (except the holding company) in the sub-group; or (ii) each of the companies in the sub-group (except the recipient company) is a 100% subsidiary of the recipient company (also the holding company). (3) If the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events, each company that was the originating company or the recipient company for the purposes of that Subdivision for one of those roll-overs must have been members of the sub-group at the time of each of the roll-overs. (4) The conditions in subsection (5) or (6) must be satisfied just after the break-up time. (5) If the recipient company was the holding company of the sub-group, none of its *shares can be owned by: (a) the ultimate holding company; or (b) a company that is a *100% subsidiary of the ultimate holding company just after the break-up time. (6) If the recipient company was not the holding company of the sub-group, no *shares in it or in the holding company can be owned by: (a) the ultimate holding company; or (b) a company that is a *100% subsidiary of the ultimate holding company just after the break-up time. Subdivision 104-K--Other CGT events Table of sections 104-205 Partial realisation of intellectual property: CGT event K1 104-210 Bankrupt pays amount in relation to debt: CGT event K2 104-215 Asset passing to tax-advantaged entity: CGT event K3 104-220 CGT asset starts being trading stock: CGT event K4 104-225 Special collectable losses: CGT event K5 104-230 Pre-CGT shares or trust interest: CGT event K6 104-205 Partial realisation of intellectual property: CGT event K1 (1) CGT event K1 happens if there is a *partial realisation of an item of *intellectual property. (2) The time of the event is: (a) when you enter into the contract for the realisation; or (b) if there is no contract--when the realisation occurred. (3) You make a capital gain if the *capital proceeds from the realisation are more than the item's *cost base. If you make a *capital gain, the item's *cost base and *reduced cost base are also reduced to nil. Note: You cannot make a capital loss. (4) On the other hand, if the *capital proceeds from the realisation are less than the item's *cost base, the item's cost base is reduced by that amount at the time of the realisation. Example: On 1 January 1999 you buy a patent for an invention for $100,000. On 1 March 1999 you grant a 5 year licence to exploit the patent in South Australia for $60,000 (a partial realisation). Suppose the patent's cost base just before the grant is $100,000. The capital proceeds ($60,000) are less than the patent's cost base, which is reduced to $40,000. On 1 September 1999 you receive damages of $70,000 for infringement of the patent (another partial realisation). Suppose the patent's cost base just before the other realisation is $40,000. The capital proceeds ($70,000) exceed the patent's cost base. You make a capital gain of $30,000 and the patent's cost base is reduced to nil. Extension of licence treated as grant of new licence (5) This section has effect as if an extension of the term of a licence relating to a patent, design or copyright were the grant of a new licence (and so a *partial realisation). Exception (6) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the item of intellectual property before 20 September 1985. 104-210 Bankrupt pays amount in relation to debt: CGT event K2 (1) CGT event K2 happens if: (a) you made a *net capital loss for an income year that, because of subsection 102-5(2), cannot be applied in working out whether you made a *net capital gain for the income year or a later one; and (b) you make a payment in an income year (the payment year) in respect of a debt that was taken into account in working out the amount of that net capital loss; and (c) ignoring subsection 102-5(2), some part of the net capital loss (the denied part) would have been applied (if you had made sufficient *capital gains) in working out whether you had made a *net capital gain for the payment year. The payment can include giving property: see section 103-5. Note: A net capital loss mentioned in subsection 160ZC(4A) of the Income Tax Assessment Act 1936 is also relevant: see section 104-210 of the Income Tax (Transitional Provisions) Act 1997. (2) The time of the event is when you make the payment. (3) You make a capital loss equal to the smallest of: (a) the amount you paid; or (b) that part of it that was taken into account in working out the denied part; or (c) the denied part less the sum of *capital losses you made as a result of previous payments you made in respect of the debt that was taken into account in working out the denied part. (4) In calculating that capital loss, disregard any amount you have received as *recoupment of the payment and that is not included in your assessable income. 104-215 Asset passing to tax-advantaged entity: CGT event K3 (1) CGT event K3 happens if you die and a *CGT asset you owned just before dying *passes to a beneficiary in your estate who (when the asset passes): (a) is an *exempt entity; or (b) is the trustee of a *complying superannuation fund; or (c) is the trustee of a *complying approved deposit fund; or (d) is the trustee of a *pooled superannuation trust; or (e) is not an *Australian resident. (2) If the asset passes to a beneficiary who is not an *Australian resident, CGT event K3 happens only if: (a) you were an *Australian resident just before dying; and (b) the asset (in the hands of the beneficiary) does not have the *necessary connection with Australia. (3) The time of the event is just before you die. (4) A capital gain is made if the market value of the asset on the day you died is more than the asset's *cost base. A capital loss is made if that market value is less than the asset's *reduced cost base. Note: The trustee of the estate must include in the date of death return any net capital gain for the income year when you died. Exception (5) A *capital gain or *capital loss is disregarded if you *acquired the asset before 20 September 1985. Note: There is also an exception if the CGT asset is property under the Cultural Bequests Program: see section 118-5. 104-220 CGT asset starts being trading stock: CGT event K4 (1) CGT event K4 happens if: (a) you start holding as *trading stock a *CGT asset you already own but do not hold as trading stock; and (b) you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its market value. Note 1: Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock. Note 2: There is an exemption if you elect its cost: see section 118-25. (2) The time of the event is when you start. (3) You make a capital gain if the asset's market value (just before it became *trading stock) is more than its *cost base. You make a capital loss if that market value is less than its *reduced cost base. Exception (4) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985. 104-225 Special collectable losses: CGT event K5 (1) CGT event K5 happens if the requirements in subsections (2), (3) and (4) are satisfied. (2) There is a fall in the market value of a *collectable of a company or trust. (3) *CGT event A1, C2 or E8 happens to: (a) *shares you own in the company (or in a company that is a member of the same *wholly-owned group); or (b) an interest you have in the trust; and there is no roll-over for that CGT event. (4) As a result of the *capital proceeds from that event being replaced under section 116-80: (a) you make a *capital gain that you would not otherwise have made; or (b) you do not make the *capital loss you would otherwise have made; or (c) you make a capital loss that is less than you would otherwise have made. Note: The capital proceeds from that event are replaced with the market value of the shares or the interest in the trust as if the fall in the market value of collectables and personal use assets had not occurred: see section 116-80. (5) The time of CGT event K5 is the time of *CGT event A1, C2 or E8. (6) You make a capital loss from a *collectable equal to: * the market value of the *shares or the interest in the trust (worked out as at the time of *CGT event A1, C2 or E8 as if the fall in market value of the collectable had not occurred); less: * the actual *capital proceeds from CGT event A1, C2 or E8. Example: You own 50% of the shares in a company. You bought them in 1999 for $60,000. The company owns a painting worth $100,000 and another asset worth $20,000. The painting falls in value to $50,000. In 1999 you sell your shares for $35,000 (the actual capital proceeds). You would otherwise make a capital loss of $25,000. However, the actual capital proceeds are replaced with $60,000 (the market value of the shares if the painting had not fallen in value). You do not make a capital loss from selling the shares. You do make a collectable loss equal to: [GRAPHIC] Note: You can subtract capital losses from collectables only from your capital gains from collectables: see section 108-10. 104-230 Pre-CGT shares or trust interest: CGT event K6 (1) CGT event K6 happens if: (a) you own *shares in a company or an interest in a trust you *acquired before 20 September 1985; and (b) *CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and (c) there is no roll-over for the other CGT event; and (d) the applicable requirement in subsection (2) is satisfied. (2) Just before the other event happened: (a) the market value of property of the company or trust (that is not its *trading stock) that was *acquired on or after 20 September 1985; or (b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was *acquired on or after 20 September 1985; must be at least 75% of the *net value of the company or trust. (5) The time of CGT event K6 is when the other event happens. (6) You make a capital gain if the part of the *capital proceeds from the *shares or interest that is reasonably attributable to the market value of property referred to in subsection (2) is more than the sum of the *cost bases of that property. Note: You cannot make a capital loss. (7) This section applies to property that a company that is not an *Australian resident *acquired after 15 August 1989 from another company as if it were acquired before 20 September 1985 if: (a) the other company acquired it before 20 September 1985; and (b) the companies are members of the same *wholly-owned group; and (c) the property does not have the *necessary connection with Australia. (8) In working out the *net value of a company or trust for the purposes of subsection (2), disregard: (a) the discharge or release of any liabilities; or (b) the market value of any *CGT assets acquired; if the discharge or release, or the *acquisition, was done for a purpose that included ensuring that the requirement in subsection (2) would not be satisfied in a particular situation. Exceptions (9) CGT event K6 does not happen if: (a) for a company referred to in subsection (2)--some of its *shares were listed for quotation in the official list of a stock exchange in Australia or a foreign country at the time of the other event and at all times in the period of 5 years before the time of the other event; or (b) for a trust referred to in subsection (2) that is a unit trust--some of its units were so listed, or were ordinarily available to the public for subscription or purchase, at the time of the other event and at all times in that period. Division 106--Entity making the gain or loss Table of Subdivisions Guide to Division 106 106-A Partnerships 106-B Bankruptcy and liquidation 106-C Absolutely entitled beneficiaries 106-D Security holders Guide to Division 106 106-1 What this Division is about This Division sets out the cases where a capital gain or loss is made by someone other than the entity to which a CGT event happens. The entities affected are: * partnerships (Subdivision 106-A); * bankruptcy trustees and company liquidators (Subdivision 106-B); * trustees where there is an absolutely entitled beneficiary (Subdivision 106-C); * security holders (Subdivision 106-D). Subdivision 106-A--Partnerships 106-5 Partnerships (1) Any *capital gain or *capital loss from a *CGT event happening in relation to a partnership or one of its *CGT assets is made by the partners individually. Each partner's gain or loss is calculated by reference to the partnership agreement, or partnership law if there is no agreement. Example 1: A partnership creates contractual rights in another entity (CGT event D1). Each partner's capital gain or loss is calculated by allocating an appropriate share of the capital proceeds from the event and the incidental costs that relate to the event (according to the partnership agreement, or partnership law if there is no agreement). Example 2: Helen and Clare set up a business in partnership. Helen contributes a block of land to the partnership capital. Their partnership agreement recognises that Helen has a 75% interest in the land and Clare 25%. The agreement is silent as to their interests in other assets and profit sharing. When the land is sold, Helen's capital gain or loss will be determined on the basis of her 75% interest. For other partnership assets, Helen's gain or loss will be determined on the basis of her 50% interest (under the relevant Partnership Act). (2) Each partner has a separate *cost base and *reduced cost base for the partner's interest in each *CGT asset of the partnership. (3) If a partner leaves a partnership, a remaining partner *acquires a separate *CGT asset to the extent that the remaining partner acquires a share of the departing partner's interest in a partnership asset. Note: The remaining partners would not be affected if the departing partner sells its interests to an entity that was not a partner. Example: (Indexation is ignored for the purpose of this example). John, Wil and Patricia form a partnership (in equal shares). John contributes a building (which is a pre-20 September 1985 asset) having a market value of $200,000. Wil and Patricia contribute $200,000 each in cash. The partnership buys another asset for $400,000. John is taken to have disposed of 2/3 of his interest in the building (1/3 to Wil and 1/3 to Patricia). His remaining 1/3 share in the building remains a pre-CGT asset. The 1/3 shares that Wil and Patricia acquire are post-CGT assets. Wil retires from the partnership when the partnership assets have a market value of $1,200,000 ($500,000 for the building and $700,000 for the other asset). John and Patricia pay Wil $400,000 for his interest in the partnership. Wil has a capital gain of $100,000 on the building and $100,000 on the other asset. John and Patricia each acquire an additional 1/6 interest in the partnership assets. These additional interests are separate assets and post-CGT assets. (4) If a new partner is admitted to a partnership: (a) the new partner *acquires a share (according to the partnership agreement, or partnership law if there is no agreement) of each partnership asset; and (b) the existing partners are treated as having *disposed of part of their interest in each partnership asset to the extent that the new partner has acquired it. Example: (Indexation is ignored for the purpose of this example). Lyn and Barry form a partnership, each contributing $15,000 to its capital. The partnership buys land for $30,000. The land increases in value to $300,000. Andrew is admitted as an equal partner, paying Lyn and Barry $50,000 each to acquire a 1/3 share in the land. His cost base is $100,000. Lyn and Barry have each disposed of 1/3 of their interest in the land. Each has a cost base for that interest of $5,000, and capital proceeds of $50,000, leaving them with a capital gain of $45,000 each on Andrew's admission to the partnership. The land is sold for its market value. Andrew has no capital gain on the land. Lyn and Barry have disposed of their remaining 2/3 original interest in the land for capital proceeds of $100,000, leaving each of them with a capital gain of: [GRAPHIC]Subdivision 106-B--Bankruptcy and liquidation Table of sections 106-30 Effect of bankruptcy 106-35 Effect of liquidation 106-30 Effect of bankruptcy (1) For the purposes of this Part and Part 3-3, the vesting of the individual's *CGT assets in the trustee under the Bankruptcy Act 1966 or under a similar foreign law is ignored. (2) This Part and Part 3-3 apply to an act done in relation to a *CGT asset of an individual in these circumstances as if it had been done by the individual: (a) as a result of the bankruptcy of the individual by the Official Trustee in Bankruptcy or a registered trustee, or the holder of a similar office under a *foreign law; (b) by a trustee under a deed of assignment or arrangement made under Part X of the Bankruptcy Act 1966, or under a similar instrument under a foreign law; (c) by a trustee as a result of an arrangement with creditors under that Act or a foreign law. 106-35 Effect of liquidation This Part and Part 3-3 apply to an act done by a liquidator of a company, or the holder of a similar office under a *foreign law, as if the act had been done instead by the company. Example: Ben, a liquidator of a company, sells a CGT asset of the company. Any capital gain or loss is made by the company, not by Ben. Subdivision 106-C--Absolutely entitled beneficiaries 106-50 Absolutely entitled beneficiaries If you are absolutely entitled to a *CGT asset as against the trustee of a trust (disregarding any legal disability), this Part and Part 3-3 apply to an act done by the trustee in relation to the asset as if you had done it. Subdivision 106-D--Security holders 106-60 Acts by security holders This Part and Part 3-3 apply to an act done by an entity (or an agent of the entity) in relation to a *CGT asset for the purpose of enforcing or giving effect to a security, charge or encumbrance the entity holds over the asset as if the act had been done instead by the person who provided the security. Example: A lender sells property under a power of sale after the failure of the owner of the property to make payments on the loan. Any capital gain or loss is made by the owner of the property, not the lender. Division 108--CGT assets Table of Subdivisions Guide to Division 108 108-A What a CGT asset is 108-B Collectables 108-C Personal use assets 108-D Separate CGT assets Guide to Division 108 108-1 What this Division is about This Division defines the various categories of assets that are relevant to working out your capital gains and losses. They are CGT assets, collectables and personal use assets. It also tells you how capital losses from collectables and personal use assets are relevant to working out your net capital gain or loss. It also sets out when land, buildings and capital improvements are taken to be separate CGT assets. Subdivision 108-A--What a CGT asset is Table of sections 108-5 CGT assets 108-7 Interest in CGT assets as joint tenants 108-5 CGT assets (1) A CGT asset is: (a) any kind of property; or (b) a legal or equitable right that is not property. (2) To avoid doubt, these are CGT assets: (a) part of, or an interest in, an asset referred to in subsection (1); (b) goodwill or an interest in it; (c) an interest in an asset of a partnership; (d) an interest in a partnership that is not covered by paragraph (c). Note 1: Examples of CGT assets are: * land and buildings; * shares in a company and units in a unit trust; * options; * debts owed to you; * a right to enforce a contractual obligation; * foreign currency. Note 2: A capital gain or loss from a CGT asset is disregarded if the asset was last acquired before 26 June 1992 and was not an asset for the purposes of Part IIIA of the Income Tax Assessment Act 1936: see section 108-5 of the Income Tax (Transitional Provisions) Act 1997. 108-7 Interest in CGT assets as joint tenants Individuals who own a *CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common. Note: Section 128-50 contains rules that apply when a joint tenant dies. Subdivision 108-B--Collectables Table of sections 108-10 Losses from collectables to be offset only against gains from collectables 108-15 Sets of collectables 108-17 Cost base of a collectable 108-10 Losses from collectables to be offset only against gains from collectables (1) In working out your *net capital gain or *net capital loss for the income year, *capital losses from *collectables can be used only to reduce *capital gains from collectables. Example: Your capital gains from collectables total $200 and your capital losses from collectables total $400. You have other capital gains of $500. You have a net capital gain of $500 and a net capital loss from collectables of $200. The losses from collectables cannot be used to reduce the $500 capital gain. (2) A collectable is: (a) *artwork, jewellery, an antique, or a coin or medallion; or (b) a rare folio, manuscript or book; or (c) a postage stamp or first day cover; that is used or kept mainly for your (or your *associate's) personal use or enjoyment. (3) These are also collectables: (a) an interest in any of the things covered by subsection (2); or (b) a debt that arises from any of those things; or (c) an option or right to *acquire any of those things. Note: Collectables acquired for $500 or less are exempt. However, you get an exemption for an interest in one only if the market value of all the interests combined is $500 or less: see Subdivision 118-A. (4) If some or all of a *capital loss from a *collectable cannot be applied in an income year, the unapplied amount can be applied in the next income year for which your *capital gains from *collectables exceed your *capital losses (if any) from collectables. Example: You have a capital gain from a collectable for the income year of $200 and a capital loss from another collectable of $600. Your capital loss from one collectable reduces your capital gain from the other to zero. You cannot apply the remaining $400 of the capital loss in this income year, but you can apply it in a later income year. (5) If you have 2 or more unapplied *net capital losses from *collectables, you must apply them in the order you made them. 108-15 Sets of collectables (1) This section sets out what happens if: (a) you own *collectables that are a set; and (b) they would ordinarily be *disposed of as a set; and (c) you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10. Example: You buy a set of 3 books for $900. You apportion the $900 among each book: see section 112-30. If the books are of equal value, you have acquired each one for $300. If you dispose of each book individually, you would ordinarily obtain the exemption in section 118-10, because you acquired each one for less than $500. (2) The set of *collectables is taken to be a single *collectable and each of your *disposals is a disposal of part of that collectable. Example: To continue the example, the 3 books are taken to be a single collectable. You will not obtain the exemption in section 118-10, because you acquired the set for more than $500. You work out if you make a capital gain or loss from a disposal of part of an asset by comparing the capital proceeds from it with the cost base or reduced cost base (as appropriate) of the disposed part. Note 1: Section 112-30 tells you how to apportion the cost base and reduced cost base of a CGT asset on a disposal of part of an asset. Note 2: This section does not apply to a collectable you last acquired before 16 December 1995: see section 108-15 of the Income Tax (Transitional Provisions) Act 1997. 108-17 Cost base of a collectable In working out the *cost base of a *collectable, disregard the third element (about non-capital costs of ownership). Subdivision 108-C--Personal use assets Table of sections 108-20 Losses from personal use assets must be disregarded 108-15 Sets of personal use assets 108-30 Cost base of a personal use asset 108-20 Losses from personal use assets must be disregarded (1) In working out your *net capital gain or *net capital loss for the income year, any *capital loss you make from a *personal use asset is disregarded. (2) A personal use asset is: (a) a *CGT asset (except a *collectable) that is used or kept mainly for your (or your *associate's) personal use or enjoyment; or (b) an option or right to *acquire a *CGT asset of that kind; or (c) a debt arising from a *CGT event in which the *CGT asset the subject of the event was one covered by paragraph (a); or (d) a debt arising other than: (i) in the course of gaining or producing your assessable income; or (ii) from your carrying on a *business. Note 1: There is an exemption for a personal use asset you acquire for $10,000 or less: see section 118-10. Note 2: A debt arising from a CGT event involving a CGT asset kept mainly for your personal use and enjoyment is a personal use asset to prevent any loss arising from the debt being a normal capital loss. (3) A personal use asset does not include land, a *stratum unit or a building or structure that is taken to be a separate *CGT asset because of Subdivision 108-D. 108-25 Sets of personal use assets (1) This section sets out what happens if: (a) you own *personal use assets that are a set; and (b) they would ordinarily be *disposed of as a set; and (c) you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10. (2) The set of *personal use assets is taken to be a single *personal use asset and each of your *disposals is a disposal of part of that asset. 108-30 Cost base of a personal use asset In working out the *cost base of a *personal use asset, disregard the third element (about the non-capital costs of ownership). Subdivision 108-D--Separate CGT assets Guide to Subdivision 108-D 108-50 What this Subdivision is about For CGT purposes, there are: * exceptions to the common law principle that what is attached to the land is part of the land; and * special rules about buildings and adjacent land; and * rules about when a capital improvement to a CGT asset is treated as a separate CGT asset. Table of sections Operative provisions 108-55 When is a building a separate asset from land? 108-60 Plant that is part of a building is a separate asset 108-65 Land adjacent to land acquired before 20 September 1985 108-70 When is a capital improvement a separate asset? 108-75 Capital improvements to CGT assets for which a roll-over may be available 108-80 Deciding if capital improvements are related to each other 108-85 Meaning of improvement threshold Operative provisions 108-55 When is a building a separate asset from land? (1) A building or structure on land that you *acquired on or after 20 September 1985 is taken to be a separate *CGT asset from the land if one of the balancing adjustment provisions in this table applies to the building or structure (whether or not there is a balancing adjustment): Balancing adjustment provisions Item For this capital allowance: You do a balancing adjustment under: 1 Depreciation Subdivision 42-F 2 Mining Subdivision 330-J 3 Research and development section 73B of the Income Tax Assessment Act 1936 4 Timber mill buildings Subdivision 387-G 5 Timber operations: access roads Subdivision 387-G Example: You construct a timber mill building on land you own. The building is subject to a balancing adjustment on its disposal, loss or destruction. It is taken to be a separate CGT asset from the land. (2) A building or structure that is constructed on land that you *acquired before 20 September 1985 is taken to be a separate *CGT asset from the land if: (a) you entered into a contract for the construction on or after that day; or (b) if there is no contract--the construction started on or after that day. Example: You bought a block of land with a building on it on 10 August 1984. On 1 December 1999 you construct another building on the land. The other building is taken to be a separate CGT asset from the land. 108-60 Plant that is part of a building is a separate asset A unit of *plant that is part of a building or structure is taken to be a separate *CGT asset from the building or structure. Example: You own a factory from which you carry on a business. You install rest rooms for your employees. The plumbing fixtures and fittings are plant. These are taken to be a separate CGT asset from the factory. 108-65 Land adjacent to land acquired before 20 September 1985 Land that you *acquire on or after 20 September 1985 that is adjacent to land (the original land) you acquired before that day is taken to be a separate *CGT asset from the original land if it and the original land are amalgamated into one title. Example: On 1 April 1984 you bought a block of land. On 1 June 1999 you bought another block of land adjacent to the first block. You amalgamate the titles to the 2 blocks into 1 title. The second block is treated as a separate CGT asset. You can make a capital gain or loss from it if you sell the whole area of land. 108-70 When is a capital improvement a separate asset? Improvements to land (1) A capital improvement to land is taken to be a separate *CGT asset from the land if one of the balancing adjustment provisions set out in the table in section 108-55 applies to the improvement (whether or not there is a balancing adjustment). Example: You own land that you use for pastoral operations. You build some fences that are destroyed by fire. The fences are plant and are subject to a balancing adjustment on their destruction under Division 42. The fences are taken to be a separate CGT asset from the land. Unrelated improvements to pre-CGT assets (2) A capital improvement to a *CGT asset (the original asset) that you *acquired before 20 September 1985 (that is not related to any other capital improvement to the asset) is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when a *CGT event happens in relation to the original asset is: (a) more than the *improvement threshold for the income year in which the event happened; and (b) more than 5% of the *capital proceeds from the event. Example: In 1983 you bought a boat. In 1999 you install a new mast (a capital improvement) for $30,000. Later, you sell the boat for $150,000. If the cost base of the improvement in the sale year is $41,000 and the improvement threshold for that year is $96,000, the improvement will not be treated as a separate asset. Note 1: Section 108-80 sets out the factors for deciding whether capital improvements are related to each other. Note 2: If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvement: see section 116-40. Related improvements to pre-CGT assets (3) Capital improvements to a *CGT asset (the original asset) that you *acquired before 20 September 1985 that are related to each other are taken to be a separate *CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when a *CGT event happens in relation to the original asset is: (a) more than the *improvement threshold for the income year in which the event happened; and (b) more than 5% of the *capital proceeds from the event. Note: If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvements: see section 116-40. Some improvements not relevant (4) This section does not apply to a capital improvement: (a) that took place under a contract that you entered into before 20 September 1985; or (b) if there is no contract--that started or occurred before that day. (5) Subsections (2) and (3) do not apply if the capital improvement is made to: (a) a *Crown lease; or (b) a *prospecting entitlement or *mining entitlement; or (c) a *statutory licence; or (d) *plant to which Subdivision 124-K applies. Note: Section 108-75 deals with this situation. (6) This section does not apply to a capital improvement consisting of repairs to or restoration of a *CGT asset *acquired before 20 September 1985 in circumstances where there is a roll-over under Subdivision 124-B. 108-75 Capital improvements to CGT assets for which a roll-over may be available (1) This section is relevant only if a *CGT event happens in relation to a *CGT asset that is: (a) a *Crown lease; or (b) a *prospecting entitlement or *mining entitlement; or (c) a *statutory licence; or (d) *plant to which Subdivision 124-K applies. You must have *acquired it before 20 September 1985. Note: Division 124 treats you as having acquired a CGT asset before that day in some situations. (2) There are possible consequences if there has been one or more capital improvements to: (a) the *CGT asset the subject of the *CGT event; or (b) any *CGT assets of the same kind that were in existence before the CGT asset and came to an end where a roll-over was obtained under a provision set out in this table: Roll-over provisions Item For this CGT asset: Roll-over is obtained under this provision: 1 A *Crown lease Subdivision 124-J 2 A prospecting or mining entitlement Subdivision 124-L 3 A *statutory licence Subdivision 124-C 4 *Plant Subdivision 124-K Note: Roll-overs under sections 160ZWA, 160ZZF, 160ZZPE and 160ZWC of the Income Tax Assessment Act 1936 are also relevant: see section 108-75 of the Income Tax (Transitional Provisions) Act 1997. Example: In 1984 you acquired a commercial fishing licence. In 1986 you paid $62,000 to get an extra right (a capital improvement) attached to the licence. In June 1999 the licence expired and you got a new licence. You obtained a roll-over for the old licence expiring. In April 2000 you sold the new fishing licence for $200,000. (3) Any capital improvement that is not related to another capital improvement is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when the *CGT event happens is: (a) more than the *improvement threshold for the income year in which the event happened; and (b) more than 5% of the *capital proceeds from the event. Example: To continue the example, suppose the cost base of the right is $101,000 and the improvement threshold for the 1999-2000 income year is $96,000. Since the cost base of the right is more than the improvement threshold and more than 5% of the capital proceeds, the right is taken to be a separate CGT asset. Note 1: Section 108-80 sets out the factors for deciding whether capital improvements are related to each other. Note 2: If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvement: see section 116-40. (4) Any capital improvements that are related to each other are taken to be a separate *CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when the *CGT event happens is: (a) more than the *improvement threshold for the income year in which the event happened; and (b) more than 5% of the *capital proceeds from the event. Note: If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvements: see section 116-40. (5) This section does not apply to any capital improvement: (a) that took place under a contract that you entered into before 20 September 1985; or (b) if there is no contract--that started or occurred before that day. 108-80 Deciding if capital improvements are related to each other In deciding whether capital improvements are related to each other, the factors to be considered include: (a) the nature of the *CGT asset to which the improvements are made; and (b) the nature, location, size, value, quality, composition and utility of each improvement; and (c) whether an improvement depends in a physical, economic, commercial or practical sense on another improvement; and (d) whether the improvements are part of an overall project; and (e) whether the improvements are of the same kind; and (f) whether the improvements are made within a reasonable period of time of each other. 108-85 Meaning of improvement threshold (1) The improvement threshold for the 1997-98 income year is $89,992. (2) The *improvement threshold is indexed annually. Note: Subdivision 960-M shows you how to index amounts. (3) The Commissioner must publish before the beginning of each *financial year the *improvement threshold for that year. Division 109--Acquisition of CGT assets Table of Subdivisions Guide to Division 109 109-A Operative rules 109-B Signposts to other acquisition rules Guide to Division 109 109-1 What this Division is about This Division sets out the ways in which you can acquire a CGT asset and the time of acquisition. The time of acquisition is important for indexation, and for the exemption of assets acquired before 20 September 1985. Generally, you acquire a CGT asset when you become its owner. You can also acquire a CGT asset: * as a result of a CGT event happening: see section 109-5; or * in other circumstances: see section 109-10. This Division also directs you to special acquisition rules in other Divisions. Subdivision 109-A--Operative rules Table of sections 109-5 General acquisition rules 109-10 When you acquire a CGT asset without a CGT event 109-15 Exception 109-5 General acquisition rules (1) In general, you acquire a *CGT asset when you become its owner. (2) This table sets out specific rules for when you acquire a *CGT asset as a result of a *CGT event happening. Note: The full list of CGT events is in section 104-5. Acquisition rules (CGT events) Event Number In these circumstances: You acquire the asset at this time: A1(case 1) An entity *disposes of a CGT asset to you (except where you compulsorily acquire it) when the disposal contract is entered into or, if none, when the entity stops being the asset's owner A1(case 2) You compulsorily acquire a *CGT asset from another entity the earliest of: (a) when you paid compensation to the entity; or (b) when you became the asset's owner; or (c) when you entered the asset under the power of compulsory acquisition; or (d) when you took possession of it under that power B1 You enter into an agreement to obtain the use and enjoyment of a *CGT asset when you first obtain the use and enjoyment of the asset (unless title does not pass to you when the agreement ends) D1 An entity creates contractual or other rights in you when the contract is entered into or the right created D2 An entity grants an option to you when the option is granted D3 An entity grants you a right to receive *ordinary income from mining when the contract is entered into or, if none, when the right is granted E1 An entity creates a trust over a *CGT asset and you are the trustee when the trust is created E2 An entity transfers a *CGT asset to a trust and you are the trustee when the asset is transferred E3 A trust over a *CGT asset is converted to a unit trust and you are the trustee when the trust is converted E5 You as beneficiary under a trust become absolutely entitled to a *CGT asset of the trust as against the trustee (disregarding any legal disability) when you become absolutely entitled E6 Trustee *disposes of a *CGT asset of the trust to you to satisfy a right you had to receive *ordinary income from the trust when the *disposal occurs E7 Trustee *disposes of a *CGT asset of the trust to you to satisfy your interest, or part of it, in trust capital when the *disposal occurs E8 Beneficiary under a trust *disposes of its interest, or part of it, in trust capital to you when disposal contract is entered into or, if none, when beneficiary stops being interest's owner E9 An entity creates a trust over future property and you are the trustee when the entity makes the agreement to create the trust F1 A lessor grants a lease to you, or renews or extends a lease for grant of lease--when the contract is entered into or, if none, at the start of lease;for lease renewal or extension--at the start of renewal or extension F2 A lessor grants a lease to you, or renews or extends a lease, and term is at least 50 years for grant of lease--when lessor grants the lease;for lease renewal or extension--at the start of renewal or extension K1 An entity *partially realises an item of *intellectual property to you when the contract is entered into or, if none, when the *partial realisation happens K3 An individual dies and a *CGT asset of the individual *passes to you (as a tax advantaged entity) when the individual dies K6 A *CGT event happens to *shares or an interest in a trust you own when the other CGT event happens Note 1: For CGT events E1, E2 and E3, if the circumstances specified in the second column of the table happened to an asset before 12 January 1994, there may be no acquisition: see section 109-5 of the Income Tax (Transitional Provisions) Act 1997. Note 2: The acquisition rule for CGT event E9 in the table does not apply to you as trustee if the agreement to create the trust was made before 12 noon on 12 January 1994: see section 109-5 of the Income Tax (Transitional Provisions) Act 1997. 109-10 When you acquire a CGT asset without a CGT event This table sets out specific rules for some cases where you acquire a *CGT asset otherwise than as a result of a *CGT event happening. Acquisition rules (no CGT event) Item In these circumstances You acquire the asset at this time: 1 You (or your agent) construct or create a *CGT asset, and you own it when the construction is finished or the asset is created when the construction, or work that resulted in the creation, started 2 A company issues or allots *shares to you when contract is entered into or, if none, when *shares issued or allotted 3 A trustee of a unit trust issues units in the trust to you when contract is entered into or, if none, when units issued 109-15 Exception You do not acquire a *CGT asset if the asset was *disposed of to you to provide or redeem a security. Subdivision 109-B--Signposts to other acquisition rules Table of sections 109-50 Effect of this Subdivision 109-55 Other acquisition rules 109-60 Acquisition rules outside this Part and Part 3-3 109-50 Effect of this Subdivision This Subdivision is a *Guide. 109-55 Other acquisition rules This table sets out other acquisition rules in this Part and Part 3-3. Other acquisition rules Item In these circumstances You acquire the asset at this time: See: 1 A CGT asset devolves to you as legal personal representative of a deceased individual when the individual died section 128-15 2 A CGT asset passes to you as beneficiary in the estate of a deceased individual when the individual died sections 128-15 and 128-25 3 A surviving joint tenant acquires deceased joint tenant's interest in a CGT asset when the deceased died section 128-50 4 You get only a partial exemption under Subdivision 118-B for a CGT event happening to a CGT asset that is a dwelling, but you would have got a full exemption if the CGT event had happened just before the first time the dwelling was used for that purpose at that time section 118-92 5 The trustee of a deceased estate acquires a dwelling under the deceased's will for you to occupy, and you obtain an interest in it when the trustee acquired it section 118-210 6 You obtain a replacement-asset roll-over for replacing an asset you acquired before 20 September 1985 before 20 September 1985 Divisions 122 and 124 7 You obtain a replacement-asset roll-over for a Crown lease, or a *prospecting or mining entitlement that is renewed or replaced and part of the new entitlement relates a part of the old one that you acquired before 20 September 1985 before 20 September 1985 (for that part of the new entitlement that relates to the pre-CGT part of the old one) sections 124-595 and 124-725 8 You obtain a same-asset roll-over for a CGT asset the transferor acquired before 20 September 1985 before 20 September 1985 Divisions 122 and 126 8A There is a same-asset roll-over for a CGT event that happens to a CGT asset (acquired on or after 20 September 1985) because the trust deed of a fund is changed and you are the fund that owns the asset after the CGT event at the time of the CGT event Subdivision 126-C 9 A company or trustee of a unit trust issues you with bonus equities because it owes you an amount, and the amount is not included in your assessable income if the original equities are post-CGT assets, or are pre-CGT assets and fully paid--when you acquired the original equities; orif the original equities are pre-CGT assets and you had to pay an amount for the bonus equities--when the liability to pay arose section 130-20 10 You own shares in a company or units in a unit trust and you exercise rights to acquire new equities in the company or trust for the rightsif you acquired them from the company or trustee--when you acquired the original equities; orfor the new equities--when you exercise the rights section 130-40 11 You acquire shares in a company or units in a unit trust by converting a convertible note when the liability to pay for the convertible note arose section 130-60 12 You acquire a qualifying share or right under an employee share scheme and a CGT event does not happen to it at the cessation time or within 30 days after that time at the cessation time section 130-80 13 You (as a lessee of land) acquire the reversionary interest of the lessor and there is no roll-over for the acquisition if term of lease was for 99 years or more--when the lease was granted or assigned to you; orif term of lease less than 99 years--when the reversionary interest acquired section 132-15 14 You acquired a CGT asset before 20 September 1985, and there has since been a change in the majority underlying interests in the asset at the time of the change Division 149 15 You become an Australian resident and you owned a CGT asset that you acquired on or after 20 September 1985 and that did not have the necessary connection with Australia when you become an Australian resident section 136-40 16 A trust of which you are trustee becomes a resident trust for CGT purposes and you owned a CGT asset that you acquired on or after 20 September 1985 and that did not have the necessary connection with Australia when the trust becomes a resident trust for CGT purposes section 136-45 17 There is a roll-over under Subdivision 126-B for a *CGT event and you are the company owning the roll-over asset just after the roll-over and you stop being a *100% subsidiary of another company in the *wholly-owned group when you stop section 104-175 109-60 Acquisition rules outside this Part and Part 3-3 This table sets out other acquisition rules outside this Part and Part 3-3. Provisions of the Income Tax Assessment Act 1936 are in bold. Other acquisition rules Item In these circumstances The asset is acquired at this time: See: 1 You stop holding an item as trading stock when you stop paragraph 70-110(b) 2 CGT event happens to Cocos (Keeling) Islands asset 30 June 1991 section 24P 3 Trust ceases to be a resident trust for CGT purposes and there is an attributable taxpayer when it ceases section 102AAZBA 4 CGT event happens to CGT asset in connection with the demutualisation of an insurance company on the demutualisation resolution day section 121AS 5 CGT event happens to assets of NSW State Bank at the first taxing time section 121EN 6 You own shares in a company that stops being a PDF just after it stops section 124ZR 7 You acquire a number of shares that results in you obtaining a 10% (threshold) interest in a SME when you obtained the threshold interest section 128TI 8 CGT event happens to 30 June 1988 asset of complying superannuation fund, complying ADF or complying PST 30 June 1988 section 306 9 A CGT asset of a CFC (that it owned on its commencing day) on the CFC's commencing day section 411 10 A CGT asset is owned by a tax exempt entity and it becomes taxable at the transition time section 57-25 of Schedule 2D Division 110--Cost base and reduced cost base Table of Subdivisions Guide to Division 110 110-A Cost base 110-B Reduced cost base Guide to Division 110 110-1 What this Division is about This Division tells you how to work out the cost base and reduced cost base of a CGT asset. You need to know these to work out if you make a capital gain or loss from most CGT events. Table of sections 110-5 Modifications to general rules 110-10 Rules about cost base not relevant for some CGT events 110-5 Modifications to general rules After you have read the general rules, you need to know if there are any modifications to them. Division 112 lists each situation that may result in a modification and tells you where you can find the detailed provisions for each situation. 110-10 Rules about cost base not relevant for some CGT events This table sets out each CGT event for which you do not need to know what the cost base or reduced cost base of a CGT asset is to work out if you make a capital gain or loss. The section describing the event tells you what amount is relevant instead. Rules about cost base not relevant for some CGT events Event number Description of event: See section: C3 End of option to acquire shares etc. 104-30 D1 Creating contractual or other rights 104-35 D2 Granting an option 104-40 D3 Granting a right to income from mining 104-45 E9 Creating a trust over future property 104-105 F1 Granting a lease 104-110 F3 Lessor pays lessee to get lease changed 104-120 F5 Lessor receives payment for changing lease 104-130 H1 Forfeiture of deposit 104-150 H2 Receipt for event relating to a CGT asset 104-155 K2 Bankrupt pays amount in relation to debt 104-210 Subdivision 110-A--Cost base Table of sections 110-25 General rules about cost base 110-30 Cost base of partnership assets 110-35 Incidental costs 110-25 General rules about cost base (1) The cost base of a *CGT asset consists of 5 elements. It can also include indexation of those elements (except the third one). To find out how to index expenditure: see Division 114. Note: You need to keep records of each element: see Division 121. 5 elements of the cost base (2) The first element is the total of: (a) the money you paid, or are required to pay, in respect of *acquiring it; and (b) the market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition). Note 1: There are special rules for working out when you are required to pay money or give other property: see section 103-15. Note 2: This element is replaced with another amount in many situations: see Division 112. (3) The second element is the *incidental costs you incurred: (a) to *acquire the *CGT asset; and (b) that relate to the *CGT event. These costs can include giving property: see section 103-5. Note: There is one situation to do with options in which the incidental costs relating to the CGT event are modified: see section 112-85. (4) The third element is the non-capital costs of ownership of the *CGT asset you incurred (but only if you *acquired the asset after 20 August 1991). These costs include: (a) interest on money you borrowed to acquire the asset; and (b) costs of maintaining, repairing or insuring it; and (c) rates or land tax, if the asset is land; and (d) interest on money you borrowed to refinance the money you borrowed to acquire the asset; and (e) interest on money you borrowed to finance the capital expenditure you incurred to increase the asset's value. These costs can include giving property: see section 103-5. Note: This element does not apply to personal use assets or collectables: see sections 108-17 and 108-30. (5) The fourth element is capital expenditure you incurred to increase the asset's value. However, the expenditure must be reflected in the state or nature of the asset at the time of the *CGT event. (The expenditure can include giving property: see section 103-5.) Note: There are 3 situations involving leases in which this element is modified: see section 112-80. (6) The fifth element is capital expenditure that you incurred to establish, preserve or defend your title to the asset, or a right over the asset. (The expenditure can include giving property: see section 103-5.) What does not form part of the cost base (7) Expenditure does not form part of the second or third element of the cost base to the extent that you have deducted or can deduct it. (8) Expenditure does not form part of any element of the cost base to the extent of any amount you have received as *recoupment of it, except so far as the amount is included in your assessable income. 110-30 Cost base of partnership assets (1) Expenditure does not form part of the second or third element of the cost base for your interest in a *CGT asset of a partnership to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct it. (2) Expenditure does not form part of any element of the cost base for your interest in a *CGT asset of a partnership to the extent of any amount that you, or a partnership in which you are or were a partner, have received as *recoupment of it, except so far as the amount is included in your assessable income or the partnership's assessable income. 110-35 Incidental costs (1) There are 5 incidental costs you may have incurred: (a) to *acquire a *CGT asset; or (b) that relate to a *CGT event. (2) The first is remuneration for the services of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal adviser. However, remuneration for professional advice about the operation of this Act is not included unless it is provided by a *recognised tax adviser. Note: The requirement in subsection (2) that the professional advice be provided by a recognised tax adviser does not apply to expenditure incurred before 1 July 1989: see section 110-35 of the Income Tax (Transitional Provisions) Act 1997. (3) The second is costs of transfer. (4) The third is stamp duty or other similar duty. (5) The fourth is: (a) if you *acquired a *CGT asset--costs of advertising to find a seller; or (b) if a *CGT event happened--costs of advertising to find a buyer. (6) The fifth is costs relating to the making of any valuation or apportionment for the purposes of this Part or Part 3-3. Subdivision 110-B--Reduced cost base Table of sections 110-55 General rules about reduced cost base 110-60 Reduced cost base for partnership assets 110-55 General rules about reduced cost base (1) The reduced cost base of a *CGT asset consists of 5 elements. It does not include indexation of those elements. 5 elements of the reduced cost base (2) All of the elements (except the third one) of the reduced cost base of a *CGT asset are the same as those for the *cost base. (3) The third element is: (a) any amount included in your assessable income for any income year because of a balancing adjustment for the asset; and (b) any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income): (i) section 42-285 or 42-290; or (ii) subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936. What does not form part of the reduced cost base (4) The reduced cost base does not include an amount to the extent that you have deducted or can deduct it (including because of a balancing adjustment) or could have deducted apart from paragraph 43-70(2)(h). Note: That paragraph excludes from deductibility under Division 43 expenditure that qualifies for the heritage conservation rebate. (5) The reduced cost base does not include an amount that is taken into account under paragraph 42-175(b). Note: That paragraph covers reductions in the undeducted cost of plant. (6) Expenditure does not form part of the reduced cost base to the extent of any amounts you have received as *recoupment of it. However, this rule does not apply to the extent that the amounts are included in your assessable income. (7) If your *CGT asset is a *share in a company, its reduced cost base is reduced by the amount calculated under subsection (8) if: (a) the company makes a distribution to you under an *arrangement; and (b) an amount (the attributable amount) representing the distribution or part of it is reasonably attributable to profits derived by the company before you *acquired the share; and (c) you are entitled to a rebate of income tax under section 46 or 46A of the Income Tax Assessment Act 1936 (the dividend rebate) on the part of the distribution that is a *dividend (the dividend amount); and (d) you were a *controller (for CGT purposes) of the company, or an *associate of such a controller, when the arrangement was made or carried out. (8) The amount of the reduction is: [GRAPHIC]110-60 Reduced cost base for partnership assets (1) The third element of an entity's reduced cost base for its interest in a *CGT asset of a partnership is the entity's share of: (a) an amount included in the assessable income of the partnership because of a balancing adjustment for the asset; and (b) any amount that would have been so included apart from any of these (which provide relief from including a balancing charge in your assessable income): (i) section 42-285 or 42-290; or (ii) subsection 59(2A) or (2D) of the Income Tax Assessment Act 1936; calculated according to the entity's share in the partnership net income or net loss. (2) Expenditure does not form part of an entity's reduced cost base for its interest in a *CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner has deducted or can deduct it (including because of a balancing adjustment), or could have deducted it apart from paragraph 43-70(2)(h). (3) Expenditure does not form part of an entity's reduced cost base for its interest in a *CGT asset of a partnership to the extent that a partnership in which the entity is or was a partner has taken the expenditure into account under paragraph 42-175(b). (4) Expenditure does not form part of an entity's reduced cost base for its interest in a *CGT asset of a partnership to the extent of any amounts that a partnership in which the entity is or was a partner has received as *recoupment of it and that are not included in the assessable income of the partnership. (5) If a *CGT asset of a partnership is a *share in a company, an entity's reduced cost base for its interest in the share is reduced by the amount calculated under subsection (7) if: (a) the company makes a distribution to the partnership under an *arrangement; and (b) an amount (the attributable amount) representing the distribution or part of it is reasonably attributable to profits derived by the company before the partnership *acquired the share; and (c) the partnership is entitled to a rebate of income tax under section 46 or 46A of the Income Tax Assessment Act 1936 (the dividend rebate) on the part of the distribution that is a *dividend (the dividend amount); and (d) a partner in the partnership was a *controller (for CGT purposes) of the company, or an *associate of such a controller, when the arrangement was made or carried out. (6) The amount of the reduction is: [GRAPHIC] Division 112--Modifications to cost base and reduced cost base Table of Subdivisions Guide to Division 112 112-A General modifications 112-B Finding tables for special rules 112-C Replacement-asset roll-overs 112-D Same-asset roll-overs Guide to Division 112 112-1 What this Division is about This Division tells you the situations that may modify the general rules about the cost base and reduced cost base of a CGT asset. 112-5 Discussion of modifications (1) Modifications can occur from the time you acquired the CGT asset to when a CGT event happens in relation to it. Note: You should keep records of the modifications: see Division 121. (2) Most modifications replace the first element (what you paid for a CGT asset) of the cost base and reduced cost base of the asset. (3) Subdivision 112-A contains operative provisions setting out the general situations that may result in a modification to the general rules. (4) Subdivision 112-B (which is a guide) has a number of tables (each one covering a specialist topic) that tell you each situation that may result in a modification to the general rules. (5) Subdivision 112-C (which is a guide) explains what a replacement-asset roll-over is and how it can modify the cost base or reduced cost base. (6) Subdivision 112-D (which is a guide) explains what a same-asset roll-over is and how it can modify the cost base or reduced cost base. Subdivision 112-A--General modifications Table of sections 112-15 General rule for replacement modifications 112-20 Market value substitution rule 112-25 Split, changed or merged assets 112-30 Apportionment rules on acquisition or disposal of part 112-35 Assumption of liability rule 112-15 General rule for replacement modifications If a cost base modification replaces an element of the *cost base of a *CGT asset with an amount, this Part and Part 3-3 apply to you as if you had paid that amount. Example: An individual pays $10,000 to acquire an option. The individual dies and the option devolves to his legal personal representative, who exercises the option. Section 134-1 applies to the legal personal representative as if the representative had paid $10,000 for the option. 112-20 Market value substitution rule (1) The first element of your *cost base and *reduced cost base of a *CGT asset you *acquire from another entity is its market value (at the time of acquisition) if: (a) you did not incur expenditure to acquire it; or (b) some or all of the expenditure you incurred to acquire it cannot be valued; or (c) you did not deal at arm's length with the other entity in connection with the acquisition. The expenditure can include giving property: see section 103-5. (2) Despite paragraph (1)(c), if you did not deal at arm's length with the other entity and: (a) your *acquisition of the *CGT asset resulted from *CGT event D1 happening; or (b) the *CGT asset is a *share in a company that was issued or allotted to you by the company; or (c) the *CGT asset is a unit in a unit trust issued to you by the trustee of the unit trust; the market value is substituted only if what you paid to acquire the CGT asset was more than its market value (at the time of acquisition). The payment can include giving property: see section 103-5. (3) The rule in subsection (1) does not apply in the situations set out in this table: Exceptions to the market value substitution rule Item You *acquired this CGT asset: ...in this situation: 1 A right to receive *ordinary income or *statutory income from a trust (except a unit trust or a trust that arises because of someone's death) (a) you did not pay or give anything for the right; and (b) you did not acquire the right by way of an assignment from another entity 2 A decoration awarded for valour or brave conduct you did not pay or give anything for it 3 A contractual or other legal or equitable right you did not pay or give anything for it 4 Rights to *acquire: (a) *shares, or options to acquire *shares, in a company; or (b) units, or options to acquire units, in a unit trust; in a situation covered by Subdivision 130-B you did not pay or give anything for the rights 5 A *share in a company it was issued or allotted to you by the company and you did not pay or give anything for it 6 A unit in a unit trust it was issued to you by the trustee of the unit trust and you did not pay or give anything for it Note: Disregard subsections (2) and (3) for shares or units that you acquired before 16 August 1989: see section 112-20 of the Income Tax (Transitional Provisions) Act 1997. 112-25 Split, changed or merged assets Split or changed assets (1) This section sets out what happens if: (a) a *CGT asset (the original asset) is split into 2 or more assets (the new assets); or (b) a *CGT asset (also the original asset) changes in whole or in part into an asset (also the new asset) of a different nature; and you are the beneficial owner of the original asset and each new asset. Example: You subdivide a block of land into 3 separate blocks. Each of those blocks is a new asset. (2) The splitting or change is not a *CGT event. (3) You work out the *cost base and *reduced cost base of each new asset as follows: Method statement Step 1. Work out each element of the *cost base and *reduced cost base of the original asset at the time of the event referred to in subsection (1). Step 2. Apportion in a reasonable way each element to each new asset. The result is each corresponding element of the new asset's *cost base and *reduced cost base. Merged assets (4) If 2 or more *CGT assets (the original assets) are merged into a single asset (the new asset) and you are the beneficial owner of the original assets and the new asset: (a) the merger is not a *CGT event; and (b) each element of the *cost base and *reduced cost base of the new asset (at the time of the merging) is the sum of the corresponding elements of each original asset. 112-30 Apportionment rules on acquisition or disposal of part Apportionment on acquisition of an asset (1) If you *acquire a *CGT asset because of a transaction and only part of the expenditure you incurred under the transaction relates to the acquisition of the asset, the first element of your *cost base and *reduced cost base of the asset is that part of the expenditure that is reasonably attributable to the acquisition of the asset. The expenditure can include giving property: see section 103-5. Apportionment of expenditure in other elements (1A) If you incur expenditure and only part of it relates to another element of the *cost base or *reduced cost base of a *CGT asset, that element includes that part of the expenditure that is reasonably attributable to that element. Apportionment for CGT asset that was part of another asset (2) The *cost base and *reduced cost base of a *CGT asset is apportioned if a *CGT event happens to some part of the asset, but not to the remainder of it. Note: The full list of CGT events is in section 104-5. (3) The *cost base for the *CGT asset representing the part to which the *CGT event happened is worked out using the formula: [GRAPHIC] The *reduced cost base is worked out similarly. (4) The remainder of the *cost base and *reduced cost base of the asset is attributed to the part that remains. Example: You acquire a truck for $24,000 and sell its motor for $9,000. Suppose the market value of the remainder of the truck is $16,000. Under subsection (4), the cost base of the motor is: [GRAPHIC] Under subsection (5), the cost base of the remainder of the truck is: [GRAPHIC] (5) However, an amount forming part of the *cost base or *reduced cost base of the asset is not apportioned if, on the facts, that amount is wholly attributable to the part to which the *CGT event happened or to the remaining part. 112-35 Assumption of liability rule If you *acquire a *CGT asset from another entity that is subject to a liability, the first element of your *cost base and *reduced cost base of the asset includes the amount of the liability you assume. Example: You acquire a block of land for $150,000. You pay $50,000 and assume a liability for an outstanding mortgage of $100,000. Note: The first element of cost base is dealt with in subsection 110-30(2). The first element of reduced cost base is the same: see subsection 110-55(2). Subdivision 112-B--Finding tables for special rules Table of sections 112-40 Effect of this Subdivision 112-45 CGT events 112-50 Main residence 112-55 Effect of you dying 112-60 Bonus shares or units 112-65 Rights 112-70 Convertible notes 112-75 Employee share schemes 112-80 Leases 112-85 Options 112-87 Residency 112-90 An asset stops being a pre-CGT asset 112-95 Transfer of net capital losses within wholly-owned groups of companies 112-97 Modifications outside this Part and Part 3-3 112-40 Effect of this Subdivision (1) This Subdivision is a *Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. (2) It sets out which element of the cost base or reduced cost base of a CGT asset is affected by various situations. 112-45 CGT events CGT events Event number In this situation: Element affected: See section: E1 A trust is created over a CGT asset First element of cost base and reduced cost base 104-55 E4 A trustee makes a capital payment to you in relation to units or an interest in the trust The total cost base and reduced cost base 104-70 F4 A lessee receives payment for changing lease The total cost base 104-125 G1 A company makes a capital payment to you in relation to your shares The total cost base and reduced cost base 104-135 G2 There is a shift in share values The total cost base and reduced cost base 140-60140-95 G2 There is a shift in share values Fourth element of cost base and reduced cost base 140-65 G3 A liquidator declares shares to be worthless The total cost base and reduced cost base 104-145 K1 There is a partial realisation of an item of intellectual property The total cost base 104-205 112-50 Main residence Main residence Item In this situation: Element affected: See section: 1 A dwelling that is your main residence begins to be used for the first time for the purpose of producing assessable income The total cost base and reduced cost base 118-192 112-55 Effect of you dying Effect of an individual dying Item In this situation: Element affected: See section: 1 CGT asset devolves to the legal personal representative First element of cost base and reduced cost base 128-15 2 CGT asset passes to a beneficiary First element of cost base and reduced cost base 128-15 3 CGT asset passes to a trustee of: (a) a complying superannuation fund; or (b) a complying approved deposit fund; or (c) a pooled superannuation trust First element of cost base and reduced cost base 128-25 4 Surviving joint tenant acquires deceased joint tenant's interest in CGT asset First element of cost base and reduced cost base 128-50 112-60 Bonus shares or units Bonus shares or units Item In this situation: Element affected: See section: 1 A company issues you with bonus shares because of a dividend or other amount it owes you First element of cost base and reduced cost base 130-20 2 A unit trust issues you with bonus units because of a dividend or other amount it owes you First element of cost base and reduced cost base 130-20 112-65 Rights Exercise of rights Item In this situation: Element affected: See section: 1 You exercise rights to acquire shares, or options to acquire shares, in a company First element of cost base and reduced cost base 130-40 2 You exercise rights to acquire units, or options to acquire units, in a unit trust First element of cost base and reduced cost base 130-40 112-70 Convertible notes Convertible notes Item In this situation: Element affected: See section: 1 You acquire shares, or units in a unit trust, by converting a convertible note First element of cost base and reduced cost base 130-60 112-75 Employee share schemes Employee share schemes Item In this situation: Element affected: See section: 1 You acquire a share or right at a discount under an employee share scheme First element of cost base and reduced cost base 130-80130-85 112-80 Leases Leases Item In this situation: Element affected: See section: 1 A lessee incurs expenditure in obtaining the lessor's agreement to vary or waive a term of the lease Fourth element of cost base and reduced cost base 132-1 2 A lessor pays an amount to the lessee for improvements made by the lessee to the property Fourth element of cost base and reduced cost base 132-5 3 A lessor of a long-term lease incurs expenditure in obtaining the lessee's agreement to vary or waive a term of the lease or to forfeit or surrender the lease Fourth element of cost base and reduced cost base 132-10 4 A lessee of land acquires the reversionary interest of the lessor First element of cost base and reduced cost base 132-15 112-85 Options Exercise of options Item In this situation: Element affected: See section: 1 Grantee of option acquires the CGT asset the subject of the option First element of cost base and reduced cost base 134-1 2 Grantor of option acquires the CGT asset the subject of the option For the grantor--the first element of cost base and reduced cost base; For the grantee--the second element of cost base and reduced cost base 134-1 112-87 Residency Residency Item In this situation: Element affected: See section: 1 An individual or company becomes an Australian resident First element of cost base and reduced cost base 136-40 2 A trust becomes a resident trust for CGT purposes First element of cost base and reduced cost base 136-45 112-90 An asset stops being a pre-CGT asset An asset stops being a pre-CGT asset Item In this situation: Element affected: See section: 1 An asset of a non-public entity stops being a pre-CGT asset The total cost base and reduced cost base 149-35 2 An asset of a public entity stops being a pre-CGT asset The total cost base and reduced cost base 149-75 112-95 Transfer of net capital losses within wholly-owned groups of companies Transfer of net capital losses within wholly-owned groups of companies Item In this situation: Element affected: See section: 1 An amount of a net capital loss is transferred and a company owns a share in the loss company or is owed a debt by it The total cost base and reduced cost base 170-175 2 An amount of a net capital loss is transferred and a company owns a share in the gain company or is owed a debt by it The total cost base and reduced cost base 170-180 112-97 Modifications outside this Part and Part 3-3 This table sets out other cost base modifications outside this Part and Part 3-3. Provisions of the Income Tax Assessment Act 1936 are in bold. Modifications outside this Part and Part 3-3 Item In this situation Element affected: See: 1 You stop holding an item as trading stock First element of cost base and reduced cost base Paragraph 70-110(b) 2 CGT event happens to Cocos (Keeling) Islands asset First element of cost base and reduced cost base section 24P 3 CGT event happens by the borrower disposing of the borrowed security to a third party First element of cost base and reduced cost base paragraph 26BC(9)(a) 4 CGT event happens to replacement security and compensatory payment was incurred by the borrower Second element of cost base and reduced cost base subsection 26BC(9A) 5 CGT event happens to CGT asset in connection with the demutualisation of an insurance company First element of cost base and reduced cost base section 121AS 6 CGT event happens to assets of NSW State Bank First element of cost base and reduced cost base section 121EN 7 Trust ceases to be a resident trust for CGT purposes and there is an attributable taxpayer The total cost base and reduced cost base section 102AAZBA 8 You own shares in a company that stops being a PDF First element of cost base and reduced cost base section 124ZR 9 You acquire a number of shares that results in you obtaining a 10% (threshold) interest in a SME First element of cost base and reduced cost base section 128TI 10 CGT event happens to CGT asset used in gold mining The total cost base section 159GZZZBC 11 CGT event happens to CGT asset used in gold mining The total reduced cost base section 159GZZZBD 12 Shares in a holding company are cancelled The total cost base and reduced cost base section 159GZZZH 13 CGT event happens to 30 June 1988 asset of complying superannuation funds, complying ADF or PST First element of cost base and reduced cost base section 308 14 CGT event happens to CGT asset of complying superannuation fund, ADF or PST First element of cost base and reduced cost base section 311 15 A CGT asset of a CFC is taken into account in calculating its attributable income First element of cost base and reduced cost base section 412 16 A CGT asset of a CFC is taken into account in calculating its attributable income First element of cost base and reduced cost base subsection 413(2) 17 A CGT asset of a CFC is taken into account in calculating its attributable income First element of cost base and reduced cost base subsection 413(3) 18 A CGT asset of a CFC is taken into account in calculating its attributable income First element of cost base and reduced cost base section 414 19 A commercial debt is forgiven The total cost base and reduced cost base of CGT assets of the debtor (except assets that are excluded assets under Schedule 2C) sections 245-175 to 245-190 of Schedule 2C 20 A tax exempt entity becomes taxable First element of cost base and reduced cost base section 57-25 of Schedule 2D Subdivision 112-C--Replacement-asset roll-overs Table of sections 112-100 Effect of this Subdivision 112-105 What is a replacement-asset roll-over? 112-110 How is the cost base of the replacement asset modified? 112-115 Table of replacement-asset roll-overs 112-100 Effect of this Subdivision This Subdivision is a *Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. 112-105 What is a replacement-asset roll-over? (1) A replacement-asset roll-over allows you to defer the making of a capital gain or a capital loss from one CGT event until a later CGT event happens. (2) It involves your ownership of one CGT asset (the original asset) ending and you acquiring another one (the replacement asset). (3) All replacement-asset roll-overs are set out in Divisions 122 and 124 of this Act and Division 17A of Part IIIA of the Income Tax Assessment Act 1936. 112-110 How is the cost base of the replacement asset modified? If you acquired the original asset on or after 20 September 1985: (a) the first element of the replacement asset's cost base is replaced by the original asset's cost base at the time you acquired the replacement asset; and (b) the first element of the replacement asset's reduced cost base is replaced by the original asset's reduced cost base at the time you acquired the replacement asset. Note 1: Some replacement-asset roll-overs involve other rules that affect the cost base or reduced cost base of the replacement asset. Note 2: If you acquired the original asset before 20 September 1985, you are taken to have acquired the replacement asset before that day: see Subdivision 124-A. 112-115 Table of replacement-asset roll-overs This table sets out all the replacement-asset roll-overs and tells you where you can find more detail about each one. Provisions of this Act are in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936. Replacement-asset roll-overs Item For the rules about this roll-over: See: 1 Disposal or creation of assets by individual to a wholly-owned company sections 122-40 to 122-65 2 Disposal or creation of assets by partners to a wholly-owned company sections 122-150 to 122-195 3 CGT event happens to small business assets and you acquire replacement assets Division 17A of Part IIIA 4 Asset compulsorily acquired, lost or destroyed Subdivision 124-B 5 Renewal or extension of a statutory licence Subdivision 124-C 6 Strata title conversion Subdivision 124-CD 7 Exchange of shares in the same company or units in the same unit trust Subdivision 124-E 8 Exchange of rights or options to acquire shares in a company or units in a unit trust Subdivision 124-F 9 Exchange of shares in one company for shares in an interposed company Subdivision 124-G 10 Exchange of units in a unit trust for shares in a company Subdivision 124-H 11 Body is converted to an incorporated company Subdivision 124-I 12 Crown leases Subdivision 124-J 13 Plant Subdivision 124-K 14 Prospecting and mining entitlements Subdivision 124-L 15 Disposal of a security under a securities lending arrangement section 26BC Subdivision 112-D--Same-asset roll-overs Table of sections 112-135 Effect of this Subdivision 112-140 What is a same-asset roll-over? 112-145 How is the cost base of the asset modified? 112-150 Table of same-asset roll-overs 112-135 Effect of this Subdivision This Subdivision is a *Guide. Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150. 112-140 What is a same-asset roll-over? A same-asset roll-over allows one entity (the transferor) to disregard a capital gain or loss it makes from disposing of a CGT asset to, or creating a CGT asset in, another entity (the transferee). Any gain or loss is deferred until another CGT event happens in relation to the asset (in the hands of the transferee). All same-asset roll-overs are set out in Divisions 122 and 126. 112-145 How is the cost base of the asset modified? If the transferor acquired the asset on or after 20 September 1985: (a) the first element of the asset's cost base (in the hands of the transferee) is replaced by the asset's cost base at the time the transferee acquired it; and (b) the first element of the asset's reduced cost base (in the hands of the transferee) is replaced by the asset's reduced cost base at the time the transferee acquired it. Note: If the transferor acquired the asset before 20 September 1985, the transferee is taken to have acquired it before that day: see Subdivision 126-A. 112-150 Table of same-asset roll-overs This table sets out all the same-asset roll-overs and tells you where you can find more detail about each one. Same-asset roll-overs Item For the rules about this roll-over: See: 1 Transfer of a CGT asset from one spouse to the other because of a marriage breakdown Subdivision 126-A 2 Transfer of a CGT asset from a company or trust to a spouse because of a marriage breakdown Subdivision 126-A 3 Transfer of a CGT asset to a wholly-owned company sections 122-70 and 122-75 4 Transfer of a CGT asset of a partnership to a wholly-owned company Sections 122-200 and 122-205 5 Transfer of a CGT asset between related companies Subdivision 126-B 6 CGT event happens because a trust deed of a complying approved deposit fund or complying superannuation fund is changed Subdivision 126-C Division 114--Indexation of cost base Table of sections 114-1 Indexing elements of cost base 114-5 When indexation relevant 114-10 Requirement for 12 months ownership 114-15 Cost base modifications 114-20 When expenditure is incurred for roll-overs 114-1 Indexing elements of cost base In working out the *cost base of a *CGT asset, index expenditure in each element. (The expenditure can include giving property: see section 103-5). Note 1: Subdivision 960-M shows you how to index amounts. Note 2: You have to work out the cost base of a CGT asset if a CGT event happens in relation to it or if there is a cost base modification. Note 3: You cannot index expenditure in the third element (non-capital costs of ownership): see subsection 960-275(4). Example: Peter purchases a building as an investment on 1 January 1994 for $250,000. This amount forms the first element of his cost base. He sold the building on 1 February 1996. The index number for the quarter in which he sold the building (the March quarter 1996) is 119.0. The index number for the quarter in which he purchased the building (the March quarter 1994) is 110.4. Applying section 960-275, work out the indexation factor as follows: [GRAPHIC] The indexed first element of Peter's cost base is: [GRAPHIC]114-5 When indexation relevant Indexation is only relevant if the *cost base of a *CGT asset is relevant to a *CGT event. Note 1: The table in section 110-10 sets out the CGT events for which cost base is not relevant. Note 2: Indexation is not relevant to the reduced cost base of a CGT asset. 114-10 Requirement for 12 months ownership (1) You only index expenditure in the *cost base of a *CGT asset for a *CGT event happening in relation to the asset if you, or the entity whose cost base is being worked out, had *acquired the asset at least 12 months before the time of that *CGT event. Note: Generally, expenditure is indexed from when it is incurred: see subsection 960-275(2). The exception is when there is an acquisition that did not result from a CGT event. The first element in this case is indexed from when the expenditure was paid: see subsection 960-275(3). (2) There are 5 exceptions: * one for *CGT event E8: see subsection (3); and * one for roll-overs: see subsections (4) and (5); and * one for deceased estates: see subsection (6); and * one for a surviving joint tenant: see subsection (7); and * one for *CGT event J1: see subsection (8). CGT event E8 (3) For *CGT event E8, the beneficiary indexes the *cost bases of the *CGT assets of the trust only if the beneficiary *acquired the *CGT asset that is the interest in the trust capital at least 12 months before *disposing of it. It does not matter (for indexation from the beneficiary's point of view) how long the trustee owned any of the assets of the trust. Same asset roll-overs (4) The 12 month rule is satisfied for both the entity that owned a *CGT asset before a *same-asset roll-over and the entity that owned it after the roll-over if the sum of their periods of ownership of the asset (and the sum of the periods of ownership of the asset of other entities involved in an unbroken series of roll-overs) is at least 12 months. Replacement asset roll-overs (5) The 12 month rule is satisfied for an entity obtaining a *replacement-asset roll-over for a *CGT event happening in relation to a *CGT asset if the period of the entity's ownership of the original asset (and of other assets for an unbroken series of replacement-asset roll-overs) and of the replacement asset are together at least 12 months. Example: Company A transfers a CGT asset to Company B (which is a member of the same wholly-owned group) 5 months after acquiring it. There is a roll-over for the transfer under Subdivision 126-B. Company B sells the asset 8 months after the transfer. Company A indexes expenditure in its cost base up to the transfer. That cost base becomes the first element of Company B's cost base. Company B indexes its cost base from the transfer to the sale. Deceased estates (6) If a *CGT asset you owned just before dying devolves to your *legal personal representative or *passes to a beneficiary in your estate, the 12 month rule applies to the legal personal representative or the beneficiary as if that entity had *acquired the asset when you acquired it. Surviving joint tenant (7) If individuals own a *CGT asset as joint tenants and one of them dies, the 12 month rule applies to the surviving joint tenant as if the surviving joint tenant had *acquired the deceased's interest in the asset when the deceased acquired it. Note: The surviving joint tenant is taken to have acquired the deceased's interest in the asset: see section 128-50. CGT event J1 (8) If *CGT event J1 happens, the company that owns the roll-over asset ignores (for indexation purposes) the acquisition rule in subsection 104-175(8). 114-15 Cost base modifications (1) There are a number of modifications to the *cost base of *CGT assets (see sections 112-20 and 112-35 and Subdivisions 112-B, 112-C and 112-D). These affect the way indexation works. (2) If a cost base modification replaces an element of the *cost base of a *CGT asset with an amount, or includes an amount in such an element, you index the element or the amount as if expenditure equal to the amount had been incurred in the quarter in which the modification occurred. Example: A trust is declared over a CGT asset (an example of CGT event E1). The first element of the cost base in the hands of the trustee is its market value. The trustee indexes that market value from the quarter in which the trust was declared. (3) A different rule applies if a cost base modification reduces the total *cost base of a *CGT asset. Method statement Step 1. Work out the *cost base (all elements) of the asset as at the quarter in which the modification occurred. Step 2. Subtract the amount of the reduction. Step 3. The Step 2 amount forms a new first element of your *cost base, and is later indexed as if you had incurred expenditure equal to that amount in the quarter in which the modification occurred. Example: Margaret receives a capital payment of $1,000 for shares (an example of CGT event G1). The first element of her cost base is $10,250 (indexed to the quarter in which the payment was made) and the second element (similarly indexed) is $210. Add those amounts ($10,460) and subtract the $1,000. Her new first element of the cost base is $9,460. There are no other elements at that time. 114-20 When expenditure is incurred for roll-overs If there is a roll-over for a *CGT event happening in relation to a *CGT asset and the first element of the *cost base of the asset is the whole of the cost base of: (a) for a *replacement-asset roll-over, the original asset; or (b) for a *same-asset roll-over, the CGT asset; you index that element as if expenditure equal to the amount in that element had been incurred in the quarter in which the CGT event happened. Division 116--Capital proceeds Guide to Division 116 116-1 What this Division is about This Division tells you how to work out what the capital proceeds from a CGT event are. You need to know this to work out if you made a capital gain or loss from the event. Table of sections 116-5 General rules 116-10 Modifications to general rules General rules 116-20 General rules about capital proceeds Modifications to general rules 116-25 Table of modifications to the general rules 116-30 Market value substitution rule: modification 1 116-40 Apportionment rule: modification 2 116-45 Non-receipt rule: modification 3 116-50 Repaid rule: modification 4 116-55 Assumption of liability rule: modification 5 Special rules 116-65 Disposal of a CGT asset the subject of an option 116-70 Option requiring both acquisition and disposal 116-75 Special rule for CGT event C2 happening to a lease 116-80 Special rule if CGT asset is shares or an interest in a trust 116-85 Section 47A of 1936 Act applying to rolled-over asset 116-95 Company changes residence from an unlisted country 116-5 General rules Section 116-20 sets out the general rules about capital proceeds. They are relevant to each CGT event that is listed in the table in section 116-25. 116-10 Modifications to general rules (1) There are 5 modifications to the general rules that may be relevant. The table in section 116-25 lists which ones may be relevant to each CGT event listed in the table. Explanation of modifications (2) The first is a market value substitution rule. It is relevant if: * you receive no capital proceeds from a CGT event; or * some or all of the capital proceeds cannot be valued; or * you did not deal at arm's length with another entity in connection with the event. (3) The second is an apportionment rule. It is relevant if a payment you receive in connection with a transaction relates in part only to a CGT event. Example: You sell 3 CGT assets for a total of $100,000. The $100,000 needs to be apportioned between the 3 assets. (4) The third is a non-receipt rule. It is relevant if you do not receive, or are not likely to receive, some or all of the capital proceeds from a CGT event. (5) The fourth is a repaid rule. It is relevant if you are required to repay some or all of the capital proceeds from a CGT event. (6) The fifth is relevant only if another entity assumes a liability in connection with a CGT event. Note: Also, these provisions of the Income Tax Assessment Act 1936 modify capital proceeds: * sections 159GZZZF and 159GZZZG (cancellation of shares in a holding company); * sections 159GZZZQ and 159GZZZS (buy-backs of shares); * sections 401, 422, 423 and 461 (CFC's); * section 613 (foreign investment funds). [This is the end of the Guide] General rules 116-20 General rules about capital proceeds (1) The capital proceeds from a *CGT event are the total of: (a) the money you have received, or are entitled to receive, in respect of the event happening; and (b) the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event). Note 1: The timing rules for each event are in Division 104. Note 2: In some situations you are treated as having received money or other property, or being entitled to receive it: see section 103-10. Note 3: If you dispose of shares in a buy-back, the capital proceeds are worked out under Division 16K of the Income Tax Assessment Act 1936. (2) This table sets out what the capital proceeds from *CGT events F1, F2 and H2 are: General rules about capital proceeds Event number Description of event: The capital proceeds are: F1 Granting, renewing or extending a lease Any premium paid or payable to you for the grant, renewal or extension F2 Granting, renewing or extending a long-term lease The greatest of: (a) the market value of the estate in fee simple or head lease (worked out when you grant, renew or extend the lease); and (b) what would have been that market value if you had not granted, renewed or extended the lease; and (c) any premium paid or payable to you for the grant, renewal or extension H2 Receipt for event relating to a CGT asset The money or other consideration you received, or are entitled to receive, because of the act, transaction or event (3) In working out the market value of the property the subject of the grant, renewal or extension of a long-term lease: (a) include the market value of any building, part of a building, structure or improvement that is treated as a separate *CGT asset from the property; and (b) disregard any *plant for which the lessor has deducted or can deduct an amount for depreciation under this Act. Note: Subdivision 108-D sets out when a building, structure or improvement is treated as a separate CGT asset. (4) In working out the amount of any premium paid or payable to the lessor for the grant, renewal or extension of a long-term lease, disregard any part of it that is attributable to *plant of that kind. The payment of any premium can include giving property: see section 103-5. Modifications to general rules 116-25 Table of modifications to the general rules There are 5 modifications to the general rules that may be relevant to a *CGT event. This table tells you: * each *CGT event for which the general rules about *capital proceeds are relevant; and * the modifications that can apply to that event; and * any special rules that apply to that event. Capital proceeds modifications Event number Description of event: Only these modifications can apply: Special rules: A1 Disposal of a CGT asset 1, 2, 3, 4, 5 If the disposal is because another entity exercises an option: see section 116-65 If the disposal is of *shares or an interest in a trust: see section 116-80 B1 Use and enjoyment before title passes 1, 2, 3, 4, 5 None C1 Loss or destruction of a CGT asset 2, 3, 4 None C2 Cancellation, surrender and similar endings 1, 2, 3, 4 See sections 116-75 and 116-80 C3 End of option to acquire shares etc. 2, 3, 4 None D1 Creating contractual or other rights 1, 2, 3, 4 None D2 Granting an option 1, 2, 3, 4 See section 116-70 D3 Granting a right to income from mining 1, 2, 3, 4 None K1 Partial realisation of intellectual property 1, 2, 3, 4 None E1 Creating a trust over a CGT asset 1, 2, 3, 4, 5 None E2 Transferring a CGT asset to a trust 1, 2, 3, 4, 5 None E8 Disposal by beneficiary of capital interest 1, 2, 3, 4, 5 See section 116-80 F1 Granting a lease 2, 3, 4 None F2 Granting a long-term lease 2, 3, 4 None F4 Lessee receives payment for changing lease 2, 3, 4 None F5 Lessor receives payment for changing lease 2, 3, 4 None H2 Receipt for event relating to a CGT asset 2, 3, 4 None K6 Pre-CGT shares or trust interest 1, 2, 3, 4, 5 None 116-30 Market value substitution rule: modification 1 No capital proceeds (1) If you received no *capital proceeds from a *CGT event, you are taken to have received the market value of the *CGT asset that is the subject of the event. (The market value is worked out as at the time of the event.) Example: You give a CGT asset to another entity. You are taken to have received the market value of the CGT asset. There are capital proceeds (2) The *capital proceeds from a *CGT event are replaced with the market value of the *CGT asset that is the subject of the event if: (a) some or all of those proceeds cannot be valued; or (b) those capital proceeds are more or less than the market value of the asset and: (i) you and the entity that *acquired the asset from you did not deal with each other at arm's length in connection with the event; or (ii) the CGT event is the redemption, release, abandonment, surrender, forfeiture or cancellation of the asset. (The market value is worked out as at the time of the event.) Note: The matters set out in subparagraph (2)(b)(ii) are examples of CGT event C2. Market value for CGT event C2 (3) Subsection (1) does not apply to: (a) these examples of *CGT event C2: (i) the expiry of a *CGT asset you own; (ii) the cancellation of your statutory licence; or (b) *CGT event D1 (about creating contractual or other rights). (3A) If you need to work out the market value of a *CGT asset that is the subject of *CGT event C2, work it out as if the event had not occurred and was never proposed to occur. Example: A company cancels shares you own in it. You work out the market value of the shares by disregarding the cancellation. CGT assets the subject of certain events (4) To avoid doubt, the *CGT asset that is the subject of a *CGT event specified in this table is the asset so specified. *CGT assets the subject of certain events For this *CGT event: This asset is the subject of the event: D1 the right you created D2 the option you granted D3 the right you granted E8 your interest or part interest in the trust capital K1 your partially realised item of *intellectual property K6 the *share or interest you *acquired before 20 September 1985 116-40 Apportionment rule: modification 2 (1) If you receive a payment in connection with a transaction that relates to more than one *CGT event, the capital proceeds from each event are so much of the payment as is reasonably attributable to that event. Example: You sell a block of land and a boat for a total of $100,000. This transaction involves 2 CGT events. The $100,000 must be divided among the 2 events. The capital proceeds from the disposal of the land are so much of the $100,000 as is reasonably attributable to it. The rest relates to the boat. (2) If you receive a payment in connection with a transaction that relates to one *CGT event and something else, the capital proceeds from the event are so much of the payment as is reasonably attributable to the event. Example: You are an architect. You receive $70,000 for selling a block of land and giving advice to the new owner. This transaction involves one CGT event: the disposal of the land. The capital proceeds from the disposal of the land is so much of the $70,000 as is reasonably attributable to that disposal. (3) The payment can include giving property: see section 103-5. 116-45 Non-receipt rule: modification 3 (1) The *capital proceeds from a *CGT event are reduced if: (a) you are not likely to receive some or all (the unpaid amount) of those proceeds; and (b) this is not because of anything you (or your *associate) have done or omitted to do; and (c) you took all reasonable steps to get the unpaid amount paid. The *capital proceeds are reduced by the unpaid amount. Note: This rule exists because the general rules treat you as having received an amount when you are entitled to receive it. Example You sell a painting to another entity for $5,000 (the capital proceeds). You agree to accept monthly instalments of $100. You receive $2,000, but then the other entity stops making payments. It becomes clear that you are not likely to receive the remaining $3,000. The capital proceeds are reduced to $2,000. (2) There is a further consequence if: (a) those proceeds are reduced by the unpaid amount; but (b) you later receive a part of that amount. Those proceeds are increased by that part. (3) This Part and Part 3-3 apply to the debt owed to you (the unpaid amount) as if it were not a *CGT asset. 116-50 Repaid rule: modification 4 (1) The *capital proceeds from a *CGT event are reduced by: (a) any part of them that you repay; or (b) any compensation you pay that can reasonably be regarded as a repayment of part of them. However, the *capital proceeds are not reduced by any part of the payment that you can deduct. Example: You sell a block of land for $50,000 (the capital proceeds). The purchaser later finds out that you misrepresented a term in the contract. The purchaser sues you and the court orders you to pay $10,000 in damages to the purchaser. The capital proceeds are reduced by $10,000. (2) The payment can include giving property: see section 103-5. 116-55 Assumption of liability rule: modification 5 The *capital proceeds from a *CGT event are increased if another entity *acquires the *CGT asset (the subject of the event) subject to a liability by way of security over the asset. They are increased by the amount of the liability the other entity assumes. Example: You sell land for $150,000. You receive $50,000 (the capital proceeds) and the buyer becomes responsible for a $100,000 liability under an outstanding mortgage. The capital proceeds are increased by $100,000 to $150,000. Special rules 116-65 Disposal of a CGT asset the subject of an option If you *dispose of a *CGT asset because another entity exercises an option you granted in relation to the asset, the *capital proceeds from the disposal include any payment you received for granting the option. The payment can include giving property: see section 103-5. Note: This situation is an example of CGT event A1. 116-70 Option requiring both acquisition and disposal If an option you granted requires you both to *acquire and *dispose of a *CGT asset, the option is treated as 2 separate options and half of the *capital proceeds from the grant is attributed to each option. 116-75 Special rule for CGT event C2 happening to a lease The *capital proceeds from the expiry, surrender or forfeiture of a lease (an example of *CGT event C2) include any payment (because of the lease ending) by the lessor to the lessee for expenditure of a capital nature incurred by the lessee in making improvements to the leased property. The payment or expenditure can include giving property: see section 103-5. 116-80 Special rule if CGT asset is shares or an interest in a trust (1) This section sets out what happens if: (a) there is a fall in the market value of a *personal use asset (other than a car, motor cycle or similar vehicle) or a *collectable of a company or trust; and (b) *CGT event A1, C2 or E8 happens to: (i) *shares you own in the company (or in a company that is a member of the same *wholly-owned group); or (ii) an interest you have in the trust. Note: The full list of CGT events is in section 104-5. (2) The *capital proceeds from the event are replaced with the market value of the *shares, or the interest in the trust. The market value is worked out as at the time of the event as if the fall in market value of the *personal use asset or *collectable had not occurred. Note: You may also make a collectable loss: see CGT event K5. 116-85 Section 47A of 1936 Act applying to rolled-over asset (1) You reduce the *capital proceeds from a *CGT event that happens in relation to a *CGT asset you have if the conditions in this table are satisfied. Conditions for reduction Item Condition 1 You must have *acquired the asset from a company or *CFC 2 Either: (a) the company obtained a roll-over for the *CGT event that resulted in your *acquisition of the asset; or (b) the *CFC obtained a roll-over for that event in applying Division 7 of Part X of the Income Tax Assessment Act 1936 for the purpose of working out the *attributable income of a company in relation to any entity except a roll-over under Subdivision 124-J (about Crown leases), 124-K (about plant) or 124-L (about prospecting and mining entitlements) 3 The company or *CFC is taken, under section 47A of the Income Tax Assessment Act 1936, to have paid you a dividend in relation to that event, and: (a) some or all of the dividend is included in your assessable income under section 44 of that Act; or (b) an amount is included in another entity's assessable income in respect of the dividend under section 458 or 459 of that Act Note: For roll-overs: see Divisions 122, 124 and 126. (2) The reduction is the lesser of: (a) the amount of the dividend; and (b) the amount of any *capital gain that, apart from the roll-over, the company or *CFC would have made from the *CGT event if its *capital proceeds from the event had been the asset's market value (at the time of the event). (3) The amount of that *capital gain is worked out: (a) for the company--under this Part and Part 3-3; or (b) for the *CFC--under this Part and Part 3-3 in their application for the purpose of calculating the *attributable income of the CFC in relation to the entity referred to in paragraph (b) of condition 3 in the table in subsection (1). Note: This section is disregarded in calculating the attributable income of a CFC: see section 410 of the Income Tax Assessment Act 1936. 116-95 Company changes residence from an unlisted country (1) This section sets out what happens if: (a) a *CFC ceases at a time (the residency change time) to be a resident of an *unlisted country and becomes a resident of a *listed country; and (aa) subsection 457(3) of the Income Tax Assessment Act 1936 does not apply to the change of residence; and (b) because of the change in its residency status, an amount is included in an entity's assessable income under section 457 of the Income Tax Assessment Act 1936 (including because of paragraph 58(1)(d) of the Taxation Laws Amendment (Foreign Income) Act 1990); and (c) a *CGT event happens in relation to a *CGT asset (the CFC asset) that has the *necessary connection with Australia and that the CFC owned since the residency change time. (2) If the conditions in subsection (3) are satisfied, the *capital proceeds from the *CGT event are reduced by the amount worked out under subsection (4). If the conditions in subsection (5) are satisfied, those capital proceeds are increased by the amount worked out under subsection (6). Reduction of capital proceeds (3) If all the *CFC's assets were *disposed of at the residency change time for their market values in the circumstances mentioned in subparagraph 457(2)(a)(i) of the Income Tax Assessment Act 1936: (a) *distributable profits of the CFC of a particular amount (the distributable profit amount) would be created, or its distributable profits would be increased by an amount (also the distributable profit amount); and (b) the CFC would have made a profit (the CFC asset profit) on the disposal of the CFC asset. (4) The *capital proceeds are reduced by: [GRAPHIC]where: total asset profits is the sum of the profits that the CFC would have made if all its assets were *disposed of at the residency change time for their market values (ignoring disposals that would not result in a profit). Increase in capital proceeds (5) If all the *CFC's assets were *disposed of at the residency change time for their market values in the circumstances mentioned in subparagraph 457(2)(a)(i) of the Income Tax Assessment Act 1936: (a) the *distributable profits of the CFC would be reduced by an amount (the distributable profit reduction amount); and (b) the CFC would have made a loss (the CFC asset loss) on the disposal of the CFC asset. (6) The *capital proceeds are increased by: [GRAPHIC]where: total asset losses is the sum of the losses that the CFC would have made if all its assets were *disposed of at the residency change time for their market values (ignoring disposals that would not result in a loss). Note: This section is disregarded in calculating the attributable income of a CFC: see section 410 of the Income Tax Assessment Act 1936. Division 118--Exemptions Table of Subdivisions Guide to Division 118 118-A General exemptions 118-B Main residence 118-C Goodwill 118-D Insurance and superannuation 118-E Units in pooled superannuation trusts Guide to Division 118 118-1 What this Division is about This Division sets out various exemptions for many capital gains and losses. There are other provisions that provide exemptions from CGT liability, for example, Division 104 (exceptions from CGT events) and Division 50 (exempt entities). Note: There are also these exemptions in the Income Tax Assessment Act 1936: * section 23AH (about foreign branch gains and losses of companies); * section 24B (about External Territories); * section 26BC (about securities lending arrangements); * section 27CB (about eligible termination payments); * section 116DK (about life insurance companies); * section 121AS (about demutualisation of insurance companies); * section 121EL (about offshore banking units); * section 159GZZZN (about buy-back and cancellation of shares); * section 315 (about superannuation and related businesses); * section 408 (about calculating the attributable income of a CFC). Subdivision 118-A--General exemptions Table of sections Exempt assets 118-5 Cars, motor cycles and valour decorations 118-10 Collectables and personal use assets 118-12 Assets used to produce exempt income 118-13 Shares in a PDF Exempt receipts 118-15 Exempt capital receipts Anti-overlap provisions 118-20 Reducing capital gains if amount otherwise assessable 118-22 Eligible termination payments 118-25 Trading stock 118-30 Film copyright 118-35 Research and development Exempt or loss-denying transactions 118-40 Expiry of a lease 118-42 Transfer of stratum units 118-45 Sale of rights to mine 118-55 Foreign currency hedging gains and losses 118-60 Gifts under Cultural Bequests Program [This is the end of the Guide.] Exempt assets 118-5 Cars, motor cycles and valour decorations A *capital gain or *capital loss you make from any of these *CGT assets is disregarded: (a) a *car, motor cycle or similar vehicle; (b) a decoration awarded for valour or brave conduct (unless you paid money or gave any other property for it). 118-10 Collectables and personal use assets (1) A *capital gain or *capital loss you make from a *collectable is disregarded if you *acquired it for $500 or less. (2) However, there is a special rule if the *collectable is an interest in one of these *CGT assets: (a) *artwork, jewellery, an antique, or a coin or medallion; (b) a rare folio, manuscript or book; (c) a postage stamp or first day cover. A *capital gain or *capital loss you make from the interest is disregarded only if the market value of the asset (when you *acquired the interest) is $500 or less. Note: If you last acquired the interest before 16 December 1995, a capital gain or loss is disregarded if you acquired the interest for $500 or less: see section 118-10 of the Income Tax (Transitional Provisions) Act 1997. (3) A *capital gain you make from a *personal use asset, or part of the asset, is disregarded if you *acquired the asset for $10,000 or less. Note: A capital loss you make from a personal use asset is disregarded: see subsection 108-20(1). 118-12 Assets used to produce exempt income (1) A *capital gain or *capital loss you make from a *CGT asset that you used solely to produce your *exempt income is disregarded. (2) However, the exemption does not apply if the asset was used to gain or produce *excluded exempt income or *exempt income subject to withholding tax. Note: This section is disregarded: * in calculating the attributable income of a trust: see section 102AAZB of the Income Tax Assessment Act 1936; and * in calculating the attributable income of a CFC: see section 410 of that Act. 118-13 Shares in a PDF A *capital gain or *capital loss you make from a *CGT event happening in relation to *shares in a *PDF is disregarded. Exempt receipts 118-15 Exempt capital receipts In working out your *net capital gain or *net capital loss for the income year, disregard: (a) compensation or damages you receive for any wrong or injury you suffer in your occupation; and (b) compensation or damages you receive for any wrong, injury or illness you or your *relative suffers personally; and (c) compensation you receive under the *firearms surrender arrangements; and (d) winnings or losses from gambling, a game or a competition with prizes; and (e) an amount you receive as reimbursement or payment of your expenses under one of these schemes established by an *Australian government agency: (i) the General Practice Rural Incentives Program; (ii) the Sydney Aircraft Noise Insulation Project. Anti-overlap provisions 118-20 Reducing capital gains if amount otherwise assessable (1) A *capital gain you make from a *CGT event is reduced if, because of the event, a provision of this Act (outside of this Part) includes an amount (for any income year) in: (a) your assessable income or *exempt income; or (b) if you are a partner in a partnership, the assessable income or exempt income of the partnership. (1A) Subsection (1) applies to an amount that, under a provision of this Act (outside of this Part), is included in: (a) your assessable income or *exempt income; or (b) if you are a partner in a partnership, the assessable income or exempt income of the partnership; in relation to a *CGT asset as if it were so included because of the *CGT event referred to in that subsection if the amount would also be taken into account in working out the amount of a *capital gain you make. Note: An example is an amount assessable under Division 16E of Part III of the Income Tax Assessment Act 1936, which deals with accruals taxation of certain securities. (1B) The rule in subsection (1) does not apply to: (a) an amount that is taken to be a dividend under section 159GZZZP of the Income Tax Assessment Act 1936 (which relates to buy-backs of *shares); or (b) an amount included in assessable income under section 160AQT of that Act (which relates to franked dividends). (2) The gain is reduced to zero if it does not exceed: (a) the amount included; or (b) if you are a partner, your share (the partner's share) of the amount included in the assessable income or *exempt income of the partnership (calculated according to your entitlement to share in the partnership net income or loss). Example: Liz bought some land in 1990, as part of a profit-making scheme. In December 1998 she sells it. Her profit from the sale is $40,000 and is included in her assessable income under section 6-5 (about ordinary income). Suppose she made a capital gain from the sale of $30,000. It is reduced to zero because it is does not exceed the amount included. (3) The gain is reduced by the amount included, or the amount of the partner's share, if the gain exceeds that amount. Note: These rules are modified for complying superannuation funds that become non-complying and for non-resident superannuation funds that become resident: see Part IX of the Income Tax Assessment Act 1936. (4) A *capital gain you make from a *CGT event is reduced by the extent that a provision of this Act treats: (a) an amount of your *ordinary income or *statutory income from the event as being neither assessable income nor *exempt income; or (b) if you are a partner, your share of the ordinary income or *statutory income of the partnership from the event (calculated according to your entitlement to share in the partnership net income or loss) as being neither assessable income nor *exempt income of the partnership. Note: An example of a provision of this kind is section 121EG (about offshore banking units) of the Income Tax Assessment Act 1936. (4A) A *capital gain the trustee of a *superannuation fund makes from a *CGT event happening in relation to a *CGT asset in an income year is reduced if the asset's market value was taken into account in working out the fund's net previous income for earlier income years under section 288A or 288B of the Income Tax Assessment Act 1936. (4B) The gain is reduced to zero if it does not exceed the amount that would have been the *capital gain from the *CGT event if the *capital proceeds from the event were the asset's market value that was taken into account in working out that net previous income. If the gain exceeds that amount, it is reduced by that amount. Exceptions (5) The gain is not reduced if an amount is included in your assessable income, or the assessable income of the partnership, for any income year because of a balancing adjustment. (6) The gain is not reduced if an amount is included in your *exempt income under section 23AJ (about exempting certain non-portfolio dividends paid by non-resident companies) of the Income Tax Assessment Act 1936 because a company pays a *dividend to you that is: (a) debited against a share capital account of the company; or (b) debited against an account to which the company has credited amounts because of share premiums it received on shares issued by it (even if an amount that is not a share premium, or that cannot be identified as one in the company's books, has also been credited to the account); or (c) debited against an asset revaluation reserve of the company; or (d) directly or indirectly attributable to amounts transferred from such an account or reserve of the company. 118-22 Eligible termination payments In applying section 118-20, if any part of an *eligible termination payment is included in your assessable income, the whole of the payment is taken to be included. 118-25 Trading stock (1) A *capital gain or *capital loss you make from a *CGT asset is disregarded if, at the time of the *CGT event, the asset is: (a) your *trading stock; or (b) if you are a partner, trading stock of the partnership; or (c) if you are absolutely entitled to the asset as against the trustee of a trust (disregarding any legal disability), trading stock of the trustee. (2) A *capital gain or *capital loss you make in these circumstances is disregarded: (a) you start holding as *trading stock a *CGT asset you already own but do not hold as trading stock; and (b) you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its cost (worked out under that section). Note 1: Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock. Note 2: You may make a capital gain or loss if you elect its market value: see CGT event K4. 118-30 Film copyright (1) A *capital gain or *capital loss you make from a *CGT event relating to your interest in the copyright in a film is disregarded if: (a) an amount is included in your assessable income under section 26AG (about film proceeds) of the Income Tax Assessment Act 1936 because of the event; or (b) an amount would have been included apart from section 23H (about exempting film proceeds) of that Act. (2) If you are a partner in a partnership, a *capital gain or *capital loss you make from a *CGT event relating to the partnership's interest in the copyright in a film is disregarded if: (a) an amount is included in the assessable income of a partner (including you) under section 26AG of that Act because of the event; or (b) an amount would have been included apart from section 23H of that Act. (3) If you are absolutely entitled to an interest in the copyright in a film as against the trustee of a trust (disregarding any legal disability), a *capital gain or *capital loss you make from a *CGT event relating to the interest is disregarded if: (a) an amount is included in your assessable income or the net income of the trust under section 26AG of that Act because of the event; or (b) an amount would have been included apart from section 23H of that Act. 118-35 Research and development (1) Disregard a *capital gain or *capital loss from a *CGT event if an amount is included in your assessable income in any income year under subsection 73B(27A) of the Income Tax Assessment Act 1936 because of that CGT event. (2) Disregard a *capital gain or *capital loss from a *CGT event if an amount is included in the assessable income of a partner (including you) in any income year under subsection 73B(27A) of that Act because of that CGT event. (3) If you are absolutely entitled to a *CGT asset as against the trustee of a trust (disregarding any legal disability), disregard a *capital gain or *capital loss the trustee makes from a *CGT event if an amount is included in your assessable income or the net income of the trust under subsection 73B(27A) of that Act because of that CGT event. Exempt or loss-denying transactions 118-40 Expiry of a lease A *capital loss a lessee makes from the expiry, surrender, forfeiture or assignment of a lease (except one granted for 99 years or more) is disregarded if the lessee did not use the lease solely or mainly for the *purpose of producing assessable income. 118-42 Transfer of stratum units If: (a) you own land on which there is a building; and (b) you subdivide the building into *stratum units; and (c) you transfer each unit to the entity who had the right to occupy it just before the subdivision; a *capital gain or *capital loss you make from transferring the unit is disregarded. 118-45 Sale of rights to mine A *capital gain or *capital loss you make from the sale, transfer or assignment of your rights to mine in a particular area in Australia is disregarded if you have *exempt income for the income year (because of section 330-60) from the sale, transfer or assignment. 118-55 Foreign currency hedging gains and losses A *capital gain or *capital loss you make from a contract you entered into solely to reduce the risk of financial loss you may suffer from currency exchange rate fluctuations is disregarded if the contract relates to: (a) a liability you have to make a payment under another contract; or (b) a *CGT asset that is a right you *acquired before 20 September 1985 to receive money under another contract. 118-60 Gifts under Cultural Bequests Program A *capital gain or *capital loss made from a testamentary gift of property under the Cultural Bequests Program is disregarded. Subdivision 118-B--Main residence Guide to Subdivision 118-B 118-100 What this Subdivision is about You can ignore a capital gain or capital loss you make from a CGT event that happens to a dwelling that is your main residence. However, this exemption may not apply in full if: * it was your main residence during part only of your ownership period; or * it was used for the purpose of producing assessable income. There are special rules for dwellings passed from, or owned by a trustee of, a deceased estate. Table of sections 118-105 Map of this Subdivision Basic case and concepts 118-110 Basic case 118-115 Meaning of dwelling 118-120 Extension to adjacent land 118-125 Meaning of ownership period 118-130 Meaning of ownership interest in land or a dwelling Rules that may extend the exemption 118-135 Moving into a dwelling 118-140 Changing main residences 118-145 Absences 118-150 If you build, repair or renovate a dwelling 118-155 Where individual referred to in section 118-150 dies 118-160 Destruction of dwelling and sale of land Rules that may limit the exemption 118-165 Separate CGT event for adjacent land or other structures 118-170 Spouse having different main residence 118-175 Dependent child having different main residence 118-180 Acquisition of dwelling from company or trust on marriage breakdown--roll-over provision applying Partial exemption rules 118-185 Partial exemption where dwelling was your main residence during part only of ownership period 118-190 Use of dwelling for producing assessable income 118-192 Special rule for first use to produce income Dwellings acquired from deceased estates 118-195 Dwelling acquired from a deceased estate 118-200 Partial exemption for deceased estate dwellings 118-205 Adjustment if dwelling inherited from deceased individual 118-210 Trustee acquiring dwelling under will 118-105 Map of this Subdivision [This is the end of the Guide.] Basic case and concepts 118-110 Basic case (1) A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *CGT asset that is a *dwelling or your *ownership interest in it is disregarded if: (a) you are an individual; and (b) the dwelling was your main residence throughout your *ownership period; and (c) the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person. Note 1: You may make a capital gain or capital loss even though you comply with this section if the dwelling was used for the purpose of producing assessable income: see section 118-190. Note 2: There is a separate rule for beneficiaries and trustees of deceased estates: see section 118-195. (2) Only these *CGT events are relevant: (a) CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and (b) a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening. Note: The full list of CGT events is in section 104-5. 118-115 Meaning of dwelling (1) A dwelling includes: (a) a unit of accommodation that: (i) is a building or is contained in a building; and (ii) consists wholly or mainly of residential accommodation; and (b) a unit of accommodation that is a caravan, houseboat or other mobile home; and (c) any land immediately under the unit of accommodation. (2) However, except as provided in section 118-120, a dwelling does not include any land adjacent to a building. 118-120 Extension to adjacent land (1) This Subdivision applies to land that is adjacent to a *dwelling (if the same *CGT event happens to the land or your *ownership interest in it) to the extent that you used the land primarily for private or domestic purposes in association with the dwelling as if it were a dwelling. (2) The maximum area of land covered by the exemption (including the area of the land on which the *dwelling is built) is 2 hectares. (3) For a flat or home unit, this Subdivision also applies to a garage, storeroom or other structure that is associated with it (if the same *CGT event happens to the structure or your *ownership interest in it) as if it were a dwelling. However, it so applies only to the extent that you used the structure primarily for private or domestic purposes in association with the flat or home unit. 118-125 Meaning of ownership period Your ownership period of a *dwelling is the period on or after 20 September 1985 when you had an *ownership interest in: (a) the dwelling; or (b) land (*acquired on or after 20 September 1985) on which the dwelling is later built. 118-130 Meaning of ownership interest in land or a dwelling (1) You have an ownership interest in land or a *dwelling if: (a) for land--you have a legal or equitable interest in it or a right to occupy it; or (b) for a dwelling that is not a flat or home unit--you have a legal or equitable interest in the land on which it is erected, or a licence or right to occupy it; or (c) for a flat or home unit--you have: (i) a legal or equitable interest in a *stratum unit in it; or (ii) a licence or right to occupy it; or (iii) a *share in a company that owns a legal or equitable interest in the land on which the flat or home unit is erected and that gives you to a right to occupy it. (2) For land or a *dwelling that you *acquire under a contract, you have an ownership interest in it from: (a) the time when you obtain legal ownership of it; or (b) if the contract or a related contract gives you a right to occupy it at an earlier time--the earlier time. (3) For land or a *dwelling where you have a contract for the happening of the *CGT event, you have an ownership interest in it until your legal ownership of it ends. Rules that may extend the exemption 118-135 Moving into a dwelling If a *dwelling becomes your main residence by the time it was first practicable for you to move into it after you *acquired your *ownership interest in it, the dwelling is treated as your main residence from when you acquired the interest until it actually became your main residence. 118-140 Changing main residences (1) If you *acquire an *ownership interest in a *dwelling that is to become your main residence and you still have your ownership interest in your existing main residence, both dwellings are treated as your main residence for the shorter of: (a) 6 months ending when your ownership interest in your existing main residence ends; or (b) the period between the acquisition of the new ownership interest and the time when the ownership interest referred to in paragraph (a) ends. (2) Subsection (1) only applies if: (a) your existing main residence was your main residence for a continuous period of at least 3 months in the 12 months ending when your ownership interest in it ends; and (b) your existing main residence was not used for the *purpose of producing assessable income in any part of that 12 month period when it was not your main residence. 118-145 Absences (1) If a *dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence. (2) If you use the part of the *dwelling that was your main residence for the *purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence. (3) If you do not use the *dwelling for that purpose, you can treat it as your main residence under this section indefinitely. (4) If you make the choice, you cannot treat any other *dwelling as your main residence while you apply this section, except if section 118-140 (about changing main residences) applies. Example: You live in a house for 3 years. You are posted overseas for 5 years and you rent it out during your absence. On your return you move back into it for 2 years. You are then posted overseas again for 4 years (again renting it out), at the end of which you sell the house. You have not treated any other dwelling as your main residence during your absences. You may choose to continue to treat the house as your main residence during both absences because each absence is less than 6 years. You can make this choice when preparing your income tax return for the income year in which you sold the house. 118-150 If you build, repair or renovate a dwelling (1) This section applies to land in which you have an *ownership interest (except a life interest) if you build a *dwelling on the land, or repair, renovate or finish building a dwelling on the land. (2) You can choose to apply this Subdivision as if the *dwelling that you are building, repairing or renovating on the land were your main residence from the time you *acquired the *ownership interest. (3) You can make the choice only if: (a) a *dwelling on the land that you construct, repair or renovate becomes your main residence as soon as practicable after the work is finished; and (b) it continues to be your main residence for at least 3 months. (4) There is a time limit during which the choice can operate. This is the shorter of: (a) 4 years before the *dwelling becomes your main residence; or (b) the period starting when you *acquired your *ownership interest in the land and ending when the dwelling becomes your main residence. (5) If there was already a *dwelling on the land when you *acquired your *ownership interest and you or someone else occupied it after that time, the period in subsection (2) and paragraph (4)(b) starts when the dwelling ceased to be occupied so that it could be repaired or renovated. (6) Once you make the choice, no other *dwelling can be treated as your main residence during the period referred to in subsection (4), except if section 118-140 (about changing main residences) applies. 118-155 Where individual referred to in section 118-150 dies (1) This section applies if the individual referred to in subsection 118-150(1) dies: (a) after the work began, or the individual entered into a contract for it to be done, but before it was finished; or (b) after the work was finished but before it was practicable for the *dwelling to become the individual's main residence; or (c) during the period of 3 months referred to in paragraph 118-150(3)(b). (2) If the individual owned the interest in the land as a joint tenant, the surviving joint tenant or, if none, the trustee of the individual's estate, can choose to apply this Subdivision as if the *dwelling were the main residence of the individual: (a) when the individual died; and (b) for the shorter of: (i) 4 years before the individual's death; or (ii) the period starting when the individual *acquired the interest in the land and ending when the individual died. (3) If there was already a *dwelling on the land when the individual *acquired the interest in the land and someone occupied it after that time, the period in subparagraph (2)(b)(ii) starts when the dwelling ceased to be occupied so that it could be repaired or renovated. (4) If the *dwelling is treated as the deceased's main residence under this section, no other dwelling can be treated as the deceased's main residence at the same time. 118-160 Destruction of dwelling and sale of land (1) This section applies if a *dwelling that is your main residence is accidentally destroyed and a *CGT event happens in relation to the land on which it was built without you erecting another dwelling on the land. (2) You can choose to apply this Subdivision to the land as if, from the time of the destruction until your *ownership interest in the land ends, the *dwelling had not been destroyed and were your main residence. (3) If you do so, you cannot treat any other *dwelling as your main residence during that period, except under section 118-140 (about changing main residences). Rules that may limit the exemption 118-165 Separate CGT event for adjacent land or other structures The exemption does not apply to a *CGT event that happens in relation to land, or a garage, storeroom or other structure, to which the exemption can extend under section 118-120 (about adjacent land) if that event does not also happen in relation to the *dwelling or your *ownership interest in it. 118-170 Spouse having different main residence (1) If, during a period, a *dwelling is your main residence and another *dwelling is the main residence of your *spouse (except a spouse living permanently separately and apart from you), you and your spouse must either: (a) choose one of the dwellings as the main residence of both of you for the period; or (b) nominate the different dwellings as your main residences for the period. (2) If you nominate the different *dwellings as your main residences for the period, you split the exemption in accordance with subsections (3) and (4). (3) If your interest in the *dwelling you chose was not, during the period, more than half of the total interests in the dwelling, the dwelling is taken to have been your main residence during the period. Otherwise, the dwelling is taken to have been your main residence for half of the period. (4) If your *spouse's interest in the *dwelling your spouse chose was not, during the period, more than half of the total interests in the dwelling, the dwelling is taken to have been your spouse's main residence during the period. Otherwise, the dwelling is taken to have been your spouse's main residence for half of the period. Example: You and your spouse own a town house as tenants in common in equal shares. You and your spouse also own a beach house as tenants in common, with your interest being 30% and your spouse's 70%. From 1 July 1999, you live mainly in the town house and your spouse lives mainly in the beach house. On 1 July 2000 you and your spouse dispose of both dwellings. For the period 1 July 1999-30 June 2000 you nominate the town house as your main residence and your spouse nominates the beach house. The town house is taken to be your main residence during the period. The beach house is taken to be your spouse's main residence during half the period. 118-175 Dependent child having different main residence If, at a particular time, a *dwelling is your main residence and another *dwelling is the main residence of a *child of yours who is under 18 and is dependent on you for economic support, you must choose one of them as the main residence of both of you. 118-180 Acquisition of dwelling from company or trust on marriage breakdown--roll-over provision applying (1) This Subdivision applies to you as if you owned an *ownership interest in land or a dwelling during a period when it was actually owned by a company or trustee if: (a) you *acquired the interest from the company or trustee; and (b) it was acquired by the company or trustee on or after 20 September 1985 ; and (c) a roll-over was available to the company or trustee under Subdivision 126-A. (2) If subsection (1) applies to a *dwelling, it cannot be treated as your main residence during the period, despite other provisions of this Subdivision that would allow you to treat it as your main residence during the period. Partial exemption rules 118-185 Partial exemption where dwelling was your main residence during part only of ownership period (1) You get only a partial exemption for a *CGT event that happens in relation to a *dwelling or your *ownership interest in it if: (a) you are an individual; and (b) the dwelling was your main residence for part only of your *ownership period; and (c) the interest did not *pass to you as a beneficiary in, and you did not *acquire it as a trustee of, the estate of a deceased person. (2) You calculate your *capital gain or *capital loss using the formula: [GRAPHIC]where: CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision. non-main residence days is the number of days in your *ownership period when the *dwelling was not your main residence. Note: The capital gain or loss may be further adjusted if the dwelling was used to produce assessable income: see section 118-190. Example: You bought a house in July 1990 and moved in immediately. In July 1993, you moved out and began to rent it. You sold it in July 2000, making (apart from this Subdivision) a capital gain of $10,000. You choose to continue to treat the dwelling as your main residence under section 118-145 (about absences) for the first 6 of the 7 years during which you rented the house out. Under this section, you will be taken to have made a capital gain of: [GRAPHIC]118-190 Use of dwelling for producing assessable income (1) You get only a partial exemption for a *CGT event that happens in relation to a *dwelling or your *ownership interest in it if: (a) apart from this section, because the dwelling was your main residence or someone else's during a period: (i) you would not make a *capital gain or *capital loss from the event; or (ii) you would make a lesser capital gain or loss than if this Subdivision had not applied; and (b) the dwelling was used for the *purpose of producing assessable income during all or a part of that period; and (c) if you had incurred interest on money borrowed to *acquire the dwelling, or your ownership interest in it, you could have deducted some or all of that interest. Example: You acquire a house as a beneficiary in a deceased estate, rent it out for 12 months and sell it within 2 years of the deceased's death. You can ignore the rental because the exemption does not require the house to be your main residence during the 2 years after the death. (2) The *capital gain or *capital loss that you would have made apart from this section from the *CGT event is increased by an amount that is reasonable having regard to the extent to which you would have been able to deduct that interest. (3) However, you ignore any use of the *dwelling for the *purpose of producing assessable income during any period that you continue to treat it as your main residence under section 118-145 (about absences) to the extent that any part of it was not used for that purpose just before it last ceased to be your main residence. Example: To continue the example from section 118-185, assume that, when you moved in, you used 1/4 of the house as a doctor's surgery. Under section 118-185, your capital gain was $1,000. Under this section, it would be reasonable to add an amount of: [GRAPHIC] You have a total capital gain of $3,250 on the sale of the house. (4) If a *dwelling or your *ownership interest in a dwelling *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate, you ignore any use of the *dwelling for the *purpose of producing assessable income before the deceased's death if: (a) the dwelling was the deceased's main residence just before the death; and (b) it was not being used for that purpose just before the death, or any use for that purpose just before the death was ignored because of subsection (3). 118-192 Special rule for first use to produce income (1) There is a special rule if: (a) you would get only a partial exemption under this Subdivision for a *CGT event happening in relation to a *dwelling or your *ownership interest in it because the dwelling was used for the *purpose of producing assessable income during your *ownership period; and (b) you would have got a full exemption under this Subdivision if the CGT event had happened just before the first time (the income time) it was used for that purpose during your ownership period. (2) You are taken to have *acquired the *dwelling or your *ownership interest at the income time for its market value at that time. (3) If your *ownership interest in the *dwelling *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate and the *CGT event did not happen within 2 years of the deceased' death, you apply this Subdivision as if: (a) you had *acquired the interest as an individual and not as a beneficiary or trustee of a deceased estate; and (b) for applying the formula in section 118-185, your non-main residence days were the number of days in your *ownership period when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195. Dwellings acquired from deceased estates 118-195 Dwelling acquired from a deceased estate (1) A *capital gain or *capital loss you make from a *CGT event that happens in relation to a *dwelling or your *ownership interest in it is disregarded if: (a) you are an individual and the interest *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) at least one of the items in column 2 and at least one of the items in column 3 of the table are satisfied. Beneficiary or trustee of deceased estate acquiring interest Item One of these items is satisfied And also one of these items 1 the deceased *acquired the *ownership interest on or after 20 September 1985 and the *dwelling was the deceased's main residence just before the deceased's death and was not then being used for the *purpose of producing assessable income your *ownership interest ends within 2 years of the deceased's death 2 the deceased *acquired the *ownership interest before 20 September 1985 the *dwelling was, from the deceased's death until your *ownership interest ends, the main residence of one or more of: (a) the spouse of the deceased immediately before the death (except a spouse who was living permanently separately and apart from the deceased); or (b) an individual who had a right to occupy the dwelling under the deceased's will; or (c) if the *CGT event was brought about by the individual to whom the *ownership interest *passed as a beneficiary--that individual Note 1: You may make a capital gain or capital loss if the dwelling was used for the purpose of producing assessable income: see section 118-190. Note 2: In some cases the use of a dwelling to produce assessable income can be disregarded: see sections 118-45 and 118-190. Note 3: There are special rules for dwellings acquired before 7.30 pm on 20 August 1996. These rules also affect the operation of section 118-192 and subsections 118-190(4) and 118-200(4): see section 118-195 of the Income Tax (Transitional Provisions) Act 1997. (2) Only these *CGT events are relevant: (a) CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and (b) a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening. Note: The full list of CGT events is in section 104-5. 118-200 Partial exemption for deceased estate dwellings (1) You get only a partial exemption (or no exemption) if: (a) you are an individual and your *ownership interest in a *dwelling *passed to you as a beneficiary in a deceased estate, or you owned it as the trustee of a deceased estate; and (b) section 118-195 does not apply. (2) You calculate your *capital gain or *capital loss using the formula: [GRAPHIC]where: CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision. non-main residence days is the sum of: (a) if the deceased *acquired the *ownership interest on or after 20 September 1985--the number of days in the deceased's *ownership period when the *dwelling was not the deceased's main residence; and (b) the number of days in the period from the death until your ownership interest ends when the dwelling was not the main residence of an individual referred to in item 2, column 3 of the table in section 118-195. total days is: (a) if the deceased *acquired the *ownership interest before 20 September 1985--the number of days in the period from the death until your ownership interest ends; or (b) if the deceased acquired the ownership interest on or after that day--the number of days in the period from the acquisition of the dwelling by the deceased until your ownership interest ends. (3) However, if the deceased *acquired the *ownership interest on or after 20 September 1985 and your ownership interest ends within 2 years of the deceased's death and you get a more favourable result by doing so, you can adjust the formula by ignoring any non-main residence days and total days in the period from the deceased's death until your ownership interest ended. Note 1: The formula in this section will be adjusted (or further adjusted) under section 118-205 if the deceased acquired the dwelling through a deceased estate. Note 2: There may be a further adjustment if the dwelling was used for the purpose of producing assessable income: see section 118-190. (4) You ignore any non-main residence days before the deceased's death if: (a) the *dwelling was the deceased's main residence just before the death; and (b) the dwelling was not being used for the *purpose of producing assessable income just before the death, or any use for that purpose just before the death was ignored because of subsection 118-190(3). 118-205 Adjustment if dwelling inherited from deceased individual (1) You must adjust the formula in subsection 118-200(2) if the *ownership interest of the deceased individual referred to in section 118-200 (the most recently deceased) *passed to the individual on or after 20 September 1985 as a beneficiary in, or the individual owned it as trustee of, a deceased estate. Note: Any gains or losses of individuals earlier in the inheritance chain are included in the gain or loss you would have made apart from this Subdivision. This section adjusts the formula to take account of times when the dwelling was the main residence of the individuals. (2) Add to the component total days in the formula the fewer of: (a) the number of days between 20 September 1985 and the day when the interest *passed to or was *acquired as trustee by the most recently deceased; and (b) the number of days between the time when an *ownership interest in the *dwelling was last acquired on or after 20 September 1985 by an individual except as a beneficiary in a deceased estate or as trustee of a deceased estate and the day when the interest passed to or was acquired as trustee by the most recently deceased. (3) Add to the component non-main residence days in the formula the number of days in the period applicable under subsection (2) that the *dwelling was not the main residence of one or more of: (a) an individual who owned the dwelling at the time of the individual's death; or (b) an individual who, immediately before the death of an individual referred to in paragraph (a), was the spouse of that individual (except a spouse who was living permanently separately and apart from the individual); or (c) an individual who had a right to occupy the dwelling under a will; or (d) an individual to whom an *ownership interest in the dwelling *passed as a beneficiary in, or who *acquired an ownership interest in the dwelling as trustee of, a deceased estate. 118-210 Trustee acquiring dwelling under will (1) This section applies if you are the trustee of a deceased estate and, under the deceased's will, you *acquire an *ownership interest in a *dwelling for occupation by an individual. (2) If a *CGT event happens to the interest in relation to the individual and you receive no money or property for it: (a) a *capital gain or *capital loss you make from the event is disregarded; and (b) the first element of the *dwelling's *cost base and *reduced cost base in the hands of the individual is its cost base and reduced cost base in your hands at the time of the event; and (c) the individual is taken to have *acquired it when you did. (3) If: (a) you receive money or property for the *CGT event happening or the event happens in relation to another entity; and (b) the dwelling was the main residence of the individual from the time you *acquired the interest until the time of the event; you do not make a *capital gain or *capital loss from the CGT event. (4) However, if the *dwelling was the main residence of the individual during part only of that period, you make a *capital gain or *capital loss worked out using the formula: [GRAPHIC] where: CG or CL amount is the *capital gain or *capital loss you would have made from the *CGT event apart from this Subdivision. non-main residence days is the number of days in that period when the *dwelling was not the individual's main residence. (5) Only these *CGT events are relevant: (a) CGT events A1, B1, C1, C2, E1, E2, F2, I1, I2, K3, K4 and K6 (except one involving the forfeiting of a deposit); and (b) a CGT event that involves the forfeiting of a deposit as part of an uninterrupted sequence of transactions ending in one of the events specified in paragraph (a) subsequently happening. Note: The full list of CGT events is in section 104-5. Subdivision 118-C--Goodwill Table of sections 118-250 Exempting part of a capital gain attributable to goodwill 118-255 Exception 118-260 Meaning of business exemption threshold and indexation 118-250 Exempting part of a capital gain attributable to goodwill (1) If there is a change in the ownership of a *business of an entity (the primary business) or its interest in it or that business or interest ends, and the entity makes a *capital gain attributable to the goodwill of the primary business, half of the capital gain is disregarded. (2) However, that part of the *capital gain is disregarded only if the sum of: (a) the *net value of the primary business and the net values of *businesses that are *related businesses at the time the *capital gain is made; or (b) the values of the entity's interests in the net value of the primary business and the net values of *businesses that are *related businesses at that time; is less than the *business exemption threshold for the income year in which the *CGT event occurred. (3) A *business is a related business of the primary business if it is carried on by: (a) the individual who carries on the primary business; or (b) the company that carries on the primary business or by a company that is a member of the same *wholly-owned group. (4) If the primary business is carried on by the trustee of a trust (the first trust), a *business is a related business of the primary business if it is carried on by: (a) the first trust; or (b) another trust having the same trustee where an entity that benefits or is capable of benefiting under the first trust benefits or is capable of benefiting under the other trust; or (c) any other trust having the same trustee where: (i) the other trust is one of a series of trusts that includes the first trust; and (ii) each trust in the series (also the first trust) is linked to at least one other trust in the series in that an entity that benefits or is capable of benefiting under the first trust benefits or is capable of benefiting under the other trust. 118-255 Exception Section 118-250 does not apply, and is taken never to have applied, to the goodwill if the entity makes an election for the goodwill under subsection 160ZZPQ(1) of the Income Tax Assessment Act 1936 (about roll-overs for the assets of small *businesses). 118-260 Meaning of business exemption threshold (1) The business exemption threshold for the 1997-98 income year is $2,248,000. (2) The *business exemption threshold is indexed annually, but the result of the indexation is rounded upwards to the nearest multiple of 1,000. Note: Subdivision 960-M shows you how to index amounts. (3) The Commissioner must publish before the beginning of each *financial year the *business exemption threshold for that year. Subdivision 118-D--Insurance and superannuation Table of sections 118-300 Insurance policies 118-305 Superannuation 118-310 RSA's 118-300 Insurance policies (1) A *capital gain or *capital loss you make from a *CGT event happening in relation to a *CGT asset that is your interest in rights under a *general insurance policy, a *life insurance policy or an *annuity instrument is disregarded in the situations set out in this table. Insurance policies Item The *CGT event happens to this type of policy: ... and you are 1 Any insurance policy or *annuity instrument the insurer or the entity that issued the instrument 2 A *general insurance policy for property where, if a *CGT event happened in relation to the property, any *capital gain or *capital loss would be disregarded the insured 3 A *life insurance policy or an *annuity instrument the original beneficial owner of the policy or instrument 4 A *life insurance policy or an *annuity instrument an entity that *acquired the interest in the policy or instrument for no consideration 5 A *life insurance policy or an *annuity instrument the trustee of: (a) a *complying superannuation fund; or (b) a *complying approved deposit fund; or (c) a *pooled superannuation trust; for the income year in which the *CGT event happened Example 1: Brian (as the insured) receives an insurance payment from his insurer for the destruction of a building he owned as an investment. The payment constitutes capital proceeds on the destruction (CGT event C1). The discharge of the insurance policy (CGT event C2) has no CGT consequences. Example 2: Peter is the original beneficial owner of the rights under a life insurance policy. He transfers the rights to his spouse for nothing. There are no CGT consequences for him, and none for his spouse if he dies. (2) Only these *CGT events are relevant: CGT events A1, B1, C2, E1, E2, E3, E5, E6, E7, E8, I1, I2, K3 and K4. Note: The full list of CGT events is in section 104-5. 118-305 Superannuation (1) A *capital gain or *capital loss is disregarded if you make it from a *CGT event happening in relation to any of the following: (a) a right to an allowance, annuity or capital amount payable out of a *superannuation fund or *approved deposit fund; (b) a right to an asset of such a fund; (c) a right to any part of such an allowance, annuity, capital amount or asset. Example: Angela retires from her employment and receives a lump sum payment from her superannuation fund. This is an example of CGT event C2 (her rights to receive the payment ending). There are no CGT consequences for Angela. (2) However, this exemption is not available if: (a) you are the trustee of the fund and a *CGT event happens in relation to a *CGT asset of the fund; or (b) an entity receives a payment or property where: (i) the entity was not a member of the fund; and (ii) the entity *acquired the right to the payment or property for consideration. 118-310 RSA's A *capital gain or *capital loss you make from a *CGT event happening in relation to a right to, or any part of, an *RSA is disregarded. Subdivision 118-E--Units in pooled superannuation trusts 118-350 Units in pooled superannuation trusts (1) A *capital gain or *capital loss an entity makes from a *CGT event happening in relation to a unit in a unit trust is disregarded if: (a) the trust is a *pooled superannuation trust for the income year in which the event happened; and (b) one of the conditions in subsection (2) is satisfied. (2) The entity must be: (a) the trustee of a *complying superannuation fund, a *complying approved deposit fund or a *pooled superannuation trust for the income year in which the *CGT event happened; or (b) a *life insurance entity and, just before the event happened, the unit must have been included in a *tax advantaged insurance fund of the entity; or (c) a *registered organisation and, just before the event happened, the unit must have been owned by the entity solely for *tax-advantaged business of the entity. Division 121--Record keeping Guide to Division 121 121-10 What this Division is about You must keep records of matters that affect the capital gains and losses you make. You must retain them for 5 years after the last relevant CGT event. Table of sections Operative provisions 121-20 What records you must keep 121-25 How long you must retain the records 121-30 Exceptions [This is the end of the Guide.] Operative provisions 121-20 What records you must keep (1) You must keep records of every act, transaction, event or circumstance that can reasonably be expected to be relevant to working out whether you have made a *capital gain or *capital loss from a *CGT event. (It does not matter whether the CGT event has already happened or may happen in the future.) Note: There are exceptions: see section 121-30. Example 1: You dispose of a CGT asset. The records that are relevant to working out your capital gain or loss are records of: * the date you acquired the asset; * the date you disposed of it; * each element of its cost base and reduced cost base and the effect of indexation on those elements; * what you sold it for (the capital proceeds). Example 2: Company A disposes of a CGT asset it acquired from company B (a member of the same wholly-owned group) where company B obtained a roll-over under Subdivision 126-B. In addition to the records mentioned in example 1, company A needs records showing: * the status of the 2 companies as members of the group; * which company is the ultimate holding company in the group; * the cost base and reduced cost base of the asset in the hands of company B just before the roll-over (because these become company A's cost base and reduced cost base). Example 3: CGT event G2 (about shifts in share values) happens involving company X and Greg (a controller (for CGT purposes) of company X). Z Nominees Pty Ltd (an associate of Greg's) suffers a material decrease in the value of its shares in company X as a result of the shift. Z Nominees needs records showing: * the essential elements of the relevant scheme; * the date when the share value shift occurred; * the amounts of the decreases and increases in the market values of all shares involved in the scheme; * if shares are issued at a discount under the scheme, the amount of the discount; * the cost bases and market values of the shares that decreased in value. (2) The records must be in English, or be readily accessible and convertible into English. They must show what is described in this section. (They show something if they include whatever material is necessary for that thing to be easily identified or worked out.) (3) They must show the nature of the act, transaction, event or circumstance, the day when it happened or arose and: (a) in the case of an act--who did it; and (b) in the case of a transaction--who were the parties to it. (4) They must show details (including relevant amounts) of how the act, transaction, event or circumstance is relevant (or can reasonably be expected to be relevant) to working out whether you have made a *capital gain or *capital loss from a *CGT event. (5) If the necessary records of an act, transaction, event or circumstance do not already exist, you must reconstruct them or have someone else reconstruct them. Example: Your capital gain or capital loss from a CGT event may depend on the market value of property at a particular time. To record that market value properly, you may need to get a valuation done. Penalty: 30 penalty units. 121-25 How long you must retain the records (1) You must retain records that section 121-20 requires you to keep. (2) You must retain them until the end of 5 years after it becomes certain that no *CGT event (or no further *CGT event) can happen such that the records could reasonably be expected to be relevant to working out whether you have made a *capital gain or *capital loss from the event. (3) This section has effect despite subsection 262A(4) of the Income Tax Assessment Act 1936 (which requires records to be retained for a different period). (4) However, it is not necessary to retain records: (a) if the Commissioner notifies you that you do not need to retain them; or (b) for a company that has been finally dissolved. Note: There are special record keeping rules where there has been a roll-over for a merger between superannuation funds under section 160ZZPI of the Income Tax Assessment Act 1936: see section 121-25 of the Income Tax (Transitional Provisions) Act 1997. Penalty: 30 penalty units. 121-30 Exceptions You do not need to keep records under section 121-20 if: (a) for each *CGT event (if any) that has happened such that the records are relevant (or could reasonably be expected to be relevant) to working out whether you have made a *capital gain or *capital loss from the event; and (b) for each *CGT event that may happen in the future such that the records could reasonably be expected to be relevant to working out whether you might make a *capital gain or *capital loss from the event; any capital gain or capital loss you made (or might make) from it is to be (or would be) disregarded. [The next Part is Part 3-3.] Part 3-3--Capital gains and losses: special topics Division 122--Roll-over for the disposal of assets to, or the creation of assets in, a wholly-owned company Table of Subdivisions Guide to Division 122 122-A Disposal or creation of assets by individual to a wholly-owned company 122-B Disposal or creation of assets by partners to a wholly-owned company Guide to Division 122 122-1 What this Division is about A roll-over can delay the making of a capital gain or loss if: * you dispose of a CGT asset, or all the assets of a business, to a company in which you own all the shares; or * you create a CGT asset in such a company; or * all the partners in a partnership dispose of partnership property to a company in which they own all the shares; or * the partners create a CGT asset in such a company. Subdivision 122-A--Disposal or creation of assets by individual to a wholly-owned company Guide to Subdivision 122-A 122-5 What this Subdivision is about This Subdivision sets out when you can obtain a roll-over if you transfer a CGT asset, or all the assets of a business, to a company. It also deals with the creation of a CGT asset in a company. There are consequences for the company also. Table of sections When is a roll-over available 122-15 Disposal or creation of assets--wholly-owned company 122-20 What you receive for the trigger event 122-25 Other requirements to be satisfied 122-35 What if the company undertakes to discharge a liability (disposal case) 122-37 Rules for working out what a liability in respect of an asset is Replacement-asset roll-over if you dispose of a CGT asset 122-40 Disposal of a CGT asset Replacement-asset roll-over if you dispose of all the assets of a business 122-45 Disposal of all the assets of a business 122-50 All assets acquired on or after 20 September 1985 122-55 All assets acquired before 20 September 1985 122-60 Assets acquired before and after 20 September 1985 Replacement-asset roll-over for a creation case 122-65 Creation of asset Same-asset roll-over consequences for the company (disposal case) 122-70 Consequences for the company (disposal case) Same-asset roll-over consequences for the company (creation case) 122-75 Consequences for the company (creation case) [This is the end of the Guide.] When is a roll-over available 122-15 Disposal or creation of assets--wholly-owned company If you are an individual or a trustee, you can choose to obtain a roll-over if one of the *CGT events (the trigger event) specified in this table happens involving you and a company in the circumstances set out in sections 122-20 to 122-35. Relevant *CGT events Event No. What you do A1 *Dispose of a CGT asset, or all the assets of a business, to the company D1 Create contractual or other rights in the company D2 Grant an option to the company D3 Grant the company a right to income from mining F1 Grant a lease to the company, or renew or extend a lease Note 1: The roll-over starts at section 122-40. Note 2: Section 103-25 tells you when you have to make the choice. Example: Gavin runs a plumbing business. He wants to incorporate it so he disposes of all its assets to a company. He becomes the sole shareholder of the company. 122-20 What you receive for the trigger event (1) The consideration you receive for the trigger event happening must be only: (a) *shares in the company; or (b) for a *disposal of a *CGT asset, or all the assets of a business, to the company (a disposal case)--shares in the company and the company undertaking to discharge one or more liabilities in respect of the asset or assets of the *business (as appropriate). Note: There are rules for working out what are the liabilities in respect of an asset: see section 122-37. (2) The *shares cannot be *redeemable shares. (3) The market value of the *shares you receive for the trigger event happening must be substantially the same as: (a) for a disposal case--the market value of the asset or assets you disposed of, less any liabilities the company undertakes to discharge in respect of the asset or assets (as appropriate); or (b) for another trigger event (a creation case)--the market value of the CGT asset created in the company (the created asset). (4) In working out if the requirement in paragraph (3)(a) is satisfied, if the market value of the *shares is different to what it would otherwise be only because of the possibility of liabilities attaching to the asset or assets, disregard the difference. Note: The company may have to pay income tax if an amount is included in its assessable income because of a CGT event happening to an asset you disposed of, or it may have a liability because of accrued leave entitlements of employees. The market value of the shares will reflect these contingent liabilities. 122-25 Other requirements to be satisfied (1) You must own all the *shares in the company just after the time of the trigger event. Note: You must own the shares in the same capacity as you owned or created the assets that the company now owns. (2) This Subdivision does not apply to the *disposal or creation of any of the assets specified in this table: Assets to which Subdivision does not apply Item In this situation: This Subdivision does not apply to: 1 You *dispose of a *CGT asset to the company or create a CGT asset in the company (a) a *collectable or a *personal use asset; or (b) a decoration awarded for valour or brave conduct (except if you paid money or gave any other property for it); or (c) a *precluded asset; or (d) an asset that becomes *trading stock of the company just after the *disposal or creation 2 You *dispose of all the assets of a *business to the company (a) a *collectable or a *personal use asset; or (b) a decoration awarded for valour or brave conduct (except if you paid money or gave any other property for it); or (c) an asset that becomes *trading stock of the company just after the disposal or creation (unless it was your trading stock when you disposed of it) (3) A precluded asset is: (a) a *car, motorcycle or similar vehicle; or (b) *trading stock; or (c) an interest in the copyright in a film referred to in section 118-30; or (d) a right to mine in a particular area in Australia referred to in section 118-45. (4) If: (a) the *CGT asset or any of the assets of the *business is a right, option or *convertible note; and (b) the company *acquires another CGT asset by exercising the right or option or by converting the convertible note; the other asset cannot become *trading stock of the company just after the company acquired it. (5) The *ordinary income and *statutory income of the company must not be exempt from income tax because of Division 50 for the income year of the trigger event. (6) If you are an individual, the requirements in one of the items in this table must be satisfied: Additional requirement Item Your residency status The company's residency status This requirement must be satisfied 1 An Australian resident at the time of the trigger event An Australian resident at the time of the trigger event It does not matter what each CGT asset is 2 Not an Australian resident at the time of the trigger event An Australian resident at the time of the trigger event Each asset must have the *necessary connection with Australia at that time 3 It does not matter what your residency status is Not an Australian resident at the time of the trigger event Each asset must have the *necessary connection with Australia at that time (7) If you are a trustee of a trust, the requirements in one of the items in this table must be satisfied: Additional requirement Item The trust's residency status The company's residency status Each CGT asset is: 1 A *resident trust for CGT purposes for the income year of the trigger event An Australian resident at the time of the trigger event It does not matter what each *CGT asset is 2 Not a *resident trust for CGT purposes for the income year of the trigger event An Australian resident at the time of the trigger event A *CGT asset of the trust that has the *necessary connection with Australia at that time 3 It does not matter what the residency status of the trust is Not an Australian resident at the time of the trigger event A *CGT asset of the trust that has the *necessary connection with Australia at that time 122-35 What if the company undertakes to discharge a liability (disposal case) Disposal of a CGT asset (1) One of the requirements in this table must be satisfied if: (a) you *dispose of a *CGT asset; and (b) the company undertakes to discharge one or more liabilities in respect of it. (The market value, or the *cost base, of an asset is worked out when you disposed of it.) What amount the liabilities cannot exceed Item In this situation: the liabilities cannot exceed: 1 You *acquired the asset on or after 20 September 1985 The *cost base of the asset 2 You *acquired the asset before 20 September 1985 The market value of the asset Note: There are rules for working out what are the liabilities in respect of an asset: see section 122-37. Disposal of all the assets of a business (2) One of the requirements in this table must be satisfied if: (a) you *dispose of all the assets of a *business; and (b) the company undertakes to discharge one or more liabilities in respect of the assets of the business. (The market value, or the *cost base, of an asset is worked out when you disposed of it.) What amount the liabilities cannot exceed Item In this situation: The liabilities cannot exceed: 1 You *acquired all the assets on or after 20 September 1985 The sum of the market values of the *precluded assets and the *cost bases of the other assets 2 You *acquired all the assets before 20 September 1985 The sum of the market values of the assets 3 You *acquired at least one asset on or after 20 September 1985 and at least one before that day For liabilities in respect of assets you *acquired on or after that day--the sum of the market values of the *precluded assets and the *cost bases of the other assets; For liabilities in respect of assets you *acquired before that day--the sum of the market values of those assets 122-37 Rules for working out what a liability in respect of an asset is (1) These rules are relevant to working out what are the liabilities in respect of an asset. (2) A liability incurred for the purposes of a *business that is not a liability in respect of a specific asset or assets of the business is taken to be a liability in respect of all the assets of the business. Note: An example is a bank overdraft. (3) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to: [GRAPHIC]Replacement-asset roll-over if you dispose of a CGT asset 122-40 Disposal of a CGT asset (1) If you choose a roll-over, a *capital gain or *capital loss you make from the trigger event is disregarded. (2) If you *acquired the asset on or after 20 September 1985: (a) the first element of each *share's *cost base is the asset's cost base when you *disposed of it (less any liabilities the company undertakes to discharge in respect of it) divided by the number of shares; and (b) the first element of each share's *reduced cost base is worked out similarly. Note 1: There are rules for working out what are the liabilities in respect of an asset: see section 122-37. Note 2: There are special indexation rules for roll-overs: see Division 114. (3) If you *acquired the asset before 20 September 1985, you are taken to have acquired the *shares before that day. Replacement-asset roll-over if you dispose of all the assets of a business 122-45 Disposal of all the assets of a business (1) If you choose a roll-over for *disposing of all the assets of a *business to the company, a *capital gain or *capital loss you make from each of the assets of the business is disregarded. (2) The other consequences relate to the *shares you receive and depend on when you *acquired the assets of the *business. Note 1: There are 3 possible cases: * you acquired all the assets on or after 20 September 1985: see section 122-50; * you acquired all the assets before that day: see section 122-55; * you acquired some of the assets on or after that day: see section 122-60. Note 2: There are special indexation rules for roll-overs: see Division 114. Note 3: There are other consequences for you and the company if you dispose of trading stock: see Division 70. 122-50 All assets acquired on or after 20 September 1985 (1) If you *acquired all of the assets of the *business on or after 20 September 1985: (a) the first element of each *share's *cost base is the sum of the market values of the *precluded assets and the cost bases of the other assets (less any liabilities the company undertakes to discharge in respect of all of those assets) divided by the number of shares; and (b) the first element of each share's *reduced cost base is worked out similarly. Note 1: There are rules for working out what are the liabilities in respect of an asset: see section 122-37. Note 2: There are special indexation rules for roll-overs: see Division 114. Example: Nick is a small trader. He wants to incorporate his business. He disposes of all its assets to a company and receives 10 shares in return. Nick acquired all the assets of the business after 20 September 1985. The market value of the items of his trading stock when he disposed of them is $20,000. Trading stock is a precluded asset. The cost bases of the other assets when he disposed of them are: * plant and equipment: $50,000; * buildings: $120,000; * office furniture: $10,000. Nick has a business overdraft of $15,000. It is taken to be a liability in respect of all the assets of his business. The first element of the cost base of the 10 shares is: [GRAPHIC] The first element of the reduced cost base of the 10 shares is worked out similarly. (2) The market value of an asset is worked out when you *disposed of it. The *cost base or *reduced cost base of an asset is worked out at the same time. 122-55 All assets acquired before 20 September 1985 (1) You are taken to have *acquired all of the *shares before 20 September 1985 if you acquired all the assets of the *business before that day and none of the assets is a *precluded asset. (2) However, if at least one of the assets is a *precluded asset, you are taken to have *acquired a whole number of the *shares (but not all of them) before that day. The number is the greatest possible that (when expressed as a percentage of all the shares) does not exceed: * the total of the market values of the assets that are not *precluded assets, less any liabilities the company undertakes to discharge in respect of those assets; expressed as a percentage of: * the total of the market values of all the assets, less any liabilities the company undertakes to discharge in respect of those assets. Note: There are rules for working out what are the liabilities in respect of an asset: see section 122-37. (3) The first element of each other *share's *cost base and *reduced cost base is the total of the market values of the *precluded assets (less any liabilities the company undertakes to discharge in respect of those assets) divided by the number of those other shares. (4) The market value of an asset is worked out when you *disposed of it. The *cost base or *reduced cost base of an asset is worked out at the same time. 122-60 Assets acquired before and after 20 September 1985 (1) If you *acquired some of the assets on or after 20 September 1985, you are taken to have acquired a whole number of the *shares (but not all of them) before that day. The number is the greatest possible that (when expressed as a percentage of all the shares) does not exceed: * the total of the market values of the assets (except any *precluded assets) that you acquired before that day, less any liabilities the company undertakes to discharge in respect of those assets; expressed as a percentage of: * the total of the market values of all the assets, less any liabilities the company undertakes to discharge in respect of those assets. (2) The first element of each other *share's *cost base is the sum of the market values of the *precluded assets and the cost bases of the other assets that you *acquired on or after that day (less any liabilities the company undertakes to discharge in respect of all of those assets) divided by the number of those other shares. Note: There are special indexation rules for roll-overs: see Division 114. (3) The first element of each other *share's *reduced cost base is worked out similarly. (4) The market value of an asset is worked out when you *disposed of it. The *cost base or *reduced cost base of an asset is worked out at the same time. Replacement-asset roll-over for a creation case 122-65 Creation of asset (1) If you choose a roll-over, a *capital gain or *capital loss you make from the trigger event is disregarded. (2) The first element of each *share's *cost base is the amount applicable under this table divided by the number of shares. The first element of each share's *reduced cost base is worked out similarly. Creation case Event No. Applicable amount D1 the *incidental costs you incurred that relate to the trigger event D2 the expenditure you incurred to grant the option D3 the expenditure you incurred to grant the right F1 the expenditure you incurred on the grant, renewal or extension of the lease The expenditure can include a transfer of property: see section 103-5. Example: Bill grants a licence (CGT event D1) to Tiffin Pty Ltd (a company he owns). The company issues him with 2 additional shares. He incurs legal expenses of $1,000 to grant the licence. Bill's cost base for each of the shares is $500. Same-asset roll-over consequences for the company (disposal case) 122-70 Consequences for the company (disposal case) (1) There are these consequences for the company in a disposal case if you choose to obtain a roll-over. They are relevant for each *CGT asset (except a *precluded asset) that you *disposed of to the company. Note: A capital gain or loss from a precluded asset can be disregarded: see Subdivision 118-A. Asset acquired on or after 20 September 1985 (2) If you *acquired the asset on or after 20 September 1985: (a) the first element of the asset's *cost base (in the hands of the company) is the asset's cost base when you disposed of it; and (b) the first element of the asset's *reduced cost base (in the hands of the company) is the asset's reduced cost base when you disposed of it. Note: There are special indexation rules for roll-overs: see Division 114. Asset acquired before 20 September 1985 (3) If you *acquired the asset before 20 September 1985, the company is taken to have acquired it before that day. Note: A capital gain or loss from a CGT asset acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149. Same-asset roll-over consequences for the company (creation case) 122-75 Consequences for the company (creation case) (1) There are these consequences for the company in a creation case if you choose to obtain a roll-over. (2) The first element of the created asset's *cost base (in the hands of the company) is the applicable amount from the table in subsection 122-65(2). Example: To continue the example in section 122-65, the cost base of the licence in Tiffin Pty Ltd's hands is $1,000. (3) The first element of the created asset's *reduced cost base (in the hands of the company) is worked out similarly. Subdivision 122-B--Disposal or creation of assets by partners to a wholly-owned company Guide to Subdivision 122-B 122-120 What this Subdivision is about This Subdivision sets out when the partners in a partnership can obtain a roll-over on transferring a CGT asset, or all the assets of a business, to a company. It also deals with the creation of a CGT asset in a company. There are consequences for the company also. Table of sections When is a roll-over available 122-125 Disposal or creation of assets--wholly-owned company 122-130 What the partners receive for the trigger event 122-135 Other requirements to be satisfied 122-140 What if the company undertakes to discharge a liability (disposal case) 122-145 Rules for working out what a liability in respect of an interest in an asset is Replacement-asset roll-over if partners dispose of a CGT asset 122-150 Capital gain or loss disregarded 122-155 Disposal of post-CGT or pre-CGT interests 122-160 Disposal of both post-CGT and pre-CGT interests Replacement-asset roll-over if the partners dispose of all the assets of a business 122-170 Capital gain or loss disregarded 122-175 Other consequences 122-180 All interests acquired on or after 20 September 1985 122-185 All interests acquired before 20 September 1985 122-190 Interests acquired before and after 20 September 1985 Replacement-asset roll-over for a creation case 122-195 Creation of asset Same-asset roll-over consequences for the company (disposal case) 122-200 Consequences for the company (disposal case) Same-asset roll-over consequences for the company (creation case) 122-205 Consequences for the company (creation case) [This is the end of the Guide.] When is a roll-over available 122-125 Disposal or creation of assets--wholly-owned company All of the partners in a partnership can choose to obtain a roll-over if one of the *CGT events (the trigger event) specified in this table happens involving the partners and a company in the circumstances set out in sections 122-130 to 122-140. Relevant *CGT events Event No. What the partners do A1 *Dispose of their interests in a *CGT asset of the partnership, or all the assets of a business carried on by the partnership, to the company D1 Create contractual or other rights in the company D2 Grant an option to the company D3 Grant the company a right to income from mining F1 Grant a lease to the company, or renew or extend a lease Note 1: The roll-over starts at section 122-150. Note 2: Section 103-25 tells you when you have to make the choice. Example: Michael and Sandra operate a fish shop in partnership. They agree to incorporate the business so they dispose of their interests in all its assets to a company. They are the only shareholders of the company. 122-130 What the partners receive for the trigger event (1) The consideration the partners receive must be only: (a) *shares in the company; or (b) for a *disposal of their interests in a *CGT asset, or in all the assets of a business, to the company (a disposal case)--shares in the company and the company undertaking to discharge one or more liabilities in respect of their interests. Note: There are rules for working out what are the liabilities in respect of an interest in an asset: see section 122-145. (2) The *shares cannot be *redeemable shares. (3) The market value of the *shares each partner receives for the trigger event happening must be substantially the same as: (a) for a disposal case--the market value of the interests in the asset or assets the partner disposed of, less any liabilities the company undertakes to discharge in respect of the interests in the asset or assets (as appropriate); or (b) for another trigger event (a creation case)--the market value of what would have been the partner's interest in the *CGT asset created in the company (the created asset) if it were an asset of the partnership. (4) In working out if the requirement in paragraph (3)(a) is satisfied, if the market value of the *shares is different to what it would otherwise be only because of the possibility of liabilities attaching to the asset or assets, disregard the difference. Note: The company may have to pay income tax if an amount is included in its assessable income because of a CGT event happening to an asset a partner disposed of, or it may have a liability because of accrued leave entitlements of employees. The market value of the shares will reflect these contingent liabilities. 122-135 Other requirements to be satisfied (1) The partners must own all the *shares in the company just after the time of the trigger event. (2) Each partner must own the *shares the partner received for the trigger event happening in the same capacity that the partner: (a) owned the partner's interests in the assets that the company now owns; or (b) participated in the creation of the asset in the company. Note: If a partner's interests were owned as trustee, the partner must receive shares as trustee. (3) This Subdivision does not apply to the *disposal or creation of any of the assets specified in this table: Assets to which Subdivision does not apply Item In this situation: This Subdivision does not apply to: 1 The partners *dispose of their interests in a *CGT asset to, or create a CGT asset in, the company (a) a *collectable or a *personal use asset; or (b) a decoration awarded for valour or brave conduct (except if a partner paid money or gave any other property for it); or (c) a *precluded asset; or (d) an asset that becomes *trading stock of the company just after the *disposal or creation 2 The partners *dispose of their interests in all the assets of a business (a) a *collectable or a *personal use asset; or (b) a decoration awarded for valour or brave conduct (except if a partner paid money or gave any other property for it); or (c) an asset that becomes *trading stock of the company just after the disposal or creation (unless it was trading stock of the partnership when it was disposed of) (4) If: (a) the *CGT asset or any of the assets of the *business is a right, option or *convertible note; and (b) the company *acquires another CGT asset by exercising the right or option or by converting the convertible note; the other asset cannot become *trading stock of the company just after the company acquired it. (5) The *ordinary income and *statutory income of the company must not be exempt from income tax because of Division 50 for the income year of the trigger event. (6) For a partner who is not a trustee of a trust, the requirements in one of the items in this table must be satisfied: Additional requirement Item Partner's residency status The company's residency status This requirement must be satisfied 1 An Australian resident at the time of the trigger event An Australian resident at the time of the trigger event It does not matter what each CGT asset is 2 Not an Australian resident at the time of the trigger event An Australian resident at the time of the trigger event Each asset must have the *necessary connection with Australia at that time 3 It does not matter what the partner's residency status is Not an Australian resident at the time of the trigger event Each asset must have the *necessary connection with Australia at that time (7) For a partner who is a trustee of a trust, the requirements in one of the items in this table must be satisfied: Additional requirement Item The trust's residency status The company's residency status The interest in each CGT asset is: 1 A *resident trust for CGT purposes for the income year of the trigger event An Australian resident at the time of the trigger event It does not matter what each *CGT asset is 2 Not a *resident trust for CGT purposes for the income year of the trigger event An Australian resident at the time of the trigger event A *CGT asset of the trust that has the *necessary connection with Australia at that time 3 It does not matter what the residency status of the trust is Not an Australian resident at the time of the trigger event A *CGT asset of the trust that has the *necessary connection with Australia at that time 122-140 What if the company undertakes to discharge a liability (disposal case) Disposal of a CGT asset (1) One of these requirements must be satisfied (for each partner) if: (a) the partners *dispose of their interests in a *CGT asset; and (b) the company undertakes to discharge one or more liabilities in respect of the interests in the asset. (The market value, or the *cost base, of an interest is worked out at the time of the disposal.) What amount the liabilities cannot exceed Item In this situation: the liabilities cannot exceed: 1 A partner *acquired the interest on or after 20 September 1985 The *cost base of the interest 2 A partner *acquired the interest before 20 September 1985 The market value of the interest Note: There are rules for working out what are the liabilities in respect of an interest in an asset: see section 122-45. Disposal of all the assets of a business (2) One of these requirements must be satisfied (for each partner) if: (a) the partners *dispose of their interests in all the assets of a *business; and (b) the company undertakes to discharge one or more liabilities in respect of the interests in the assets. (The market value, or the *cost base, of an interest is worked out at the time of the disposal.) What amount the liabilities cannot exceed Item In this situation: the liabilities cannot exceed: 1 A partner *acquired all the interests on or after 20 September 1985 The sum of the market values of the partner's interests in *precluded assets and the *cost bases of the partner's interests in other assets 2 A partner *acquired all the interests before 20 September 1985 The sum of the market values of the interests 3 A partner *acquired at least one interest on or after 20 September 1985 and at least one before that day For liabilities in respect of interests *acquired on or after that day--the sum of the market values of the partner's interests in *precluded assets and the *cost bases of the partner's interests in other assets For liabilities in respect of interests *acquired before that day--the sum of the market values of those interests 122-145 Rules for working out what a liability in respect of an interest in an asset is (1) These rules are relevant to working out what are the liabilities in respect of a partner's interests in an asset. (2) A liability incurred for the purposes of a *business that is not a liability in respect of interests in a specific asset or assets of the business is taken to be a liability in respect of the partner's interests in all the assets of the business. Note: An example is a bank overdraft. (3) If a liability is in respect of both: (a) the partner's interests in one or more assets that the partner *acquired on or after 20 September 1985; and (b) the partner's interests in one or more assets that the partner acquired before that day; the proportion of the liability that is in respect of the partner's interests that the partner acquired on or after that day is equal to: [GRAPHIC]Replacement-asset roll-over if partners dispose of a CGT asset 122-150 Capital gain or loss disregarded If the partners choose a roll-over for *disposing of their interests in a CGT asset to the company, a *capital gain or *capital loss any partner makes from the disposal is disregarded. 122-155 Disposal of post-CGT or pre-CGT interests (1) If a partner *acquired all the partner's interests in the asset on or after 20 September 1985: (a) the first element of each *share's *cost base is the sum of the cost bases of the interests when the partner *disposed of them (less any liabilities the company undertakes to discharge in respect of them) divided by the number of the partner's shares; and (b) the first element of each share's *reduced cost base is worked out similarly. Note 1: There are rules for working out what are the liabilities in respect of an interest in an asset: see section 122-145. Note 2: There are special indexation rules for roll-overs: see Division 114. (2) If a partner *acquired all the partner's interests in the asset before 20 September 1985, the partner is taken to have acquired the *shares before that day. 122-160 Disposal of both post-CGT and pre-CGT interests (1) If a partner *acquired some of the partner's interests in the asset on or after 20 September 1985 and some before that day, the partner is taken to have acquired a whole number of the *shares (but not all of them) before that day. The number is the greatest possible that (when expressed as a percentage of all the shares the partner acquires) does not exceed: * the market value of the interests in the asset that the partner acquired before that day; expressed as a percentage of: * the total of the market values of all the partner's interests in the asset. (2) The first element of each other *share's *cost base is the sum of the cost bases of the partner's interests that the partner *acquired on or after that day (less any liabilities the company undertakes to discharge in respect of all of those interests) divided by the number of the other shares. Note: There are special indexation rules for roll-overs: see Division 114. (3) The first element of each other *share's *reduced cost base is worked out similarly. (4) The market value of an interest in an asset is worked out when the partner *disposed of it. The *cost base or *reduced cost base of an interest in an asset is worked out at the same time. Replacement-asset roll-over if the partners dispose of all the assets of a business 122-170 Capital gain or loss disregarded If the partners choose a roll-over for *disposing of their interests in all the assets of a *business to the company, a *capital gain or *capital loss any partner makes from the disposal is disregarded. 122-175 Other consequences The other consequences relate to the *shares the partners receive and depend on when they *acquired their interests in the assets of the *business. Note 1: There are 3 possible cases: * a partner acquired all the interests on or after 20 September 1985: see section 122-180; * a partner acquired all the interests before that day: see section 122-185; * a partner acquired some of the interests on or after that day: see section 122-190. Note 2: There are other consequences for the partnership and the company if the partners dispose of their interests in trading stock of the partnership: see Division 70. 122-180 All interests acquired on or after 20 September 1985 (1) If a partner *acquired all of the partner's interests in the assets of the *business on or after 20 September 1985: (a) the first element of the partner's *cost base of each *share is the sum of the market values of the partner's interests in the *precluded assets and the cost bases of the partner's interests in the other assets (less any liabilities the company undertakes to discharge in respect of all of those interests) divided by the number of the partner's shares; and (b) the first element of the partner's *reduced cost base of each *share is worked out similarly. Note 1: There are rules for working out what are the liabilities in respect of interests: see section 122-145. Note 2: There are special indexation rules for roll-overs: see Division 114. (2) The market value of an interest in an asset is worked out when the partner *disposed of it. The *cost base or *reduced cost base of an interest is worked out at the same time. 122-185 All interests acquired before 20 September 1985 (1) A partner is taken to have *acquired all of the *shares before 20 September 1985 if the partner acquired all the partner's interests in the assets of the *business before that day and none of the assets is a *precluded asset. (2) However, if at least one of the assets is a *precluded asset, the partner is taken to have *acquired a whole number of the *shares (but not all of them) before that day. The number is the greatest possible that (when expressed as a percentage of all the shares) does not exceed: * the total of the market values of the partner's interests in the assets that are not *precluded assets, less any liabilities the company undertakes to discharge in respect of those interests; expressed as a percentage of: * the total of the market values of the partner's interests in all the assets, less any liabilities the company undertakes to discharge in respect of those interests. Note: There are rules for working out what are the liabilities in respect of an interest: see section 122-145. (3) The first element of the partner's *cost base and *reduced cost base of each other *share is the total of the market values of the partner's interests in the *precluded assets (less any liabilities the company undertakes to discharge in respect of those interests) divided by the number of the other shares. (4) The market value of an interest in an asset is worked out when the partner *disposed of it. The *cost base or *reduced cost base of an interest is worked out at the same time. 122-190 Interests acquired before and after 20 September 1985 (1) If a partner *acquired some of the interests in the assets on or after 20 September 1985, the partner is taken to have acquired a whole number of the *shares (but not all of them) before that day. The number is the greatest possible that (when expressed as a percentage of all the shares) does not exceed: * the total of the market values of the partner's interests in the assets (except any *precluded assets) that the partner acquired before that day, less any liabilities the company undertakes to discharge in respect of those interests; expressed as a percentage of: * the total of the market values of all the partner's interests in the assets, less any liabilities the company undertakes to discharge in respect of those interests. (2) The first element of the partner's *cost base of each other *share is the sum of the market values of the partner's interests in the *precluded assets and the cost bases of the partner's interests in the other assets that the partner *acquired on or after that day (less any liabilities the company undertakes to discharge in respect of all of those interests) divided by the number of the other shares. Note: There are special indexation rules for roll-overs: see Division 114. (3) The first element of the partner's *reduced cost base of each other *share is worked out similarly. (4) The market value of an interest in an asset is worked out when the partner *disposed of it. The *cost base or *reduced cost base of an interest in an asset is worked out at the same time. Replacement-asset roll-over for a creation case 122-195 Creation of asset (1) If the partners choose a roll-over, a *capital gain or *capital loss any partner makes from the trigger event is disregarded. (2) The first element of the partner's *cost base of each *share is the amount applicable under this table divided by the number of shares. The first element of each share's *reduced cost base is worked out similarly. Creation case Event No. Applicable amount D1 the partner's share of the *incidental costs incurred that relate to the trigger event D2 the partner's share of the expenditure incurred to grant the option D3 the partner's share of the expenditure incurred to grant the right F1 the partner's share of the expenditure incurred on the grant, renewal or extension of the lease The expenditure can include a transfer of property: see section 103-5. Same-asset roll-over consequences for the company (disposal case) 122-200 Consequences for the company (disposal case) (1) There are these consequences for the company in a disposal case if the partners choose to obtain a roll-over. They are relevant for interests in each *CGT asset (except a *precluded asset) that the partners *disposed of to the company. Note: A capital gain or loss from a precluded asset can be disregarded: see Subdivision 118-A. Interests acquired on or after 20 September 1985 (2) If all of the partners' interests in an asset were *acquired on or after 20 September 1985: (a) the first element of the asset's *cost base (in the hands of the company) is the sum of the cost bases of the partners' interests in the asset when it was disposed of; and (b) the first element of the asset's *reduced cost base (in the hands of the company) is the sum of the reduced cost bases of the partners' interests in the asset when it was disposed of. Note: There are special indexation rules for roll-overs: see Division 114. Interests acquired before 20 September 1985 (3) If all of the partners' interests in an asset were *acquired before 20 September 1985, the company is taken to have acquired it before that day. Note: A capital gain or loss from a CGT asset acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149. Interests acquired on or after and before 20 September 1985 (4) If some of the partners' interests in an asset (the original asset) were *acquired on or after 20 September 1985 and some before that day, the company is taken to have acquired 2 separate *CGT assets: (a) one (which the company is taken to have acquired on or after 20 September 1985) representing the extent to which the partners' interests in the original asset were acquired by the partners on or after that day; and (b) another (which the company is taken to have acquired before that day) representing the extent to which the partners' interests in the original asset were acquired by the partners before that day. (5) The first element of the *cost base of the separate asset that the company is taken to have *acquired on or after 20 September 1985 is the sum of the cost bases of the partners' interests in the original asset that they acquired on or after that day. Note: There are special indexation rules for roll-overs: see Division 114. (6) The first element of its *reduced cost base is worked out similarly. Same-asset roll-over consequences for the company (creation case) 122-205 Consequences for the company (creation case) (1) There are these consequences for the company in a creation case if the partners choose to obtain a roll-over. (2) The first element of the created asset's *cost base (in the hands of the company) is the applicable amount from this table. Creation case Event No. Applicable amount D1 the total *incidental costs incurred that relate to the trigger event D2 the total expenditure incurred to grant the option D3 the total expenditure incurred to grant the right F1 the total expenditure incurred on the grant, renewal or extension of the lease The expenditure can include a transfer of property: see section 103-5. (3) The first element of the created asset's *reduced cost base (in the hands of the company) is worked out similarly. [The next Division is Division 124.] Division 124--Replacement-asset roll-overs Table of Subdivisions Guide to Division 124 124-A General rules 124-B Asset compulsorily acquired, lost or destroyed 124-C Statutory licences 124-D Strata title conversion 124-E Exchange of shares or units 124-F Exchange of rights or options 124-G Exchange of shares in one company for shares in another company 124-H Exchange of units in a unit trust for shares in a company 124-I Conversion of a body to an incorporated company 124-J Crown leases 124-K Plant 124-L Prospecting and mining entitlements Guide to Division 124 124-1 What this Division is about A replacement-asset roll-over allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens. It involves your ownership of one CGT asset ending and you acquiring another one. 124-5 How to find your way around this Division (1) First, find out if you can obtain a roll-over when your ownership of one or more CGT assets ends and you acquire one or more CGT assets: see Subdivisions 124-B to 124-L. (2) Second, find out what the consequences are for being able to obtain a roll-over: see Subdivision 124-A. (3) Third, find out if there are any special rules relevant to your situation: see the Subdivision under which you can get the roll-over. Subdivision 124-A--General rules Table of sections 124-10 Your ownership of one CGT asset ends 124-15 Your ownership of more than one CGT asset ends 124-10 Your ownership of one CGT asset ends (1) There are these consequences (in most cases) if you can obtain a roll-over when your ownership of a *CGT asset (the original asset) ends and you *acquire one or more CGT assets (the new assets) in a situation covered by this Division. Example: Your commercial fishing licence expires and you get a new one. (2) A *capital gain or a *capital loss you make from the original asset is disregarded. (3) If you *acquired the original asset on or after 20 September 1985, the first element of each new asset's *cost base is: [GRAPHIC] The first element of each new asset's *reduced cost base is worked out similarly. Example: To continue the example, suppose the cost base of the fishing licence that expires is $5,000. This becomes the first element of the new one's cost base. Note 1: In some cases the amount you paid to acquire the new asset also forms part of the first element: see Subdivisions 124-C (about statutory licences) and 124-D (about strata title conversion). Note 2: There are modifications to the consequences in Subdivision 124-B (about compulsory acquisition, loss or destruction), Subdivision 124-J (about Crown leases) and Subdivision 124-L (about prospecting and mining). Note 3: No other elements of the cost base of the new asset are affected by the roll-over. Note 4: There are special indexation rules for roll-overs: see Division 114. (4) If you *acquired the original asset before 20 September 1985, you are taken to have acquired each new asset before that day. Note: A capital gain or loss you make from a CGT asset you acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149. 124-15 Your ownership of more than one CGT asset ends (1) There are these consequences (in most cases) if you can obtain a roll-over when your ownership of more than one *CGT asset (the original assets) ends and you acquire one or more CGT assets (the new assets) in a situation covered by this Division. Example: You own 100 shares in a company. The company cancels these shares and issues you with 10 shares in return. (2) A *capital gain or a *capital loss you make from each original asset is disregarded. (3) If you *acquired all the original assets on or after 20 September 1985, the first element of each new asset's cost base is: [GRAPHIC] The first element of each new asset's *reduced cost base is worked out similarly. Note 1: No other elements of the cost base of the new asset are affected by the roll-over. Note 2: There are special indexation rules for roll-overs: see Division 114. (4) If you *acquired all the original assets before 20 September 1985, you are taken to have acquired each new asset before that day. Note: A capital gain or loss you make from a CGT asset you acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149. (5) If you *acquired some of the original assets before 20 September 1985, you are taken to have acquired a number of new assets before that day. It is the maximum possible that does not exceed: [GRAPHIC]If the result is less than one, none of the new assets are taken to have been *acquired before 20 September 1985. Example: To continue the example, suppose you acquired 67 of the 100 original shares before 20 September 1985. The number of new shares that you are taken to have acquired before that day cannot exceed: [GRAPHIC] So, you are taken to have acquired 6 of the 10 shares before that day. (6) These rules are relevant to each remaining new asset. The first element of each one's *cost base is: [GRAPHIC]The first element of each one's *reduced cost base is worked out similarly. Note: There are special indexation rules for roll-overs: see Division 114. Example: To continue the example, suppose the total of the cost bases of the 33 shares you acquired on or after 20 September 1985 is $400. The first element of the cost base of each of the remaining 4 shares is: [GRAPHIC] The first element of the reduced cost base of those 4 shares is worked out similarly. Subdivision 124-B--Asset compulsorily acquired, lost or destroyed Table of sections When roll-over is available 124-70 Events giving rise to a roll-over 124-75 Other requirements if you receive money 124-80 Other requirements if you receive an asset The consequences of a roll-over being available 124-85 Consequences for receiving money 124-90 Consequences for receiving an asset 124-95 You receive both money and an asset [This is the end of the Guide.] When a roll-over is available 124-70 Events giving rise to a roll-over (1) You may be able to choose a roll-over if one of these events happens to a *CGT asset (the original asset) you own: (a) it is compulsorily *acquired by an *Australian government agency; (b) it, or part of it, is lost or destroyed; (c) you *dispose of it to an *Australian government agency after a notice was served on you by or on behalf of the agency: (i) inviting you to negotiate with the agency with a view to the agency acquiring it by agreement; and (ii) informing you that if the negotiations are unsuccessful, it will be compulsorily acquired by the agency; (d) if it is a lease granted to you by an *Australian government agency under an *Australian law--the lease expires and is not renewed. Note 1: There are no roll-over consequences if you make a capital loss from the event. Note 2: Section 103-25 tells you when you have to make the choice. (2) You must receive money or another *CGT asset, or both: (a) as compensation for the event happening; or (b) under an insurance policy against the risk of loss or destruction of the original asset. Note: There are other requirements that must be satisfied if: * you receive money: see section 124-75; or * you receive another CGT asset: see section 124-80. (3) The requirement in subsection (4) must be satisfied if: (a) you are not an Australian resident just before the event happens; or (b) you are the trustee of a trust that is not a *resident trust for CGT purposes for the income year in which the event happens. (4) The original asset must have the *necessary connection with Australia just before the event happens. The other asset must have the *necessary connection with Australia just after you *acquire it. 124-75 Other requirements if you receive money (1) If you receive money for the event happening, you can choose to obtain a roll-over only if these other requirements are satisfied. Note: The roll-over consequences are set out in section 124-85. (2) You must: (a) incur expenditure in *acquiring another *CGT asset; or (b) if part of the original asset is lost or destroyed--incur expenditure of a capital nature in repairing or restoring it. (3) At least some of the expenditure must be incurred: (a) no earlier than one year, or within such further time as the Commissioner allows in special circumstances, before the event happens; or (b) no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens. Special rules if you acquire another asset (4) If just before the event happened the original asset: (a) was used in your *business; or (b) was *installed ready for use in your business; or (c) was in the process of being *installed ready for use in your business; the other asset must be used in the business, or be installed ready for use in the business, for a reasonable time after you *acquired it. Otherwise, you must use the other asset (for a reasonable time after you *acquired it) for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset just before the event happened. (5) The other asset cannot become an item of your *trading stock just after you *acquire it. 124-80 Other requirements if you receive an asset (1) If you receive another *CGT asset for the event happening, you can choose to obtain a roll-over only if these other requirements are satisfied. Note: The roll-over consequences are set out in section 124-90. (2) The other asset cannot become an item of your *trading stock just after you *acquire it. (3) The market value of the other asset (when you *acquire it) must be more than the *cost base of the original asset just before the event happens. The consequences of a roll-over being available 124-85 Consequences for receiving money (1) If you receive money for the event happening, there are these consequences if you choose to obtain a roll-over. Original asset acquired on or after 20 September 1985 (2) If you make a *capital gain from the event, this table sets out in what situations the gain is reduced, not reduced or disregarded. It also sets out in what situations the expenditure you incurred to *acquire another *CGT asset or to repair or restore the original asset is reduced. You make a capital gain from the event Item In this situation: There are these consequences 1 The money exceeds the expenditure you incurred to *acquire another CGT asset or to repair or restore the original asset If the gain is more than the excess: (a) the gain is reduced to the amount by which the money exceeds that expenditure; and (b) that expenditure is reduced by the amount by which the gain (before it is reduced) is more than the excess 2 The money exceeds that expenditure If the gain is less than or equal to the excess, the gain is not reduced 3 The money does not exceed that expenditure The gain is disregarded in working out your *net capital or *net capital loss for the income year. That expenditure is reduced by the amount of the gain Example: In 1999 Simon bought a yacht. In 2000 a fire destroys part of it. He receives $100,000 under an insurance policy. The capital gain is worked out under section 112-30. Suppose the yacht's cost base at the time of the fire is $75,000 and the market value of the part that is not destroyed is $150,000. The cost base of the part that is destroyed is: [GRAPHIC] The capital gain is: [GRAPHIC] Case 1 Suppose Simon spent $80,000 on repairing the yacht. The money he received under the insurance policy exceeds the repair cost by $20,000. The gain exceeds that by $50,000. The result is that the gain is reduced to $20,000 and the $80,000 he spent on repairs is reduced to $30,000. Case 2 Suppose Simon spent $15,000 on repairs instead. The money he received under the policy exceeds that amount by $85,000. This is more than the gain he made. The gain is relevant to working out Simon's net capital gain or loss for the income year and the $15,000 he spent on repairs forms part of the yacht's cost base. Case 3 Suppose Simon spent $120,000 on repairs instead. The gain is disregarded and the $120,000 is reduced to $50,000. Original asset acquired before 20 September 1985 (3) If you *acquired the original asset before 20 September 1985 and you incurred expenditure in acquiring another *CGT asset, you are taken to have acquired the other asset before that day if: (a) the expenditure is not more than 120% of the market value of the original asset when the event happened; or (b) a natural disaster happened so that the original asset, or part of it, is lost or destroyed and it is reasonable to treat the other asset as substantially the same as the original asset. (4) If you *acquired the original asset before 20 September 1985 and you incurred expenditure of a capital nature in repairing or restoring it, you are taken to have acquired the original asset (as repaired or restored) before that day. 124-90 Consequences for receiving an asset (1) If you receive another *CGT asset for the event happening, there are these consequences if you choose to obtain a roll-over. (2) A *capital gain you make from the original asset is disregarded. (3) If you *acquired the original asset on or after 20 September 1985: (a) the first element of the other asset's *cost base is the original asset's cost base at the time of the event; and (b) the first element of the other asset's *reduced cost base is the original asset's reduced cost base at the time of the event. Note: There are special indexation rules for roll-overs: see Division 114. Example: Steven bought land in 1999 for $100,000. In 2001 the government compulsorily acquires the land and gives him new land in return. A capital gain he makes from the original land is disregarded. Suppose the original land's cost base when it is acquired is $120,000. The first element of the new land's cost base becomes $120,000. (4) If you acquired the original asset before 20 September 1985, you are taken to have *acquired the other asset before that day. 124-95 You receive both money and an asset (1) If you receive both money and another *CGT asset for the event happening and choose to obtain a roll-over, the requirements and consequences are different for each part of the compensation attributable to the original asset (having regard to the amount of money and the market value of the other asset). The other asset as a part of compensation (2) The market value of the other asset (when you *acquire it) must be more than that part of the *cost base of the original asset that is attributable to the new asset. Note: This requirement is different to that in subsection 124-80(3). It requires a proportional attribution of the cost base of the original asset. (3) If you *acquired the original asset on or after 20 September 1985: (a) the first element of the other asset's *cost base is that part of the original asset's cost base at the time of the event that is attributable to the new asset; and (b) the first element of the other asset's *reduced cost base is worked out similarly. Note: These consequences are different to those in subsection 124-90(3). They require a proportional attribution of the cost base of the original asset. (4) If you *acquired the original asset before 20 September 1985, you are taken to have acquired the new asset before that day. Money as a part of compensation (5) If you make a *capital gain from the event, this table sets out in what situations that part of the gain on the original asset that is attributable to the amount of money you received is reduced, not reduced or disregarded. It also sets out in what situations the expenditure you incurred to *acquire another *CGT asset or to repair or restore the original asset is reduced. You make a capital gain from the event Item In this situation: There are these consequences 1 The money exceeds the expenditure you incurred to *acquire another CGT asset or to repair or restore the original asset If that part of the gain that is attributable to the amount of money is more than the excess: (a) that part of the gain is reduced to the amount by which the money exceeds that expenditure; and (b) that expenditure is reduced by the amount by which that part of the gain (before it is reduced) is more than the excess 2 The money exceeds that expenditure If that part of the gain that is attributable to the amount of money is less than or equal to the excess, the gain is not reduced 3 The money does not exceed that expenditure That part of the gain that is attributable to the amount of money is disregarded in working out your *net capital gain or *net capital loss for the income year. That expenditure is reduced by the amount of that part of the gain Note: These consequences are different to those in subsection 124-85(2). They require a proportional attribution of capital gain on the original asset. (6) If you *acquired the original asset before 20 September 1985 and you incurred expenditure in acquiring another *CGT asset, you are taken to have acquired the other asset before that day if: (a) the expenditure you incurred in acquiring the other asset is not more than 120% of the market value of that part of the original asset that is attributable to the other asset when the event happened; or (b) a natural disaster happened so that the original asset, or part of it, is lost or destroyed and it is reasonable to treat the other asset as substantially the same as that part of the original asset that is attributable to the new asset. Note 1: The consequences in paragraph (6)(a) are different to those in paragraph 124-85(3)(a). They require a proportional attribution of the market value of the original asset. Note 2: The consequences in paragraph (6)(b) are different to those in paragraph 124-85(3)(b). They require a proportional attribution of the original asset. Example: Kris owns land, which he acquired in 1998. It is compulsorily acquired, and Kris receives $80,000 in cash and replacement land with a market value of $80,000. The cost base of the original land is $150,000. Kris buys additional land for $80,000. Subsection (2) is satisfied because the market value of the replacement land ($80,000) is more than the part of the cost base of the original land that is attributable to the replacement land: [GRAPHIC] Applying subsection (5), the other part of the gain is disregarded, and the first element of the cost base of the replacement land is the part of the cost base of the original land that is attributable to the replacement land: [GRAPHIC] Applying subsection (3), the money he received ($80,000) is the same as the expenditure he incurred to buy the additional land. Item 3 in the table applies. The part of the gain that is attributable to that money is disregarded: [GRAPHIC] The expenditure is reduced by $5,000. Subdivision 124-C--Statutory licences 124-140 Renewal or extension of a statutory licence (1) There is a roll-over if: (a) a *statutory licence (the original licence) you have expires or you surrender it; and (b) you get a new licence by renewing or extending the original one (which is due mainly to you having the original one). Note 1: The roll-over consequences are set out in section 124-10. The original asset is the original licence. The new asset is the licence you get by renewing or extending the original licence. Note 2: If there has been a capital improvement to the statutory licence: see section 108-75. (2) The first element of the *cost base and *reduced cost base of the new licence includes any amount you paid to get it (which can include giving property: see section 103-5). Note: The rest of the first element is worked out under Subdivision 124-A. (3) A statutory licence is an authority, licence, permit or quota (except a lease or a *mining entitlement or *prospecting entitlement) granted by: (a) an *Australian government agency under an *Australian law; or (b) a *foreign government agency under a *foreign law. Subdivision 124-D--Strata title conversion 124-190 Strata title conversion (1) You can choose to obtain a roll-over if: (a) you own property that gives you a right to occupy a unit in a building; and (b) the building's owner subdivides it into *stratum units; and (c) the owner transfers to you the stratum unit that corresponds to the unit you had the right to occupy just before the subdivision. Note 1: The roll-over consequences are set out in section 124-10. The original asset is the property that gave you the right to occupy a unit in the building. The new asset is the stratum unit. Note 2: Section 103-25 tells you when you have to make the choice. (2) The first element of the *cost base and *reduced cost base of the *stratum unit includes any amount you paid to get it (which can include giving property: see section 103-5). Note: The rest of the first element is worked out under Subdivision 124-A. (3) A stratum unit is a lot or unit (however described in an *Australian law or a *foreign law relating to strata title or similar title) and any accompanying common property. Subdivision 124-E--Exchange of shares or units Table of sections 124-240 Exchange of shares in the same company 124-245 Exchange of units in the same unit trust 124-240 Exchange of shares in the same company You can choose to obtain a roll-over if: (a) you own *shares (the original shares) of a certain class in a company; and (b) the company redeems or cancels all shares of that class; and (c) the company issues you with new shares (and you receive nothing else) in substitution for the original shares; and (d) the market value of the new shares just after they were issued is at least equal to the market value of the original shares just before they were redeemed or cancelled; and (e) the total paid up capital of the company just after the new shares were issued is the same as just before the original shares were redeemed or cancelled; and (f) one of these requirements is satisfied: (i) you are an Australian resident at the time of the redemption or cancellation; or (ii) if you are not an Australian resident at that time--the original shares have the *necessary connection with Australia. Note 1: The roll-over consequences are set out in Subdivision 124-A. The original assets are the original shares. The new assets are the new shares. Note 2: Section 103-25 tells you when you have to make the choice. 124-245 Exchange of units in the same unit trust You can choose to obtain a roll-over if: (a) you own units (the original units) of a certain class in a unit trust; and (b) the trustee redeems or cancels all units of that class; and (c) the trustee issues you with new units (and you receive nothing else) in substitution for the original units; and (d) the market value of the new units just after they were issued is at least equal to the market value of the original units just before they were redeemed or cancelled; and (e) one of these requirements is satisfied: (i) you are an Australian resident at the time of the redemption or cancellation; or (ii) if you are not an Australian resident at that time--the original units have the *necessary connection with Australia. Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are the original units. The new assets are the new units. Subdivision 124-F--Exchange of rights or options Table of sections 124-295 Exchange of rights or option to acquire shares in a company 124-300 Exchange of rights or option to acquire units in a unit trust 124-295 Exchange of rights or option to acquire shares in a company (1) You can choose to obtain a roll-over if: (a) you own rights (the original rights) to *acquire *shares in a company or to acquire an option to acquire *shares in a company; or (b) you own an option (the original option) to acquire *shares in a company; and these other requirements are satisfied. Note: Section 103-25 tells you when you have to make the choice. (2) The *shares must: (a) be consolidated and divided into new shares of a larger amount; or (b) be subdivided into new shares of a smaller amount. (3) The company must cancel the original rights or original option because of the consolidation or subdivision. (4) The company must: (a) issue you with new rights (relating to the new *shares) in substitution for the original rights; or (b) issue you with a new option (relating to the new shares) in substitution for the original option. (5) You must receive nothing else in substitution for the original rights or original option. (6) The market value of the new rights or new option just after it was issued must be at least equal to the market value of the original rights or original option just before it was cancelled. (7) One of these requirements must be satisfied: (a) you must be an Australian resident at the time of the cancellation; or (b) if you are not an Australian resident at that time--the original rights or original option have the *necessary connection with Australia. Note: The roll-over consequences are set out in Subdivision 124-A. The original asset is the original rights or original option. The new asset is the new rights or new option. 124-300 Exchange of rights or option to acquire units in a unit trust (1) You can choose to obtain a roll-over if: (a) you own rights (the original rights) to *acquire units in a unit trust or to acquire an option to acquire units in a unit trust; or (b) you own an option (the original option) to acquire units in a unit trust; and these other requirements are satisfied. Note: Section 103-25 tells you when you have to make the choice. (2) The units must: (a) be consolidated and divided into new units of a larger amount; or (b) be subdivided into new units of a smaller amount. (3) The trustee must cancel the original rights or original option because of the consolidation or subdivision. (4) The trustee must: (a) issue you with new rights (relating to the new units) in substitution for the original rights; or (b) issue you with a new option (relating to the new units) in substitution for the original option. (5) You must receive nothing else in substitution for the original rights or original option. (6) The market value of the new rights or new option just after it was issued must be at least equal to the market value of the original rights or original option just before it was cancelled. (7) One of these requirements must be satisfied: (a) you must be an Australian resident at the time of the cancellation; or (b) if you are not an Australian resident at that time--the original rights or original option have the *necessary connection with Australia. Note: The roll-over consequences are set out in Subdivision 124-A. The original asset is the original rights or original option. The new asset is the new rights or new option. Subdivision 124-G--Exchange of shares in one company for shares in another company Guide to Subdivision 124-G 124-350 What this Subdivision is about This Subdivision sets out when you can obtain a roll-over if: you own shares in a company; and there is a reorganisation of its affairs so that you become the owner of new shares in another company. Table of sections 124-355 Summary of rules Disposal case 124-360 Disposal of shares in one company for shares in another one 124-365 Other requirements to be satisfied Redemption or cancellation case 124-370 Redemption or cancellation of shares in one company for shares in another one 124-375 Other requirements to be satisfied Rules applying to both cases 124-380 Requirements to be satisfied in both cases Consequences for the interposed company 124-385 Consequences for the interposed company 124-355 Summary of rules (1) This Subdivision deals with 2 cases in which you can choose to obtain a roll-over because of the reorganisation of a company's affairs. Note: Section 103-25 tells you when you have to make the choice. (2) The first case is if you dispose of shares in one company to another company and the other company issues you with new shares. You can find the specific rules relevant to this case in sections 124-360 and 124-365. (3) The second case is if your shares in one company are redeemed or cancelled and another company issues you with new shares in return. You can find the specific rules relevant to this case in sections 124-370 and 124-375. (4) There are some rules that apply in both cases: see section 124-380. (5) There are also consequences for the other company if you can choose to obtain the roll-over: see section 124-385. [This is the end of the Guide.] Disposal case 124-360 Disposal of shares in one company for shares in another one You can choose to obtain a roll-over if: (a) you are a *member of a company (the original company); and (b) you and at least one other entity (the exchanging members) own all the *shares in it; and (c) under a *scheme for reorganising its affairs, the exchanging members *dispose of all their shares in it to another company (the interposed company) in exchange for shares in the interposed company (and nothing else); and the requirements in sections 124-365 and 124-380 are satisfied. Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are your shares in the original company. The new assets are your new shares in the interposed company. 124-365 Other requirements to be satisfied (1) The interposed company must own all the *shares in the original company just after all the exchanging members have *disposed of their shares in the original company (the completion time). (2) Just after the completion time, each exchanging member must own: (a) a whole number of *shares in the interposed company; and (b) a percentage of the *shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares in the original company (that were *disposed of to the interposed company) that the member owned. (3) The ratio of: * the market value of each exchanging member's *shares in the interposed company to the market value of the shares in the interposed company issued to all the exchanging members (worked out just after the completion time); must equal the ratio of: * the market value of that member's shares in the original company that were *disposed of to the interposed company to the market value of all the shares in the original company that were disposed of to the interposed company (worked out just before the first disposal). Example: There are 100 shares in A Pty Ltd (the original company), all having the same rights. B Pty Ltd (the interposed company) acquires all the shares in A by issuing each shareholder in A 10 shares in itself for each share they have in A. All shares in B have the same rights. Bill owned 15 shares in A and received 150 shares in B in exchange. (4) Either: (a) you are an Australian resident at the time you *disposed of your *shares in the original company; or (b) if you are not an Australian resident at that time--your *shares in the original company have the *necessary connection with Australia. Redemption or cancellation case 124-370 Redemption or cancellation of shares in one company for shares in another one (1) You can choose to obtain a roll-over if you are a *member of a company (the original company) and under a *scheme for reorganising its affairs: (a) another company (the interposed company) *acquires no more than 5 *shares in the original company; and (b) these are the first shares that the interposed company acquires in the original company; and (c) you and at least one other entity (the exchanging members) own all the remaining shares in the original company; and (d) the original company redeems or cancels those remaining shares; and (e) each exchanging member receives shares (and nothing else) in the interposed company in return for their shares in the original company being redeemed or cancelled; and the requirements in sections 124-375 and 124-380 are satisfied. Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are your shares in the original company. The new assets are your new shares in the interposed company. (2) The original company can issue other *shares in itself to the interposed company as part of the scheme. Note: Some of the interposed company's shares in the original company may be taken to be acquired before 20 September 1985: see section 124-385. 124-375 Other requirements to be satisfied (1) The interposed company must own all the *shares in the original company just after all the exchanging members have had their shares in the original company redeemed or cancelled (the completion time). (2) Just after the completion time, each exchanging member must own: (a) a whole number of *shares in the interposed company; and (b) a percentage of the *shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares in the original company (that were redeemed or cancelled) that the member owned. (3) The ratio of: * the market value of each exchanging member's *shares in the interposed company to the market value of the shares in the interposed company issued to all the exchanging members (worked out just after the completion time); must equal the ratio of: * the market value of that member's shares in the original company that were redeemed or cancelled to the market value of all the shares in the original company that were redeemed or cancelled (worked out just before the first redemption or cancellation). Example: There are 100 shares in X Pty Ltd (the original company), all having the same rights. X issues 2 shares to Y Pty Ltd (the interposed company) and cancels all other shares in itself. Y issues each shareholder in X 10 shares in itself for each share they had in X. All shares in Y have the same rights. Wil owned 10 shares in X and received 100 shares in Y in exchange. (4) Either: (a) you are an Australian resident at the time your *shares in the original company are redeemed or cancelled; or (b) if you are not an Australian resident at that time--your *shares in the original company have the *necessary connection with Australia. Rules applying to both cases 124-380 Requirements to be satisfied in both cases (1) The *shares issued in the interposed company must not be *redeemable shares. (2) Each exchanging member who is issued *shares in the interposed company must own the shares from the time they are issued to the completion time. (3) Just after the completion time: (a) the exchanging members must own all the *shares in the interposed company; or (b) entities other than those members must own no more than 5 *shares in the interposed company and the market value of those shares expressed as a percentage of the market value of all the shares in the interposed company is such that it is reasonable to treat the exchanging members as owning all the shares. (4) The original company and interposed company must be Australian residents at the completion time. Choice to be made by interposing company (5) The interposed company must choose that section 124-385 apply. It must make its choice within 2 months after the completion time, or within such further time as the Commissioner allows. Note: This is an exception to the general rule about choices in section 103-25. Consequences for the interposed company 124-385 Consequences for the interposed company (1) A whole number of the *shares that the interposed company owns in the original company (just after the completion time) are taken to have been *acquired before 20 September 1985 if any of the original company's assets as at the completion time were acquired by it before that day. Note: Generally, a capital gain or capital loss you make from a CGT asset that you acquired before 20 September 1985 can be disregarded: see Division 104. (2) The number (worked out as at the completion time) is the greatest possible that (when expressed as a percentage of all the *shares) does not exceed: * the market value of the original company's assets that it *acquired before 20 September 1985 less its liabilities (if any) in respect of those assets; expressed as a percentage of: * the market value of all the original company's assets less all of its liabilities. (3) The first element of the *cost base of the interposed company's *shares in the original company that are not taken to have been *acquired before 20 September 1985 is: * the total of the cost bases (as at the completion time) of the original company's assets that it acquired on or after that day; less: * its liabilities (if any) in respect of those assets. (4) The first element of the *reduced cost base of the interposed company's *shares is worked out similarly. (5) A liability of the original company that is not a liability in respect of a specific asset or assets of the company is taken to be a liability in respect of all the assets of the company. Note: An example is a bank overdraft. (6) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to: [GRAPHIC]Subdivision 124-H--Exchange of units in a unit trust for shares in a company Guide to Subdivision 124-H 124-435 What this Subdivision is about This Subdivision sets out when you can obtain a roll-over if: you own units in a unit trust; and there is a reorganisation of its affairs so that you become the owner of new shares in a company. Table of sections 124-440 Summary of rules Disposal case 124-445 Disposal of units in a unit trust for shares in a company 124-450 Other requirements to be satisfied Redemption or cancellation case 124-455 Redemption or cancellation of units in a unit trust for shares in a company 124-460 Other requirements to be satisfied Rules applying to both cases 124-465 Requirements to be satisfied in both cases Consequences for the company 124-470 Consequences for the company 124-440 Summary of rules (1) This Subdivision deals with 2 cases in which you can choose to obtain a roll-over because of the reorganisation of a unit trust's affairs. Note: Section 103-25 tells you when you have to make the choice. (2) The first case is if you dispose of units in a unit trust to a company and the company issues you with shares. You can find the specific rules about this case in sections 124-445 and 124-450. (3) The second case is if your units in a unit trust are redeemed or cancelled and a company issues you with shares. You can find the specific rules about this case in sections 124-455 and 124-460. (4) There are some rules that apply in both cases: see section 124-465. (5) There are also consequences for the company if you can choose to obtain a roll-over: see section 124-470. [This is the end of the Guide.] Disposal case 124-445 Disposal of units in a unit trust for shares in a company You can choose to obtain a roll-over if: (a) you are a member of a unit trust; and (b) you and at least one other entity (the exchanging members) own all the units in it; and (c) under a *scheme for reorganising its affairs, the exchanging members *dispose of their units in it to a company in exchange for *shares in the company (and nothing else); and the requirements in sections 124-450 and 124-465 are satisfied. Note: The roll-over consequences are out in Subdivision 124-A. The original assets are your units in the unit trust. The new assets are your new shares in the company. 124-450 Other requirements to be satisfied (1) The company must own all the units in the unit trust just after all the exchanging members have *disposed of their units in the unit trust (the completion time). (2) Just after the completion time, each exchanging member must own: (a) a whole number of *shares in the company; and (b) a percentage of the *shares in the company that were issued to all the exchanging members that is equal to the percentage of the units in the unit trust (that were *disposed of to the company) that the member owned. (3) The ratio of: * the market value of each exchanging member's *shares in the company to the market value of the shares in the company issued to all the exchanging members (worked out just after the completion time); must equal the ratio of: * the market value of that member's units in the unit trust that were disposed of to the company to the market value of all the units that were disposed of to the company (worked out just before the first disposal). Example: There are 1,000 units in the A unit trust, all having the same rights. B Pty Ltd acquires all the units in A by issuing each unitholder in A 10 shares in itself for each 100 units they have in A. All shares in B have the same rights. Brian owned 300 units in A and received 30 shares in B in exchange. (4) Either: (a) you are an Australian resident at the time you *disposed of your units in the unit trust; or (b) if you are not an Australian resident at that time--your units have the *necessary connection with Australia. Redemption or cancellation case 124-455 Redemption or cancellation of units in a unit trust for shares in a company (1) You can choose to obtain a roll-over if you are a member of a unit trust and under a *scheme for reorganising its affairs: (a) a company *acquires no more than 5 units in the trust; and (b) these are the first units that the company acquires in the trust; and (c) you and at least one other entity (the exchanging members) own all the remaining units in the trust; and (d) the trustee redeems or cancels those remaining units; and (e) each exchanging member receives *shares (and nothing else) in the company in return for their units being redeemed or cancelled; and the requirements in sections 124-460 and 124-465 are satisfied. Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are your units in the unit trust. The new assets are your new shares in the company. (2) The trustee of the unit trust can issue other units to the company as part of the scheme. Note: Some of the company's units in the unit trust may be taken to be acquired before 20 September 1985: see section 124-470. 124-460 Other requirements to be satisfied (1) The company must own all the units in the unit trust just after all the exchanging members have had their units in the unit trust redeemed or cancelled (the completion time). (2) Just after the completion time, each exchanging member must own: (a) a whole number of *shares in the company; and (b) a percentage of the *shares in the company that were issued to all the exchanging members that is equal to the percentage of the units in the unit trust (that were redeemed or cancelled) that the member owned. (3) The ratio of: * the market value of each exchanging member's *shares in the company to the market value of the shares in the company issued to all the exchanging members (worked out just after the completion time); must equal the ratio of: * the market value of that member's units in the unit trust that were redeemed or cancelled to the market value of all the units that were redeemed or cancelled (worked out just before the first redemption or cancellation). Example: There are 1,000 units in the A unit trust, all having the same rights. 2 new units in A are issued to B Pty Ltd, and all other units in A are cancelled. Each unitholder in A is issued 10 shares in B for each 100 units they have in A. All shares in B have the same rights. Alison owned 200 units in A and received 20 shares in B in exchange. (4) Either: (a) you are an Australian resident at the time your units in the unit trust are redeemed or cancelled; or (b) if you are not an Australian resident at that time--your units have the *necessary connection with Australia. Rules applying to both cases 124-465 Requirements to be satisfied in both cases (1) The *shares issued in the company must not be *redeemable shares. (2) Each exchanging member who is issued *shares in the company must own the shares from the time they are issued to the completion time. (3) Just after the completion time: (a) the exchanging members must own all the *shares in the company; or (b) entities other than those members must own no more than 5 *shares in the company and the market value of those shares expressed as a percentage of the market value of all the shares in the company is such that it is reasonable to treat the exchanging members as owning all the shares. (4) The unit trust must be a *resident trust for CGT purposes for the income year in which the completion time occurs. The company must be an Australian resident at the completion time. Choice to be made by company (5) The company must choose that the rules in section 124-470 apply. It must make its choice within 2 months after the completion time, or within such further time as the Commissioner allows. Note: This is an exception to the general rule about choices in section 103-25. Consequences for the company 124-470 Consequences for the company (1) A whole number of the units that the company owns in the unit trust (just after the completion time) are taken to have been *acquired before 20 September 1985 if any of the unit trust's assets as at the completion time were acquired by it before that day. Note: Generally, a capital gain or capital loss you make from a CGT asset that you acquired before 20 September 1985 can be disregarded: see Division 104. (2) The number (worked out as at the completion time) is the greatest possible that (when expressed as a percentage of all the units) does not exceed: * the market value of the unit trust's assets that it *acquired before 20 September 1985 less its liabilities (if any) in respect of those assets; expressed as a percentage of: * the market value of all the unit trust's assets less all of its liabilities. (3) The first element of the *cost base of the company's units in the unit trust that are not taken to have been *acquired before 20 September 1985 is: * the total of the cost bases (as at the completion time) of the unit trust's assets that it acquired on or after that day; less: * its liabilities (if any) in respect of those assets. (4) The first element of the *reduced cost base of the company's units is worked out similarly. (5) A liability of the unit trust that is not a liability in respect of a specific asset or assets of the trust is taken to be a liability in respect of all the assets of the trust. Note: An example is a bank overdraft. (6) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to: [GRAPHIC]Subdivision 124-I--Conversion of a body to an incorporated company 124-520 Conversion of a body to an incorporated company (1) You can choose to obtain a roll-over if: (a) you are a member of a body that is incorporated under a law other than *company law; and (b) the body is converted into a company incorporated under company law (without creating a new legal entity); and (c) the company issues you with *shares (and you receive nothing else) in substitution for your interest in the body just before the conversion; and (d) there is no significant difference in: (i) the ownership of the body just before the conversion and the ownership of the company just after the conversion; or (ii) the mix of ownership of the body just before the conversion and the mix of ownership of the company just after the conversion; and (e) this requirement is satisfied: (i) you are an Australian resident at the time of the conversion; or (ii) if you are not an Australian resident at that time--your interest in the body has the *necessary connection with Australia. Note 1: The roll-over consequences are set out in Subdivision 124-A. The original asset is your interest in the body. The new asset is your shares in the company. Note 2: Section 103-25 tells you when you have to make the choice. (2) Company law means the Corporations Law of a State or Territory or a similar *State law, *Territory law or *foreign law relating to companies. Subdivision 124-J--Crown leases Guide to Subdivision 124-J 124-570 What this Subdivision is about This Subdivision sets out the situations in which the holder of a Crown lease over land obtains a replacement asset roll-over when the lease is, among other things, renewed, extended or converted to an estate in fee simple. Table of sections Operative provisions 124-575 Extension or renewal of Crown lease 124-580 Meaning of Crown lease 124-585 Original right differs in area from new right 124-590 Part of original right excised 124-595 Treating parts of new right as separate assets 124-600 What is the roll-over? 124-605 Change of lessor [This is the end of the Guide.] Operative provisions 124-575 Extension or renewal of Crown lease (1) There is a roll-over if: (a) you hold one or more *CGT assets that are *Crown leases over land (the original right); and (b) the original right expires or you surrender it; and (c) you are granted one or more new Crown leases over land or one or more estates in fee simple in land, or both (the new right); and (d) the new right relates to the same land as the original right. Note 1: The roll-over consequences are set out in Subdivision 124-A. They might be modified: see section 124-600. Note 2: If there has been a capital improvement to the Crown lease: see section 108-75. (2) The new right must have been granted in one of these ways: (a) by renewing or extending the term of the original right where the renewal or extension is mainly due to your having held the original right; or (b) by changing the purpose for which the land to which the original right related can be used; or (c) by converting the original right to a *Crown lease in perpetuity; or (d) by converting the original right to an estate in fee simple; or (e) by consolidating, or consolidating and dividing, the original right; or (f) by subdividing the original right; or (g) by excising or relinquishing a part of the land to which the original right related; or (h) by expanding the area of that land. 124-580 Meaning of Crown lease A Crown lease is: (a) a lease of land granted by the Crown under an *Australian law (other than the common law); or (b) a similar lease granted under a *foreign law. 124-585 Original right differs in area from new right (1) Even if the new right relates to different land to that to which the original right related, this Subdivision applies as if it relates to the same land in these cases: (a) the difference in area is not significant; (b) the difference in market value is not significant; (c) the new right was granted to correct errors in or omissions from the original right; (d) the new right relates to a significantly different area of land but you had made reasonable efforts to ensure that the area was the same; (e) it is otherwise reasonable for this Subdivision to apply in that way. (2) However, the rule in subsection (1) does not apply if section 124-590 applies. 124-590 Part of original right excised (1) There is a partial roll-over if you *acquired the original right on or after 20 September 1985 and: (a) the land to which the new right relates is different in area to the land the subject of the original right because a part (the excised part) of the land to which the original right related was excised or you relinquished it; and (b) you received a payment for the expiry or surrender of the original right. The payment can include giving property: see section 103-5. Note: Section 124-600 sets out the effect on your cost base. (2) There is no roll-over for the excised part. The *cost base of the excised part is so much of the *cost base of the relevant *Crown lease as is attributable to the excised part. Its *reduced cost base is worked out similarly. Note: You may make a capital gain or loss on the excised part because of CGT event C2. 124-595 Treating parts of new right as separate assets (1) Each part of a *Crown lease or an estate in fee simple that is part of the new right is taken to be a separate *CGT asset to the extent that it relates to: (a) land to which a Crown lease (that was part of the original right) related where you *acquired the lease before 20 September 1985; and (b) land to which a Crown lease (that was part of the original right) related where you acquired the lease on or after 20 September 1985; and (c) other land. (2) You are taken to have *acquired each asset that is a separate *CGT asset because of paragraph (1)(a) before 20 September 1985. 124-600 What is the roll-over? (1) The roll-over is mainly as specified in Subdivision 124-A. (2) However, you work out the *cost base and *reduced cost base of *CGT assets (that you are not taken to have *acquired before 20 September 1985) and that are part of the new right a bit differently where section 124-590 or 124-595 applies. (3) The first element of your *cost base for each of those assets is: [GRAPHIC]where: CB of post-CGT original right is the sum of the *cost bases of the *Crown leases (that were part of the original right) and that you *acquired on or after 20 September 1985 (just before the original right expired or was surrendered) reduced, if there is an excised part, by so much of those cost bases as is attributable to the excised part. market value of all new assets is the market value of all *CGT assets (that you are not taken to have *acquired before 20 September 1985) that are part of the new right just after you acquired them. market value of separate asset is the market value of the particular asset just after you *acquired it. (4) The first element of the *reduced cost base of each of those assets is worked out similarly. 124-605 Change of lessor (1) You treat a lease of land (whether or not it is a *Crown lease) granted to you (the fresh lease) as being a renewal of your original right if: (a) after the grant of the original right, the land (the original land) to which it related became vested in an *Australian government agency (other than the one that granted the original right); and (b) the second agency granted you the fresh lease over: (i) the original land; or (ii) the original land less an excised area; or (iii) the original land and other land; and (c) the fresh lease was granted under an *Australian law (other than the common law). (2) You do this even if there is a period between the end of the original right and the grant of the fresh lease if you continued to occupy the original land during that period under a permission, licence or authority granted by the second agency. Subdivision 124-K--Plant Table of sections 124-655 Roll-over for depreciable plant 124-660 Right granted to associate 124-655 Roll-over for depreciable plant There is a roll-over for a unit of *plant if: (a) the plant is attached to land you hold under a *quasi-ownership right granted by an *exempt Australian government agency or an *exempt foreign government agency; and (b) you are the *quasi-owner of the plant because of section 42-310; and (c) the quasi-ownership right expires or is terminated or you surrender it; and (d) you are granted a new quasi-ownership right over the land or an estate in fee simple in the land; and (e) there is no roll-over for you under Subdivision 124-J (about Crown leases) or Subdivision 124-L (about prospecting and mining entitlements). Note 1: The roll-over consequences are set out in Subdivision 124-A. Note 2: This section provides a roll-over for plant in the limited circumstances where Subdivision 124-J cannot because a quasi-ownership right over land covers situations that a Crown lease does not (for example, an easement over land). Note 3: If there has been a capital improvement to the quasi-ownership right: see section 108-75. 124-660 Right granted to associate If the *quasi-ownership right or estate in fee simple is instead granted to an *associate or an *associated government entity of yours: (a) your *reduced cost base of the *plant is reduced by the *undeducted cost of the plant just before the original quasi-ownership right expired or was surrendered or terminated; and (b) there is no roll-over. Subdivision 124-L--Prospecting and mining entitlements Guide to Subdivision 124-L 124-700 What this Subdivision is about This Subdivision sets out the situations in which there is a roll-over if a prospecting or mining entitlement expires or is surrendered and it is replaced by a new one. Table of sections Operative provisions 124-705 Extension or renewal of prospecting or mining entitlement 124-710 Meaning of prospecting entitlement and mining entitlement 124-715 Original entitlement differs in area from new entitlement 124-720 Part of original entitlement excised 124-725 Treating parts of new entitlement as separate assets 124-730 What is the roll-over? [This is the end of the Guide.] Operative provisions 124-705 Extension or renewal of prospecting or mining entitlement (1) There is a roll-over if: (a) you hold one or more *CGT assets that are *prospecting entitlements or *mining entitlements (the original entitlement); and (b) the original entitlement expires or you surrender it; and (c) you are granted one or more new prospecting entitlements or mining entitlements (the new entitlement); and (d) the new entitlement relates to the same land as the original entitlement. Note 1: The roll-over consequences are set out in Subdivision 124-A. They might be modified: see section 124-730. Note 2: If there has been a capital improvement to the entitlement: see section 108-75. (2) The new entitlement must have been granted in one of these ways: (a) by renewing or extending the term of the original entitlement where the renewal or extension is mainly due to your having held the original entitlement; or (b) by consolidating, or consolidating and dividing, the original entitlement; or (c) by subdividing the original entitlement; or (d) by converting a *prospecting entitlement to a *mining entitlement, or a mining entitlement to a prospecting entitlement; or (e) by excising or relinquishing a part of the land to which the original entitlement related; or (f) by expanding the area of that land. 124-710 Meaning of prospecting entitlement and mining entitlement (1) A prospecting entitlement is: (a) an authority, licence, permit or entitlement under an *Australian law or foreign law to prospect or explore for minerals in an area; or (b) a lease of land that allows the lessee to prospect or explore for minerals on the land; or (c) an interest in a thing referred to in paragraph (a) or (b). (2) A mining entitlement is: (a) an authority, licence, permit or entitlement under an *Australian law or foreign law to mine for *minerals in an area; or (b) a lease of land that allows the lessee to mine for minerals on the land; or (c) an interest in a thing referred to in paragraph (a) or (b). 124-715 Original entitlement differs in area from new entitlement (1) Even if the new entitlement relates to different land to that to which the original entitlement related, this Subdivision applies as if it relates to the same land in these cases: (a) the difference in area is not significant; (b) the difference in market value is not significant; (c) the new entitlement was granted to correct errors in or omissions from the original entitlement; (d) it is otherwise reasonable for this Subdivision to apply in that way. (2) However, the rule in subsection (1) does not apply if section 124-720 applies. 124-720 Part of original entitlement excised (1) There is partial roll-over if you *acquired the original entitlement on or after 20 September 1985 and: (a) the land to which the new entitlement relates is different in area to the land the subject of the original entitlement because a part (the excised part) of the land to which the original entitlement related was excised or you relinquished it; and (b) you received a payment for the expiry or surrender of the original entitlement. The payment can include giving property: see section 103-5. Note: Section 124-730 sets out the effect on your cost base. (2) There is no roll-over for the excised part. The *cost base of the excised part is so much of the *cost base of the original entitlement as is attributable to the excised part. Its *reduced cost base is worked out similarly. Note: You may make a capital gain or loss on the excised part because of CGT event C2. 124-725 Treating parts of new entitlement as separate assets (1) Each part of a *prospecting entitlement or *mining entitlement that is part of the new entitlement is taken to be a separate *CGT asset to the extent that it relates to: (a) land to which a prospecting entitlement or mining entitlement (that was part of the original entitlement) related where you *acquired the entitlement before 20 September 1985; and (b) land to which a prospecting entitlement or mining entitlement (that was part of the original entitlement) related where you acquired the entitlement on or after 20 September 1985; and (c) other land. (2) You are taken to have *acquired each asset that is a separate *CGT asset because of paragraph (1)(a) before 20 September 1985. 124-730 What is the roll-over? (1) The roll-over is mainly as specified in Subdivision 124-A. (2) However, you work out the *cost base and *reduced cost base of *CGT assets (that you are not taken to have *acquired before 20 September 1985) and that are part of the new entitlement a bit differently where section 124-720 or 124-725 applies. (3) The first element of your *cost base for each of those assets is: [GRAPHIC]where: CB of post-CGT original entitlement is the sum of the *cost bases of the prospecting entitlements or mining entitlements (that were part of the original entitlement) and that you *acquired on or after 20 September 1985 (just before the original entitlement expired or was surrendered) reduced, if there is an excised part, by so much of those cost bases as is attributable to the excised part. market value of all new assets is the market value of all *CGT assets (that you are not taken to have *acquired before 20 September 1985) that are part of the new entitlement just after you acquired them. market value of separate asset is the market value of the particular asset just after you *acquired it. (4) The first element of the *reduced cost base of each of those assets is worked out similarly. Division 126--Same-asset roll-overs Table of Subdivisions Guide to Division 126 126-A Marriage breakdown 126-B Companies in the same wholly-owned group 126-C Changes to trust deeds Guide to Division 126 126-1 What this Division is about A same-asset roll-over allows a capital gain or loss an entity makes from disposing of a CGT asset to, or creating a CGT asset in, another entity to be disregarded. For a disposal, certain attributes of the asset are transferred to the receiving entity. Subdivision 126-A--Marriage breakdown Table of sections 126-5 CGT event involving spouses 126-15 CGT event involving company or trustee 126-20 Subsequent CGT event happening to roll-over asset where transferor was a CFC or a non-resident trust 126-5 CGT event involving spouses (1) There is a roll-over if a *CGT event (the trigger event) happens involving an individual (the transferor) and his or her *spouse (the transferee), or a former *spouse (also the transferee), because of: (a) a court order under the Family Law Act 1975 or a corresponding *foreign law; or (b) a maintenance agreement approved by a court under section 87 of that Act or a corresponding agreement approved by a court under a corresponding *foreign law; or (c) a court order under a *State law, *Territory law or *foreign law relating to de facto marriage breakdowns. (2) Only these *CGT events are relevant: (a) CGT events A1 and B1 (a disposal case); and (b) CGT events D1, D2, D3 and F1 (a creation case). Note: The full list of CGT events is in section 104-5. (3) However, there is no roll-over if: (a) the *CGT asset involved is *trading stock of the transferor; or (b) for *CGT event B1--title in the CGT asset does not pass to the transferee when the agreement ends. (4) A *capital gain or a *capital loss the transferor makes from the *CGT event is disregarded. Consequences for the transferee (disposal case) (5) For a disposal case where the transferor *acquired the asset on or after 20 September 1985: (a) the first element of the asset's *cost base (in the hands of the transferee) is the asset's cost base (in the hands of the transferor) at the time the transferee acquired it; and (b) the first element of the asset's *reduced cost base (in the hands of the transferee) is worked out similarly. Example: Your spouse transfers land to you because of a court order under the Family Law Act 1975. Any capital gain or loss your spouse makes is disregarded. If the land's cost base at the time you acquired it is $10,000, the first element of the land's cost base in your hands becomes $10,000. Note: There are special indexation rules for roll-overs: see Division 114. (6) For a disposal case where the transferor *acquired the asset before 20 September 1985, the transferee is taken to have acquired it before that day. Note: A capital gain or loss you make from a CGT asset you acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149. (7) For a disposal case where the transferor *disposed of a *collectable or *personal use asset, the transferee is taken to have *acquired one. Note 1: Capital losses from collectables can be subtracted only from capital gains from collectables: see section 108-10. Note 2: Capital losses from personal use assets are disregarded: see section 108-20. Consequences for the transferee (creation case) (8) For a creation case, the first element of the asset's *cost base (in the hands of the transferee) is the amount applicable under this table. The first element of its *reduced cost base is worked out similarly. Creation case Event No. Applicable amount D1 the *incidental costs the transferor incurred that relate to the trigger event D2 the expenditure the transferor incurred to grant the option D3 the expenditure the transferor incurred to grant the right F1 the expenditure the transferor incurred on the grant, renewal or extension of the lease The expenditure can include giving property: see section 103-5. 126-15 CGT event involving company or trustee (1) There are the roll-over consequences in section 126-5 if the trigger event involves a company (the transferor) or a trustee (also the transferor) and a *spouse or former spouse (the transferee) of another individual because of: (a) a court order under the Family Law Act 1975 or a corresponding *foreign law; or (b) a maintenance agreement approved by a court under section 87 of that Act or a corresponding agreement approved by a court under a corresponding *foreign law; or (c) a court order under a *State law, *Territory law or *foreign law relating to de facto marriage breakdowns. (2) There are other consequences if: (a) just before the time of the trigger event, an entity (including the transferee) owned another *CGT asset of a kind covered by this table; and (b) the entity *acquired it on or after 20 September 1985; and (c) a *CGT event happens in relation to it. Relevant CGT assets Item For this transferor: The entity can own these assets: 1 Company (a) a *share in the company; or (b) a loan to the company; or (c) an indirect interest (through one or more interposed companies or trusts) in a *share in, or loan to, the company 2 Trustee (a) an interest or unit in the trust; or (b) a loan to the trustee; or (c) an indirect interest (through one or more interposed companies or trusts) in an interest or unit in the trust or in a loan to the trustee Example: An individual owns all the shares in a company. The company owns land. The individual's marriage breaks down. The Family Court orders that the company transfer the land it owns to the individual's spouse. The individual later sells the shares. (3) The *cost base and *reduced cost base of the other asset are reduced by an amount that reasonably reflects the fall in its market value because of the trigger event. The reduction occurs at the time of the trigger event. (4) If the entity owning the other asset is also the transferee, the *cost base and *reduced cost base of the other asset are then increased by any amount that is included in the entity's assessable income for any income year because of the trigger event. 126-20 Subsequent CGT event happening to roll-over asset where transferor was a CFC or a non-resident trust (1) This section applies if: (a) there is a roll-over for the trigger event under section 126-15; and (b) the transferor was: (i) a *CFC; or (ii) a trustee of a trust that is a non-resident trust estate within the meaning of section 102AAB of the Income Tax Assessment Act 1936 for the income year of the trigger event; and (c) section 126-15 is relevant to: (i) the calculation of the *attributable income of the CFC under Division 7 of Part X of the Income Tax Assessment Act 1936; or (ii) the calculation of the attributable income of the trust under Subdivision D of Division 6AAA of Part III of that Act; because (ignoring the residency assumptions in that Division or Subdivision) the roll-over asset did not have the *necessary connection with Australia; and (d) a subsequent *CGT event happens in relation to the roll-over asset. (2) In working out the amount of any *capital gain or *capital loss the transferee (or a subsequent owner of the roll-over asset if there is a series of roll-overs until there is no roll-over) makes when a subsequent *CGT event happens in relation to the asset, the modifications specified in Division 7 of Part X, or Subdivision D of Division 6AAA of Part III, of the Income Tax Assessment Act 1936 apply. Subdivision 126-B--Companies in the same wholly-owned group Guide to Subdivision 126-B 126-40 What this Subdivision is about This Subdivision sets out when a company can obtain a roll-over if it transfers a CGT asset to, or creates a CGT asset in, another company that is a member of the same wholly-owned group. Table of sections Operative provisions 126-45 Roll-over for members of wholly-owned group 126-50 Requirements for roll-over 126-55 When there is a roll-over 126-60 Consequences of roll-over 126-65 Choosing for no roll-over in loss situation 126-70 Loss disregarded if intention not realised 126-75 Originating company is a CFC 126-80 Roll-over asset is an interest in a CFC or FIF 126-85 Effect of roll-over on certain liquidations [This is the end of the Guide.] Operative provisions 126-45 Roll-over for members of wholly-owned group (1) There may be a roll-over if a *CGT event (the trigger event) happens involving a company (the originating company) and another company (the recipient company) in the circumstances set out in section 126-50. (2) Only these *CGT events are relevant: (a) CGT events A1 and B1 (a disposal case); and (b) CGT events D1, D2, D3 and F1 (a creation case). Note: The full list of CGT events is in section 104-5. (3) However, there is no roll-over for *CGT event B1 if title in the *CGT asset does not pass to the transferee when the agreement ends. Note: CGT event J1 can happen if the recipient company stops being a 100% subsidiary of a company in the relevant group: see section 104-175. 126-50 Requirements for roll-over (1) The originating company and recipient company must be members of the same *wholly-owned group at the time of the trigger event. Note: This requirement is taken to be satisfied in the case of the transfer of the life insurance business of a life insurance company: see section 121AS of the Income Tax Assessment Act 1936. (2) The *CGT asset involved (the roll-over asset) must not be *trading stock of the recipient company just after the time of the trigger event. (3) If: (a) the roll-over asset is a right, option or *convertible note; and (b) the recipient company *acquires another *CGT asset by exercising the right or option or by converting the convertible note; the other asset cannot become *trading stock of the recipient company just after the recipient company acquired it. (4) The *ordinary income and *statutory income of the recipient company must not be exempt from income tax because of Division 50 for the income year of the trigger event. (5) The requirements in one of the items in this table must be satisfied. Additional requirements Item The originating company's residency status The recipient company's residency status This requirement must be satisfied 1 An Australian resident at the time of the trigger event An Australian resident at that time It does not matter what the roll-over asset is 2 Not an Australian resident at that time An Australian resident at that time The asset must have the *necessary connection with Australia just before that time (for a disposal case) and just after that time (for a creation case) 3 It does not matter what the originating company's residency status is Not an Australian resident at that time The asset must have the *necessary connection with Australia just before and just after that time (for a disposal case) and just after that time (for a creation case) 126-55 When there is a roll-over Capital gain or no loss (1) There is a roll-over if: (a) the trigger event would have resulted in the originating company making a *capital gain or no *capital loss; and (b) the originating company and recipient company both choose to obtain it. Note: Section 103-25 sets out when the choice must be made. Capital loss (2) There is also a roll-over if the trigger event would have resulted in the originating company making a *capital loss, unless the originating company and recipient company make a choice under section 126-65. 126-60 Consequences of roll-over Consequences for the originating company in all cases (1) A *capital gain or *capital loss the originating company makes from the trigger event is disregarded. Consequences for the recipient company (disposal case) (2) For a disposal case, if the originating company *acquired the roll-over asset on or after 20 September 1985: (a) the first element of the asset's *cost base (in the hands of the recipient company) is the asset's cost base (in the hands of the originating company) when the recipient company acquired it; and (b) the first element of the asset's *reduced cost base (in the hands of the recipient company) is worked out similarly. Note: There are special indexation rules for roll-overs: see Division 114. (3) If the originating company *acquired the roll-over asset before 20 September 1985, the recipient company is taken to have acquired it before that day. Note: A capital gain or loss you make from a CGT asset you acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149. (4) If the trigger event involved a *personal use asset of the originating company, the recipient company is taken to have *acquired one. Note: Capital losses from personal use assets are disregarded: see section 108-20. Consequences for the recipient company (creation case) (5) For a creation case, the first element of the asset's *cost base (in the hands of the recipient company) is the amount applicable under this table. The first element of its *reduced cost base is worked out similarly. Creation case Event No. Applicable amount D1 the *incidental costs the originating company incurred that relate to the trigger event D2 the expenditure the originating company incurred to grant the option D3 the expenditure the originating company incurred to grant the right F1 the expenditure the originating company incurred on the grant, renewal or extension of the lease The expenditure can include giving property: see section 103-5. Note: CGT event J1 may occur if the recipient company stops being a member of the wholly-owned group while still owning the roll-over asset: see section 104-175. 126-65 Choosing for no roll-over in loss situation (1) The originating company and recipient company can choose not to obtain a roll-over in the circumstances set out in this section. Note: Section 103-25 sets out when the choice must be made. (2) The trigger event must have resulted (apart from the roll-over) in the originating company making a *capital loss. (3) The originating company and recipient company must intend that, before the end of the income year of the originating company after the one in which the trigger event happened: (a) they will no longer be members of the same *wholly-owned group; and (b) the originating company and companies that are members of its wholly-owned group at that time will own less than 50% of the *shares in the recipient company. 126-70 Loss disregarded if intention not realised (1) The originating company's *capital loss is disregarded if the condition in subsection (2) or (3) is met despite a choice being made under section 126-65. (2) The intention of the originating company and recipient company set out in subsection 126-65(3) must not be realised. (3) After that intention is realised but, at a time (the disqualifying time) within 4 years after the time of the trigger event, the roll-over asset must be owned by: (a) the originating company; or (b) a company that is a member of the originating company's *wholly-owned group at the disqualifying time; or (c) a company at least 50% of whose *shares are owned by the originating company and companies that are members of the originating company's wholly-owned group at the disqualifying time. 126-75 Originating company is a CFC (1) This section applies if: (a) there is a roll-over for the trigger event under this Subdivision; and (b) the originating company was a *CFC at the time of the trigger event; and (c) this Subdivision is relevant to the calculation of the *attributable income of the originating company under Division 7 of Part X of the Income Tax Assessment Act 1936 because (ignoring the residency assumptions in that Division) the roll-over asset did not have the *necessary connection with Australia; and (d) a subsequent *CGT event happens in relation to the roll-over asset. (2) In working out the amount of any *capital gain or *capital loss the recipient company (or a subsequent owner of the roll-over asset if there is a series of roll-overs until there is no roll-over) makes when a subsequent *CGT event happens in relation to the asset, the modifications specified in Division 7 of Part X of the Income Tax Assessment Act 1936 apply. 126-80 Roll-over asset is an interest in a CFC or FIF (1) This section is relevant only if: (a) there is a roll-over under this Subdivision because of subsection 126-55(2) (where there is a *capital loss); and (b) the roll-over asset is an interest in a *CFC or *FIF; and (c) the *capital proceeds from the trigger event are reduced under section 461 or 613 of the Income Tax Assessment Act 1936. Note: Sections 461 and 613 of the Income Tax Assessment Act 1936 reduce capital proceeds where the attributed income of a CFC or FIF is not distributed. (2) The *cost base and *reduced cost base of the roll-over asset (in the hands of the recipient company) are increased by that part of the attribution surplus (for the purposes of Part X or Part XI of the Income Tax Assessment Act 1936) as was taken into account for the trigger event under paragraph 461(1)(c) or 613(1)(c) of that Act. 126-85 Effect of roll-over on certain liquidations (1) A *capital gain or *capital loss a company (the holding company) makes because *shares in its *100% subsidiary are cancelled (an example of *CGT event C2: see section 104-25) on the liquidation of the subsidiary is reduced if the conditions in subsection (2) are satisfied. The reduction is worked out under subsection (3). (2) These conditions must be satisfied: (a) there must be a roll-over under this Subdivision for at least one *CGT asset (the CGT roll-over asset) being *disposed of by the subsidiary to the holding company in the course of the liquidation of the subsidiary; (b) the subsidiary must have acquired each CGT roll-over asset on or after 20 September 1985; (c) the disposals must either: (i) be part of the liquidator's final distribution in the course of the liquidation; or (ii) have occurred within 18 months of the dissolution of the subsidiary if they are part of an interim distribution in the course of the liquidation; (d) the holding company must have beneficially owned all of the shares in the subsidiary for the whole period from the time of the disposal, or the first disposal, of a CGT roll-over asset until the cancellation of the shares; (e) the market value of the CGT roll-over asset or assets must comprise at least part of the *capital proceeds for the cancellation of the shares in the subsidiary that are beneficially owned by the holding company; (f) one or more of the shares that were cancelled (the post-CGT shares) must have been acquired by the holding company on or after 20 September 1985. (3) The reduction of the *capital gain or *capital loss is worked out in this way. Method statement Step 1. Work out (disregarding this section) the sum of the *capital gains and the sum of the *capital losses the holding company would make on the cancellation of its shares in the subsidiary. Step 2. Work out (disregarding this Subdivision) the sum of the *capital gains and the sum of the *capital losses the subsidiary would make on the *disposal of its CGT roll-over assets to the holding company in the course of the liquidation assuming the *capital proceeds were the assets' market values at the time of the disposal. Step 3. If, after subtracting the sum of the *capital losses from the sum of the *capital gains, there is: (a) an overall capital gain from Step 1 and an overall capital gain from Step 2; or (b) an overall capital loss from Step 1 and an overall capital loss from Step 2; then continue. Otherwise there is no adjustment. Step 4. Express the number of post-CGT shares as a fraction of the total number of shares the holding company owned in the subsidiary. Step 5. Multiply the overall *capital gain or *capital loss from Step 2 by the fraction from Step 4. Step 6. Reduce the overall *capital gain or *capital loss from Step 1 by the amount from Step 5. The result is the *capital gain or *capital loss the holding company makes from the cancellation of its shares in the subsidiary. Note: This Subdivision is modified in calculating the attributable income of a CFC: see section 419 of the Income Tax Assessment Act 1936. Subdivision 126-C--Changes to trust deeds Guide to Subdivision 126-C 126-125 What this Subdivision is about This Subdivision sets out when there is a roll-over for a CGT event that happens because of an amendment to or replacement of the trust deed of a complying approved deposit fund or complying superannuation fund. Table of sections 126-130 Changes to trust deeds 126-135 Consequences of roll-over [This is the end of the Guide.] 126-130 Changes to trust deeds There is a roll-over if: (a) *CGT event E1 or E2 happens in relation to a *CGT asset because the trust deed of a *complying approved deposit fund or *complying superannuation fund is amended or replaced; and (b) the amendment or replacement is done for the purpose of: (i) complying with the Superannuation Industry (Supervision) Act 1993; or (ii) enabling a *complying approved deposit fund to become a *complying superannuation fund; and (c) the assets and members of the fund do not change as a consequence of the amendment or replacement. Note: The full list of CGT events is in section 104-5. 126-135 Consequences of roll-over (1) A *capital gain or *capital loss made from the *CGT event is disregarded. (2) If the fund that owned the *CGT asset just before the time of the *CGT event *acquired it before 20 September 1985, the asset retains its status as a *pre-CGT asset in the hands of the fund that owned it after the time of the event. (3) If the fund that owned the *CGT asset just before the time of the *CGT event *acquired it on or after 20 September 1985: (a) the first element of the asset's *cost base (in the hands of the fund that owned the asset after the time of the event) is its cost base just before that time; and (b) the first element of the asset's *reduced cost base asset is worked out similarly; and (c) the fund that owned the asset after the time of the event is taken to have acquired the asset at that time. Division 128--Effect of death Guide to Division 128 128-1 What this Division is about This Division sets out what happens when you die and a CGT asset you owned just before dying devolves to your legal personal representative or passes to a beneficiary in your estate. It also contains rules about what happens when a joint tenant dies. General rules 128-10 Capital gain or loss when you die is disregarded 128-15 Effect on the legal personal representative or beneficiary 128-20 When does an asset pass to a beneficiary? 128-25 The beneficiary is a trustee of a superannuation fund etc. Special rules for joint tenants 128-50 Joint tenants [This is the end of the Guide.] General rules 128-10 Capital gain or loss when you die is disregarded When you die, a *capital gain or *capital loss from a *CGT event that results for a *CGT asset you owned just before dying is disregarded. Note 1: Section 104-215 sets out an exception to this rule if the CGT asset passes to a beneficiary in your estate who is: * an exempt entity, or * the trustee of a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust; or * not an Australian resident. Note 2: There is a special indexation rule for deceased estates: see section 114-10. 128-15 Effect on the legal personal representative or beneficiary (1) This section sets out what happens if a *CGT asset you owned just before dying: (a) devolves to your *legal personal representative; or (b) *passes to a beneficiary in your estate. Note: Section 128-25 has different rules if the asset passes to a beneficiary in your estate who is: * an exempt entity, or * the trustee of a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust; or * not an Australian resident. (2) The *legal personal representative, or beneficiary, is taken to have *acquired the asset on the day you died. Special rule for legal personal representative (3) Any *capital gain or *capital loss the *legal personal representative makes if the asset *passes to a beneficiary in your estate is disregarded. Cost base rules for both (4) This table sets out the modifications to the *cost base and *reduced cost base of the *CGT asset in the hands of the *legal personal representative or beneficiary. Modifications to cost base and reduced cost base Item For this kind of CGT asset: The first element of the asset's cost base is: The first element of the asset's reduced cost base is: 1 One you *acquired on or after 20 September 1985, except one covered by item 2 or 3 the *cost base of the asset on the day you died the *reduced cost base of the asset on the day you died 2 One that was *trading stock in your hands just before you died the amount worked out under section 70-105 the amount worked out under section 70-105 3 A *dwelling that was your main residence just before you died, and was not then being used for the *purpose of producing assessable income the market value of the *dwelling on the day you died the market value of the *dwelling on the day you died 4 One you *acquired before 20 September 1985 the market value of the asset on the day you died the market value of the asset on the day you died Note 1: Section 70-105 has a general rule that the person on whom the trading stock devolves is taken to have bought it for its market value. There are some exceptions though. Note 2: Subdivision 118-B contains other rules about dwellings acquired through deceased estates. Note 3: The rule in item 3 in the table does not apply to a dwelling that devolved to your legal personal representative, or passed to a beneficiary in your estate, on or before 7.30 pm on 20 August 1996: see section 128-15 of the Income Tax (Transitional Provisions) Act 1997. Further rule for a beneficiary (5) A beneficiary can include in the *cost base or *reduced cost base of the asset any expenditure that the *legal personal representative would have been able to include at the time the asset *passes to the beneficiary. The beneficiary can include the expenditure on the day the representative incurred it. Example: You die on 1 May 1995 owning land. On 15 June 1995 your legal personal representative pays $500 council rates for the land. On 31 July 1995 your representative transfers it to a beneficiary in your estate, who is taken to have acquired it on 1 May 1995. The beneficiary can include the $500 in the third element of the cost base of the land. It is included on 15 June 1995. Collectables and personal use assets (6) The *legal personal representative or beneficiary is taken to have *acquired a *collectable or a *personal use asset if: (a) you acquired it on or after 20 September 1985; and (b) it was a *collectable or a *personal use asset (as appropriate) in your hands when you died. Note 1: Capital losses from collectables can be used only to reduce capital gains from collectables: see section 108-10. Note 2: Capital losses from personal use assets are disregarded: see section 108-20. 128-20 When does an asset pass to a beneficiary? (1) A *CGT asset passes to a beneficiary in your estate if the beneficiary becomes the owner of the asset: (a) under your will, or that will as varied by a court order; or (b) by operation of an intestacy law, or such a law as varied by a court order; or (c) because it is appropriated to the beneficiary by your legal personal representative in satisfaction of a pecuniary legacy or some other interest or share in your estate; or (d) under a deed of arrangement if: (i) the beneficiary entered into the deed to settle a claim to participate in the distribution of your estate; and (ii) any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other *CGT assets that formed part of your estate. (It does not matter whether the asset is transmitted directly to the beneficiary or is transferred to the beneficiary by your *legal personal representative.) (2) A *CGT asset does not pass to a beneficiary in your estate if the beneficiary becomes the owner of the asset because your *legal personal representative transfers it under a power of sale. 128-25 The beneficiary is a trustee of a superannuation fund etc. (1) This section has rules about *cost base and *reduced cost base that are relevant if you die and a *CGT asset you owned just before dying *passes to a beneficiary in your estate who (when the asset passes) is the trustee of: (a) a *complying superannuation fund; or (b) a *complying approved deposit fund; or (c) a *pooled superannuation trust. Note: A capital gain or loss is also made: see section 104-215. (2) The beneficiary is taken to have *acquired the asset on the day you died. The first element of the *cost base and *reduced cost base of the asset is its market value on that day. Note 1: If the beneficiary is an exempt entity, Division 57 of Schedule 2D to the Income Tax Assessment Act 1936 has rules about exempt entities that become taxable. It sets out what the entity is taken to have purchased its assets for when it becomes taxable. Note 2: If the beneficiary is not an Australian resident, Subdivision 136-B sets out what happens if a non-resident becomes a resident. The entity is taken to have acquired each asset it owned just before becoming a resident for the market value of the asset at that time. (3) The beneficiary can include in the *cost base or *reduced cost base of the asset any expenditure that your *legal personal representative would have been able to include at the time the asset *passes to the beneficiary. The beneficiary can include the expenditure on the day the representative incurred it. Special rules for joint tenants 128-50 Joint tenants (1) This section has rules that are relevant if a *CGT asset is owned by joint tenants and one of them dies. (2) The survivor is taken to have *acquired (on the day the individual died) the individual's interest in the asset. If there are 2 or more survivors, they are taken to have acquired that interest in equal shares. Note: Joint tenants are treated as owning a CGT asset in equal shares: see section 108-7. (3) If the individual who died *acquired his or her interest in the asset on or after 20 September 1985, the first element of the *cost base of the interest each survivor is taken to have acquired is: [GRAPHIC] The first element of the *reduced cost base of the interest each survivor is taken to have *acquired is worked out similarly. Example: In 1999 2 individuals buy land for $50,000 as joint tenants. Each one is taken to have a 50% interest in it. On 1 May 2001 one of them dies. The survivor is taken to have acquired the interest of the individual who died on 1 May 2001. If the cost base of that interest on that day is $27,000, the survivor is taken to have acquired that interest for that amount. (4) If the individual who died *acquired his or her interest in the asset before 20 September 1985, the first element of the *cost base and *reduced cost base of the interest each survivor is taken to have acquired is: [GRAPHIC] Note: There is a special indexation rule for surviving joint tenants: see section 114-10. Division 130--Investments Table of Subdivisions Guide to Division 130 130-A Bonus shares and units 130-B Rights 130-C Convertible notes 130-D Employee share schemes Guide to Division 130 130-1 What this Division is about This Division sets out the rules for these kinds of investments: * bonus shares and units; and * rights; and * convertible notes; and * shares acquired under an employee share scheme. Most are about modifying the cost base and reduced cost base of a CGT asset. Subdivision 130-A--Bonus shares and units Guide to Subdivision 130-A Table of sections 130-15 Acquisition time and cost base of bonus equities Operative provisions 130-20 Issue of bonus shares or units 130-15 Acquisition time and cost base of bonus equities [This is the end of the Guide] Operative provisions 130-20 Issue of bonus shares or units (1) This section sets out what happens if: (a) you own *shares in a company or units in a unit trust (the original equities); and (b) the company issues other shares, or the trustee issues other units, (the bonus equities) to you because it owes an amount to you in relation to the original equities. (2) The first element of your *cost base and *reduced cost base for the bonus equities includes: (a) for *shares--any part of the amount that is a *dividend; and (b) for units--any part of the amount that is or will be included in your assessable income. You are taken to have *acquired the bonus equities when they were issued. Note 1: There are special indexation rules for cost base modifications: see Division 114. Note 2: The amounts of calls you pay on partly-paid equities will also form part of the first element of their cost base and reduced cost base. Note 3: There is a special rule for shares issued on or before 30 June 1987: see subsection 130-20(2) of the Income Tax (Transitional Provisions) Act 1997. (3) This table sets out what happens if: (a) none of the amount owed to you by the company is a *dividend; or (b) none of the amount owed to you by the trustee is or will be included in your assessable income. Modifications where amount neither a dividend nor assessable Item In this situation: You are taken to have *acquired the bonus equities when: There is this effect: 1 You *acquire the original equities on or after 20 September 1985 You *acquired the original equities You apportion the first element of your *cost base and *reduced cost base for the original equities in a reasonable way over both the original and bonus equities 2 You *acquire the original equities before 20 September 1985 and you paid or were required to pay an amount for the bonus equities The liability to pay the amount arose The first element of your *cost base and *reduced cost base for the bonus equities includes their market value just before that time 3 You *acquire the original equities before 20 September 1985 and the bonus equities are fully paid You *acquired the original equities Any *capital gain or *capital loss you make from the bonus equities is disregarded The amount paid or payable can include giving property: see section 103-5. Note 1: The amounts of calls you pay on partly-paid equities will also form part of the first element of their cost base and reduced cost base. Note 2: There is a special rule for bonus equities issued on or before 1 pm on 10 December 1986 that affects item 2 of the table: see subsection 130-20(3) of the Income Tax (Transitional Provisions) Act 1997. Special rule for unit trusts (4) The modifications in this section are not made if, for the income year in which the bonus equities are issued, the unit trust is: (a) a corporate unit trust within the meaning of section 102J of the Income Tax Assessment Act 1936; or (b) a public trading trust within the meaning of section 102R of that Act. Note: Subsection 26BC(9E) of the Income Tax Assessment Act 1936 (about securities lending arrangements) modifies the operation of this section. Subdivision 130-B--Rights Table of sections 130-40 Exercise of rights 130-45 Timing rules 130-50 Application to options 130-40 Exercise of rights (1) The table in this section sets out the modifications to the rules about *cost base and *reduced cost base that happen if you exercise rights to *acquire: (a) *shares, or options to acquire shares, in a company; or (b) units, or options to acquire units, in a unit trust. Note: The exercise of rights acquired under an employee share scheme are dealt with in Subdivision 130-D. (2) The modifications happen only if: (a) you did not pay for the rights and the condition in subsection (3) is satisfied; or (b) the condition in subsection (4) is satisfied. The payment can include giving property: see section 103-5. (3) When you were issued the rights, you must: (a) already own shares in, or *convertible notes issued by, the company or a company that is a member of the same *wholly-owned group (the original shares or notes); or (b) already own units in, or convertible notes issued by the trustee of, the unit trust (the original units or notes). (4) You must have *acquired the rights from an entity that already owned shares, units or convertible notes of the kind referred to in subsection (3). (5) The company that is a member of the same *wholly-owned group mentioned in paragraph (3)(a) includes a company that would cease to be a member of that group by the exercise of the rights. (6) The rights to *acquire units or to acquire an option to acquire units in a unit trust must have been issued by the trustee after 28 January 1988. Modifications on exercise of rights Item In this situation: The modification is... 1 You exercise rights issued to you to *acquire the *shares, units or options. The first element of your *cost base and *reduced cost base for the shares, units or options is the amount you paid to exercise the rights. 2 You exercise rights you *acquired from another entity to acquire the *shares, units or options. The first element of your *cost base and *reduced cost base for the shares, units or options is the amount you paid for them plus any amount you paid to exercise the rights. 3 You exercise rights issued to you to *acquire the *shares, units or options, and you acquired the original shares or notes, or the original units or notes, before 20 September 1985 The first element of your *cost base and *reduced cost base for the shares, units or options is the market value of the rights (when they were exercised) plus any amount you paid to exercise the rights. The payment can include giving property: see section 103-5. (7) A *capital gain or *capital loss you make from the exercise of the rights is disregarded. Note 1: The exercise of the rights would be an example of CGT event C2 (about a CGT asset ending). Note 2: There are transitional rules for some rights: see section 130-40 of the Income Tax (Transitional Provisions) Act 1997. Note 3: The effect of this Subdivision is modified in 2 cases by sections 102AAZBA (about non-resident trusts) and 414 (about CFC's) of the Income Tax Assessment Act 1936. 130-45 Timing rules Acquisition of rights (1) If you *acquired the rights from the company or trustee, you are taken to have acquired the rights when you acquired the original shares or notes or the original units or notes. Acquisition of shares, units or options on exercise of rights (2) You are taken to have *acquired the new *shares, units or options when you exercise the rights. 130-50 Application to options This Subdivision applies to options in the same way that it applies to rights. Subdivision 130-C--Convertible notes 130-60 Shares or units acquired by converting a convertible note (1) This table sets out the modification to the rules about *cost base and *reduced cost base that happens if you *acquire *shares, or units in a unit trust, by converting a *convertible note. Conversion of a convertible note Item In this situation: The modification is: 1 You *acquire *shares or units in a unit trust by converting a *convertible note that is a *traditional security. The first element of the *cost base and *reduced cost base of the *shares or units is their market value at the time of the conversion 2 You *acquire *shares (except shares acquired under an *employee share scheme) by converting a *convertible note that is not a *traditional security The first element of the *cost base and *reduced cost base of the *shares is the sum of: * the amount you paid to *acquire the *convertible note; and * any amount you paid in relation to the conversion 3 You *acquire units in a unit trust by converting a *convertible note (except one that is a *traditional security) that was issued by the trustee of the unit trust The first element of the *cost base and *reduced cost base of the units is the sum of: * the amount you paid to *acquire the *convertible note; and * any amount you paid in relation to the conversion The payment can include giving property: see section 103-5. (2) You are taken to have *acquired the shares or units when the liability to pay for the convertible note arose. (3) A *capital gain or *capital loss you make from converting the convertible note is disregarded. Note 1: The conversion of the convertible note would be an example of CGT event C2 (about a CGT asset ending). Note 2: There are transitional rules for some convertible notes: see section 130-60 of the Income Tax (Transitional Provisions) Act 1997. Subdivision 130-D--Employee share schemes Table of sections 130-80 Share or right acquired under employee share scheme 130-83 Qualifying shares and qualifying rights 130-85 Share or right acquired under employee share scheme involving your associate 130-90 Share or right acquired under an employee share trust 130-80 Share or right acquired under employee share scheme (1) This section sets out what happens if you *acquire a *share or right at a discount (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936) under an *employee share scheme. (2) The first element of the *cost base and *reduced cost base of the *share or right is its market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936) when you *acquired it. 130-83 Qualifying shares and qualifying rights (1) There is an exception if: (a) the *share is a *qualifying share or the right is a *qualifying right; and (b) you do not make an election under section 139E of the Income Tax Assessment Act 1936 to include an amount in your assessable income for the income year in which you *acquired the share or right. Note: If you do not make an election of this kind, the amount is included in your assessable income for the income year in which the cessation time occurs: for example, when restrictions on disposing of the share cease. (2) If *CGT event A1, E1, E2 or E5 happens in relation to the *share or right (or any *share you *acquired by exercising the right) in an arm's length transaction at the *cessation time, or within 30 days after that time, any *capital gain or *capital loss you make from the disposal is disregarded. Note: The full list of CGT events is in section 104-5. (3) If that event does not happen in relation to the *share or right (or any *share you *acquired by exercising the right) in an arm's length transaction at the *cessation time, or within 30 days after that time: (a) you are taken to have acquired the share or right at the cessation time; and (b) the first element of the *cost base and *reduced cost base of the share or right is its market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936) at that time. 130-85 Share or right acquired under employee share scheme involving your associate (1) This section sets out the modification to the rules about *cost base and *reduced cost base that happens if: (a) you *acquire a *share or right at a discount (within the meaning of Subdivision C of Division 13A of Part III of the Income Tax Assessment Act 1936) under an *employee share scheme; and (b) an amount is included, under section 139D of the Income Tax Assessment Act 1936, in: (i) your *associate's assessable income; or (ii) the assessable income of a company (an affiliate company) where you own an indirect interest in a *share in the company or in a right to acquire a share in it through one or more interposed companies, partnerships or trusts. (2) The first element of the *cost base and *reduced cost base of the *share or right is its market value (worked out under sections 139FA to 139FF of the Income Tax Assessment Act 1936) when you *acquired it. 130-90 Share or right acquired under an employee share trust (1) A *capital gain or a *capital loss a trustee makes when a beneficiary becomes absolutely entitled to a *share or right in a company is disregarded if these conditions are satisfied. (1A) The beneficiary must be: (a) a *PAYE earner of the company or of another company (at the time the beneficiary first became beneficially entitled to the *share or right); or (b) an *associate or affiliate company of such a PAYE earner. (2) The terms of the trust must have required or authorised the trustee to transfer the *share or right to the *PAYE earner, *associate or affiliate company. (3) The *PAYE earner, *associate or affiliate company must have acquired the *share or right under an *employee share scheme. (4) The *PAYE earner, *associate or affiliate company must not have *acquired the *share or right for more than the *cost base of the share or right (in the hands of the trustee) at the time of the transfer. Note: There are transitional rules for some shares or rights acquired under employee share schemes: see Subdivision 130-D of the Income Tax (Transitional Provisions) Act 1997. Division 132--Leases Table of sections 132-1 Lessee incurs expenditure to get lease term varied or waived 132-5 Lessor pays lessee for improvements 132-10 Grant of a long-term lease 132-15 Lessee of land acquires reversionary interest of lessor 132-1 Lessee incurs expenditure to get lease term varied or waived If the lessee of property incurs expenditure in obtaining the consent of the lessor to vary or waive a term of the lease, the fourth element of the lease's *cost base and *reduced cost base includes the amount of that expenditure. The expenditure can include giving property: see section 103-5. 132-5 Lessor pays lessee for improvements The fourth element of the *cost base and *reduced cost base of property that was subject to a lease includes any payment (because of the lease expiring or being surrendered or forfeited) by the lessor to the lessee for expenditure of a capital nature incurred by the lessee in making improvements to the lease property. The payment or expenditure can include giving property: see section 103-5. 132-10 Grant of a long-term lease (1) These rules apply if *CGT event F2 happens for a lessor of property. (2) For any later *CGT event that happens to the land or the lessor's lease of it, its *cost base and *reduced cost base (including the cost base and reduced cost base of any building, part of a building, structure or improvement that is treated as a separate *CGT asset) excludes: (a) any expenditure incurred before *CGT event F2 happens; and (b) the *cost of any *plant for which the lessor has deducted or can deduct for depreciation under this Act. Note: Subdivision 108-D sets out when a building, structure or improvement is treated as a separate CGT asset. (3) The fourth element of the property's *cost base and *reduced cost base includes any payment by the lessor to the lessee to vary or waive a term of the lease or for the forfeiture or surrender of the lease. (4) The expenditure or payment can include giving property: see section 103-5. 132-15 Lessee of land acquires reversionary interest of lessor (1) This table sets out what happens if: (a) the lessee of land *acquires the reversionary interest of the lessor in the land; and (b) Subdivision 124-J (roll-over provisions for Crown leases) does not apply to the acquisition. Lessee acquires reversionary interest of lessor Item In this situation: The lessee is taken to have *acquired the land at this time: The lessee is taken to have acquired the land for: 1 The lease was originally granted for 99 years or more When the lease was granted or assigned to the lessee Any premium the lessee paid for the grant or assignment of the lease, plus the amount the lessee paid to *acquire the reversionary interest 2 The lease was originally granted for less than 99 years When the lessee *acquired the reversionary interest (a) if the lessee *acquired the lease after 19 September 1985--any premium the lessee paid for the grant or assignment of the lease, plus the amount the lessee paid to acquire the reversionary interest; or (b) if the lessee acquired the lease before 20 September 1985--the market value of the land when the lessee acquired it (2) All the payments can include giving property: see section 103-5. Note: CGT events F1 to F5 deal specifically with leases. See also (in particular) CGT event C2 (about cancellation, surrender and similar endings). Division 134--Options 134-1 Exercise of options (1) This table sets out the effects of the exercise of an option on the *cost bases and *reduced cost bases of the grantor and the entity that exercises the option (the grantee). Exercise of options Item In this situation: Effect on cost base and reduced cost base: 1 Option binds grantor to *dispose of a *CGT asset(call option) For the grantee The first element of the grantee's *cost base and *reduced cost base for the *CGT asset is what the grantee paid for the option plus any amount the grantee paid to exercise it For the grantor See section 116-65 2 Option binds grantor to *acquire a *CGT asset(put option) For the grantor The first element of the grantor's *cost base and *reduced cost base for the asset acquired is any amount paid to exercise the option reduced by any payment received by the grantor for the option For the grantee The second element of the grantee's *cost base and *reduced cost base for the asset disposed of to the grantor includes any payment the grantee made to *acquire the option Note 1: If you granted an option, CGT event C3 or D2 may happen. Note 2: Item 1 in the table is modified for options granted before 20 September 1985: see section 134-1 of the Income Tax (Transitional Provisions) Act 1997. (2) All the payments can include giving property: see section 103-5. Example 1: Steven obtains an option to buy a yacht (for $75,000) from Tom. Steven pays $5,000 for the option. Steven exercises the option. The first element of his cost base and reduced cost base for the yacht includes the expenditure he incurred for the option. So, the first element of his cost base and reduced cost base for the yacht is: [GRAPHIC] Example 2: An entity owns 1,000 shares in a company. Bill grants the entity an option which, if exercised, would require him to buy the shares for $2 each. The entity pays Bill 10 cents per share for the option. The entity exercises the option. Bill paid $2,000 for the shares. He received $100 from the entity for granting the option. The first element of Bill's cost base and reduced cost base for the shares is: [GRAPHIC] In working out whether the entity made a capital gain or loss on the sale of the shares, the second element of its cost base (and reduced cost base) includes the $100 the entity paid for the option. (4) A *capital gain or *capital loss the grantee makes from exercising the option is disregarded. Note 1: The exercise of the option would be an example of CGT event C2 (about a CGT asset ending). Note 2: There is an exemption for the grantor if the option is exercised: see subsection 104-40(5). (5) This Division does not apply to rights or options to which Subdivision 130-B applies. Note: Subdivision 130-B deals (amongst other things) with rights and options issued by a company or trust where you did not pay or give anything to acquire them. Division 136--Non-residents Table of Subdivisions Guide to Division 136 136-A Making a capital gain or loss 136-B Becoming a resident Guide to Division 136 136-1 What this Division is about A non-resident makes a capital gain or loss only if a CGT event happens to a CGT asset that has the necessary connection with Australia. There are also rules dealing with what happens when a non-resident becomes a resident. Subdivision 136-A--Making a capital gain or loss Table of sections 136-5 What if you are a non-resident just before a CGT event 136-10 Making a capital gain or loss from most CGT events 136-15 Making a capital gain or loss from CGT events D1 and E9 136-20 Those events you cannot make a capital gain or loss from 136-25 When an asset has the necessary connection with Australia 136-30 Reducing a capital gain or loss from a business asset [This is the end of the Guide.] 136-5 What if you are a non-resident just before a CGT event This Subdivision sets out what happens if just before a *CGT event happens: (a) you are an individual or a company that is not an Australian resident; or (b) you are the trustee of a trust that is not a *resident trust for CGT purposes. 136-10 Making a capital gain or loss from most CGT events You make a *capital gain or *capital loss from a *CGT event set out in this table only if the thing referred to in the relevant row of the table has the *necessary connection with Australia. The last column lists each category of *CGT asset having the *necessary connection with Australia that is relevant to the event. Note 1: Special rules apply to CGT events D1 and E9: see section 136-15. Note 2: There are some CGT events for which you cannot make a capital gain or loss: see section 136-20. Note 3: For the categories of CGT assets having the necessary connection with Australia: see section 136-25. Non-resident gains and losses Event number Description of event: This has the necessary connection with Australia: Category of CGT asset: A1 Disposal of a CGT asset the CGT asset 1 to 8 B1 Use and enjoyment before title passes the CGT asset 1, 2 C1 Loss or destruction of a CGT asset the CGT asset 1, 2 C2 Cancellation, surrender and similar endings the CGT asset 1 to 8 D2 Granting an option the option 7 E1 Creating a trust over a CGT asset the CGT asset 1 to 8 E2 Transferring a CGT asset to a trust the CGT asset 1 to 8 E3 Converting a trust to a unit trust the CGT asset 1 to 8 E4 Capital payment for trust interest the units or interest in the trust 4, 6 E5 Beneficiary becoming entitled to a trust asset the CGT asset 1 to 8 E6 Disposal to beneficiary to end income right the CGT asset 1 to 8 E7 Disposal to beneficiary to end capital interest the CGT asset 1 to 8 E8 Disposal by beneficiary of capital interest the interest in the trust capital 4 F1 Granting a lease the CGT asset the subject of the lease 1, 2 F2 Granting a long-term lease the land 1 F3 Lessor pays lessee to get lease changed the CGT asset the subject of the lease 1, 2 F4 Lessee receives payment for changing lease the CGT asset the subject of the lease 1, 2 F5 Lessor receives payment for changing lease the CGT asset the subject of the lease 1, 2 G1 Capital payment for shares the shares 3, 5, 8 G2 Shifts in share values the shift losing shares 3, 5, 7, 8 G3 Liquidator declares shares worthless the shares 3, 5, 8 H1 Forfeiture of deposit the CGT asset the subject of the prospective purchase or other transaction 1 to 8 H2 Receipt for event relating to a CGT asset the CGT asset 1 to 8 J1 Company ceasing to be member of wholly-owned group the CGT asset the subject of the roll-over 1 to 8 K1 Partial realisation of intellectual property the item of intellectual property 2 K3 Asset passing to tax advantaged entity the CGT asset 1 to 8 K4 CGT asset starts being trading stock the CGT asset 1 to 8 K6 Pre-CGT shares or trust interest the shares or interest in the trust 3 to 6 136-15 Making a capital gain or loss from CGT events D1 and E9 (1) You make a *capital gain or *capital loss from *CGT event D1 (about creating contractual or other rights) only if one of the items in this table is satisfied. CGT event D1 Item In this situation: This requirement is satisfied: 1 The *capital proceeds from the event are your *ordinary income The proceeds are *derived from an *Australian source 2 The *capital proceeds from the event are not your *ordinary income If the proceeds were your *ordinary income, they would have been *derived from an *Australian source (2) You make a *capital gain or *capital loss from *CGT event E9 (about creating a trust over future property) only if one of the items in this table is satisfied. CGT event E9 Item In this situation: This requirement is satisfied: 1 The consideration is your *ordinary income The consideration is *derived from an *Australian source 2 The consideration is not your *ordinary income If the consideration was your *ordinary income, it would have been *derived from an *Australian source 136-20 Those events you cannot make a capital gain or loss from This table sets out those *CGT events from which you cannot make a *capital gain or *capital loss. CGT events not relevant Event number Description of event: See section: C3 End of option to acquire shares etc. 104-30 D3 Granting a right to income from mining 104-45 I1 Individual or company stops being resident 104-160 I2 Trust stops being a resident trust 104-170 K2 Bankrupt pays amount in relation to debt 104-210 K5 Special collectable losses 104-225 136-25 When an asset has the necessary connection with Australia There are 8 categories of *CGT assets having the necessary connection with Australia. They are set out in this table. CGT assets having the necessary connection with Australia Category number Description 1 Any of these: (a) land, or a building or structure, in Australia; (b) an interest in land in Australia, or a right, power or privilege to do with land in Australia; (c) a *stratum unit in Australia, or an interest in a stratum unit in Australia; (d) a *share in a company that owns a building on land in Australia that gives you a right to occupy a flat or home unit in the building 2 A *CGT asset that you have used at any time in carrying on a *business through a *permanent establishment in Australia 3 A *share, or an interest in a *share, in a company that is an Australian resident, and a *private company, for the income year in which the *CGT event happens 4 An interest in a trust that is a *resident trust for CGT purposes for the income year in which the *CGT event happens 5 A *share, or an interest in a *share, in a company: (a) that is an Australian resident, and a *public company, for the income year in which the CGT event happens; and (b) in which you and your *associates beneficially owned at least 10% of the issued share capital (except share capital that carried a right only to participate in a distribution of profits or capital to a limited extent) at any time during the 5 years before the *CGT event happens 6 A unit in a unit trust: (a) that is a *resident trust for CGT purposes for the income year in which the CGT event happens; and (b) in which you and your *associates beneficially owned at least 10% of the issued units in the unit trust at any time during the 5 years before the *CGT event happens 7 An option or right to *acquire a *CGT asset of the kind referred to above 8 A *share or security in a company that you received as consideration for your *disposal of another *CGT asset to the company and: (a) you chose to obtain a roll-over under Division 122 (roll-over of assets by an individual or partnership to a company) or Subdivision 126-B (roll-over of assets within a company group) because of the disposal; and (b) either you were not an Australian resident just before the disposal, or you were a trustee of a trust that was not a *resident trust for CGT purposes for the income year in which the disposal happened 136-30 Reducing a capital gain or loss from a business asset (1) The *capital gain or *capital loss you make from a *CGT asset that you have used at any time in carrying on a *business through a *permanent establishment in Australia is reduced if you used it in this way for only part of the period from when you *acquired it to when the CGT event happened. (2) The gain or loss is reduced by this fraction: [GRAPHIC]Subdivision 136-B--Becoming a resident Table of sections 136-40 Individual or company becomes resident 136-45 Trust becomes a resident trust 136-50 CFC becomes an Australian resident 136-40 Individual or company becomes resident (1) If you become an Australian resident, there are rules relevant to each *CGT asset that you owned just before you became an Australian resident, except an asset: (a) having the *necessary connection with Australia; or (b) that you *acquired before 20 September 1985. (2) The first element of the *cost base and *reduced cost base of the asset (at the time you become an Australian resident) is its market value at that time. (3) Also, Part 3-1 and this Part apply to the asset as if you had *acquired it at the time you became an Australian resident. 136-45 Trust becomes a resident trust (1) If a trust becomes a *resident trust for CGT purposes, there are rules relevant to each *CGT asset that the trustee owned just before the trust became a resident trust for CGT purposes, except one: (a) having the *necessary connection with Australia; or (b) that the trustee *acquired before 20 September 1985. (2) The first element of the *cost base and *reduced cost base of the asset (at the time the trust becomes a *resident trust for CGT purposes) is its market value at that time. (3) Also, Part 3-1 and this Part apply to the asset as if the trustee had *acquired it at the time the trust became a *resident trust for CGT purposes. Exception (4) This section does not apply to a trust if, just before it became a *resident trust for CGT purposes, it was a *CFT because of paragraph 342(a) of the Income Tax Assessment Act 1936. Note: This section is disregarded in calculating the attributable income of a trust: see section 102AAZB of the Income Tax Assessment Act 1936. 136-50 CFC becomes an Australian resident (1) This section applies to a *CFC that stops at a time (the residence change time) being a resident of a *listed country or an *unlisted country and becomes an Australian resident. (2) Section 136-40 does not apply to the *CFC. (3) The modifications of this Part and Part 3-1 in sections 411 to 414 (inclusive) of the Income Tax Assessment Act 1936 have the effect they would have, in relation to each *commencing day asset owned by the *CFC at the residence change time, if those modifications were used to work out the taxable income of the CFC rather than its *attributable income. (4) However, if a *capital gain on a *commencing day asset of the *CFC (for a period before the residence change time) was subject to tax (within the meaning of Part X of the Income Tax Assessment Act 1936) in a *listed country, the modifications of this Part and Part 3-1 in sections 411 to 414 (inclusive) of the Income Tax Assessment Act 1936 have the effect they would have in relation to the asset if: (a) those modifications were used to work out the taxable income of the CFC rather than its *attributable income; and (b) the *commencing day of the CFC were the residence change time. Note: This section is disregarded in calculating the attributable income of a CFC: see section 410 of the Income Tax Assessment Act 1936. Division 140--Share value shifting Table of Subdivisions Guide to Division 140 140-A When is there share value shifting? 140-B Consequences of share value shifting Guide to Division 140 140-1 What this Division is about This Division prevents entities from obtaining a capital gains tax advantage from share value shifting schemes. They involve shifting value from one lot of shares to another lot: for example, by issuing new shares. It sets out when an entity makes a capital gain under a scheme of this kind and how the cost base and reduced cost base of shares is varied. 140-5 Map of this Division Subdivision 140-A--When is there share value shifting? Table of sections 140-10 Shifts in share values 140-15 What is a share value shift? 140-20 When is an entity a controller (for CGT purposes) of a company? 140-22 When an entity has an associate-inclusive control interest 140-25 When is there a material decrease in the value of a share? 140-30 Interests in shares etc. 140-10 Shifts in share values This Division is relevant to *CGT event G2. Note 1: CGT event G2 is set out in section 104-140. Note 2: The making of a capital gain from the event and cost base adjustments are dealt with in Subdivision 140-B. 140-15 What is a share value shift (1) A share value shift occurs if the requirements in subsections (2), (3) and (4) are satisfied. (2) The company, or the entity or the entity's *associate, must do something under a *scheme involving *shares in the company. Examples are issuing new shares at a *discount, buying back shares or changing the voting rights attached to shares. Note 1: This Division is also relevant to interests in shares and rights or options to acquire shares: see section 140-30. Note 2: No cost base adjustments are required under this Division if the increase and decrease in market value occurred before 12 noon on 12 January 1994: see section 140-7 of the Income Tax (Transitional Provisions) Act 1997. (3) There must be a decrease in the market value of one or more *shares (the decreased value shares) in the company that are owned by the entity or the entity's * associate. The shares must have been *acquired on or after 20 September 1985. The decrease must be reasonably attributable to the thing done under the *scheme, and must occur at or after the time when the thing is done under the *scheme. (4) The requirements in subsection (5) or (6) must be satisfied. (5) There must be an issue of *shares (the increased value shares) at a *discount to: (a) the entity or the entity's *associate; or (b) if any *decreased value share is owned by the entity's associate--an associate of that associate. (6) There must be an increase in the market value of one or more *shares (also the increased value shares) in the company owned by: (a) the entity or the entity's *associate; or (b) if any *decreased value share is owned by the entity's associate--an associate of that associate. The increase must be reasonably attributable to the thing done under the scheme, and must occur at or after the time when it is done. Example: A company runs a family business. There are 2 shares originally issued for $2 each. They are owned by a husband and wife. The market value of the shares is much greater (represented by the value of the assets of the company less its liabilities). The company issues one more share for $2 to their son. Caution is needed in such a situation. This example would result in a large CGT liability for the husband and wife under this Division, because they have shifted 1/3 of the value of their own shares to their son. No such liability would arise if the share had been issued for its market value. (7) If it is reasonable to say that the increase or decrease in the market value of one or more *shares in the company is partly caused by the doing of the thing under the *scheme, this Division applies to the increase or decrease to that extent only. Off-market buy-backs (8) Disregard a *share value shift that occurs in this situation: (a) a decrease in the market value of one or more *shares in the company is reasonably attributable to the company proposing to buy back those shares for less than their market value; and (b) the company does buy back those shares; and (c) subsection 159GZZZQ(2) of the Income Tax Assessment Act 1936 treats their owner as having received their market value worked out as if the buy-back had not occurred and was never proposed to occur. Note: A share value shift is disregarded under subsection (8) only if the company buys back the shares after 7.30 pm on 9 May 1995 and the buy back is not done under an excluded transitional arrangement: see subsection 140-15(8) of the Income Tax (Transitional Provisions) Act 1997. 140-20 When is an entity a controller (for CGT purposes) of a company? An entity (the first entity) is a controller (for CGT purposes) of a company if: (a) the first entity has an *associate-inclusive control interest in the company of at least 50%; or (b) the first entity has an *associate-inclusive control interest in the company of at least 40% and entities other than the first entity or associates of the first entity do not control the company; or (c) the first entity controls the company (alone or with an *associate). 140-22 When an entity has an associate-inclusive control interest (1) An entity has an associate-inclusive control interest in a company in the circumstances set out in Subdivision A of Division 3 of Part X of the Income Tax Assessment Act 1936. (2) However, in working out whether an entity has an *associate-inclusive control interest of a particular percentage for the purposes of section 140-20, there are these modifications to the way Part X of that Act operates: (a) that Part is applied to any company, including one acting as a trustee; and (b) subsection 349(4) applies in all cases in working out which entity holds a direct control interest or a control tracing interest equal to 100%; and (c) subsections 350(6) and (7) and 355(1) are ignored; and (d) despite subsection 352(2), an interposed entity may be taken into account in calculating an indirect control interest if it is: (i) a company of which the first entity or an *associate is a controller; or (ii) a partnership or a trust; and (e) section 354 applies as if it referred to partnerships rather than CFP's; and (f) section 355 applies as if it referred to trusts rather than CFT's. Note 1: Part X of the Income Tax Assessment Act 1936 defines company to exclude one in the capacity of a trustee. Note 2: The terms direct control interest and control tracing interest are relevant to working out associate-inclusive control interests in a company: see sections 350, 351, 353, 354 and 355 of that Act. Note 3: Under subsection 349(4) of that Act, if 2 or more entities would have a direct control interest or a control tracing interest in a company or trust equal to 100%, only one of them holds the interest. Note 4: Subsections 350(6) and (7) deal with direct control interests in a company. They deal with interests held by Australian entities. Under subsection 355(1), certain entities are taken to hold a control tracing interest in a trust equal to 100%. Note 5: Paragraphs 140-22(2)(d), (e) and (f) are necessary because Part X of the Income Tax Assessment Act 1936 applies only to CFE's (which comprise CFC's, CFP's and CFT's). 140-25 When is there a material decrease in the value of a share? There is a material decrease in the market value of a *decreased value share if: (a) the total of the percentage decreases in its market value because of *share value shifts that occur under the *scheme is at least 5%; or (b) the total of the decreases in the market value of all shares whose market value decreased because of *share value shifts that occur under the scheme is at least $100,000. Note: There must be a material decrease in the market value of a share for CGT event G2 to happen: see section 104-140. 140-30 Interests in shares etc. This Division applies to an interest in a *share, or a right or option to *acquire a share or an interest in a share, in the same way as it applies to a share. Subdivision 140-B--Consequences of share value shifting Guide to Subdivision 140-B 140-45 What this Subdivision is about A share value shift involves a decrease in the market value of shares acquired on or after 20 September 1985. An entity owning these shares may make a capital gain. There are also rules dealing with cost base adjustments. Table of sections Different consequences where share value shift is neutral 140-50 What if the share value shift is neutral for each shareholder? Value shifted to shares acquired on or after 20 September 1985 140-55 Making a capital gain 140-60 Cost base adjustment for shares decreasing in value 140-65 Cost base adjustment for shares increasing in value 140-70 Gain referable to fall in value of shares owned by others 140-75 Gain referable to fall in value of shares owned by the entity Value shifted to shares acquired before 20 September 1985 140-90 Making a capital gain 140-95 Adjustments to cost base and reduced cost base [This is the end of the Guide.] Different consequences where share value shift is neutral 140-50 What if the share value shift is neutral for each shareholder? (1) The consequences of a *share value shift (which are set out in this Subdivision) are different if these requirements are satisfied for each entity owning *shares in the company. (2) The *share value shift consists of: (a) a decrease in the market value of some of the entity's *shares in the company; and (b) one of these: (i) an increase in the market value of some of the entity's shares in the company; or (ii) the issue of shares at a *discount to the entity. (3) The total decrease in market value of the entity's *shares equals: (a) the total increase in market value of the entity's shares; or (b) the total *discounts given in relation to the entity's shares. (4) An entity works out what the consequences of the *share value shift are by disregarding all *shares in the company owned by other entities. Example: Bill and Bevan are the only shareholders in a company and are associates. They own one post-CGT share each. The shares are fully paid and each has a market value of $120,000. The company issues one new share to Bill and Bevan for $100,000 each. After the new shares are issued, each share in the company has a market value of $110,000. The total decrease in the market value of the original shares equals the total discount given in relation to the new shares. Apart from this section, Bill and Bevan would make a capital gain based on the value shifted from their existing share into the new share of the other. Bill and Bevan will not make a capital gain from the share value shift, although cost base adjustments will be required under this Subdivision. Value shifted to shares acquired on or after 20 September 1985 140-55 Making a capital gain (1) This section sets out what happens if a *share value shift results in *shares that were *acquired on or after 20 September 1985 becoming *increased value shares. Example: The ownership of shares in a company looks like this: * a controller (for CGT purposes) of the company owns 800 class A shares and 200 class B shares; * the controller's associate owns 100 class A shares and 700 class B shares; * a third party owns 100 class A shares and 100 class B shares. All shares were acquired in 1999. A share value shift causes the market value of all class A shares to fall from $100 to $50 and the market value of all class B shares to increase from $100 to $150. (2) An entity owning *decreased value shares that have *materially decreased in market value makes a capital gain if the *shift proceeds are more than the part of those shares' *cost base worked out under subsection (5). Note: The entity cannot make a capital loss. (3) The shift proceeds are: [GRAPHIC] Example: To continue the example, the total of the decreases in the market value of the controller's shares is $40,000. The only increased value shares owned by other entities are the class B shares of the controller's associate. The total increase in their market value is $35,000. The total share value increase is the increase in market value of all shares. This is $50,000. The controller's shift proceeds are: [GRAPHIC] Note: This represents the decrease in the market value of the controller's shares which has shifted into shares owned by the controller's associate. (4) The total share value increase of the *share value shift is the total of: (a) the increases in the market value of, and the *discounts given in relation to, *increased value shares; and (b) the increases in the market value of, and the discounts given in relation to, all other shares in the company if they are reasonably attributable to the thing done under the *scheme. (5) The part of those *shares' *cost base is: [GRAPHIC] Example: To continue the example, suppose the cost base of the controller's class A shares just after they decreased in value is $16,000. Those shares' market value just before they decreased in value is $80,000. The part of those shares' cost base is: [GRAPHIC] The controller makes a capital gain of: [GRAPHIC] The controller's associate also makes a capital gain because its class A shares have materially decreased in value and part of the decrease has been shifted into the controller's shares. The gain is worked out in the same way. The third party does not make a capital gain because its 100 class A shares are not decreased value shares. Note: The relevant proportion of the cost base of the controller's class A shares is the same proportion as the value of those shares that has shifted into the class B shares of the controller's associate. 140-60 Cost base adjustment for shares decreasing in value (1) The *cost base and *reduced cost base of each *decreased value share that has *materially decreased in market value are reduced by the lesser of the following: (a) this fraction: [GRAPHIC] (b) the amount of the decrease in the market value of the share. Example: To continue the example in section 140-55, the cost base and reduced cost base of each of the controller's class A shares is $20. Each one decreased in value from $100 to $50. The $20 is reduced by: [GRAPHIC] This is less than $50 (the decrease in the market value of each of the controller's class A shares). So, the cost base and reduced cost base of each one are reduced from $20 to $11. Note: The reduction is by the same proportion as the proportion of the value of the controller's class A shares that has shifted into its class B shares and the class B shares of its associate. (2) The reduction occurs when the *share value shift happens. 140-65 Cost base adjustment for shares increasing in value (1) The fourth element of the *cost base and *reduced cost base of each *increased value share owned by an entity (and *acquired on or after 20 September 1985) that has *materially increased in value includes this amount: * the gain referable to the decrease in value of *decreased value shares owned by other entities: see section 140-70; plus: * the gain referable to the decrease in value of *decreased value shares owned by the entity: see section 140-75. The amount is included when the *share value shift happens. Example: To continue the example in sections 140-55 and 140-60, the controller's 200 class B shares have materially increased in value. The cost base and reduced cost base of each one is increased. The cost base and reduced cost base of each one before the gain in value is $20. Because these shares all had the same market value before the share value shift ($100), they all increased in value by the same amount ($50) and they all have the same cost base ($20), their cost base and reduced cost base adjustment can be calculated as an aggregate. (1A) However, the amount is included only to the extent that it is reflected in the market value of the *increased value share at the time of a later *CGT event. The amount is so included even if it is not reflected in the state or nature of the share at that time. (2) There is a material increase in the value of an *increased value share in 2 situations. (3) The first is if the sum of: (a) any *discount given in relation to the share (expressed as a percentage of its market value just before it was issued) in a *share value shift that occurs under the scheme; and (b) any percentage increases in its market value because of share value shifts that occur under the *scheme; is at least 5%. (4) The second is if the sum of: (a) any *discounts given in relation to all shares in *share value shifts that occur under the scheme; and (b) any increases in the market value of all shares whose market value increased because of *share value shifts that occur under the scheme; is at least $100,000. 140-70 Gain referable to fall in value of shares owned by others (1) The gain referable to the decrease in value of *decreased value shares owned by other entities is the smaller of these 2 amounts. (2) The first amount is: [GRAPHIC] Example: To continue the example in sections 140-55 to 140-65, the controller's class B shares have increased in value by $10,000 (200 shares increasing by $50 per share). The decreased value shares of the controller are the 800 class A shares. Each share decreases in value by $50, making the total decrease in their market value $40,000. The only other decreased value shares are the 100 class A shares of the controller's associate. The total decrease in their market value is $5,000. The first amount is: [GRAPHIC] (3) The second amount is: [GRAPHIC] Example: To continue the example, the decreased value shares owned by other entities are the class A shares of the controller's associate. The total decrease in their market value is $5,000. The controller's class B shares have increased in value by $10,000. The total share value increase of the share value shift is the total increase in market value of all the shares. The 700 class B shares of the controller's associate have increased in value by $35,000 ($50 each). The 100 class B shares of the third party have increased in value by $5,000. The total increase is: [GRAPHIC] The second amount is: [GRAPHIC] The smaller of the 2 amounts is $1,000. 140-75 Gain referable to fall in value of shares owned by the entity (1) The gain referable to the decrease in value of *decreased value shares owned by the entity is the smallest of these 3 amounts. (2) The first amount is: [GRAPHIC] Example: To continue the example in sections 140-55 to 140-70, the controller's class B shares have increased in value by $10,000. The decreased value shares of the controller are the 800 class A shares. The total decrease in their market value is $40,000. The only other decreased value shares are the 100 class A shares of the controller's associate. The decrease in their market value is $5,000. The first amount is: [GRAPHIC] (3) The second amount is: [GRAPHIC] Example: To continue the example, the controller's decreased value shares are the 800 class A shares. The decrease in their market value is $40,000. The controller's class B shares have increased in value by $10,000. The total share value increase of the share value shift is $50,000. The second amount is: [GRAPHIC] [GRAPHIC] (4) The third amount is worked out differently, depending on whether the increase in the *cost base or *reduced cost base of each *increased value share is being worked out. Increase in cost base (5) If the increase in the *cost base of each *increased value share is being worked out, work out: * the total reduction in the *cost bases of the entity's *decreased value shares: see subsection (6); less: * the amount worked out under subsection 140-55(5) (which is the part of the cost base of the entity's decreased value shares relevant to the working out of any capital gain). This amount is then apportioned to each increased value share in proportion to its *cost base. The amount apportioned is the third amount. (6) The total reduction in the *cost bases of the entity's *decreased value shares is: [GRAPHIC] Example: To continue the example, the cost base and reduced cost base of each of the controller's 800 class A shares (the decreased value shares) is $20. The total of their cost bases is $16,000. The total reduction is: [GRAPHIC] The part of the cost base of those shares relevant to working out any capital gain is $5,600: see section 140-60. The third amount is: [GRAPHIC] This is the smallest of the 3 amounts. The smaller of the 2 amounts worked out under section 140-70 is $1,000. The total of the cost bases of the controller's 200 class B shares is $4,000: see section 140-65. This is increased by: [GRAPHIC] (or the cost base of each of the controller's 200 class B shares is increased by $13). Increase in reduced cost base (7) If the increase in the *reduced cost base of each *increased value share is being worked out, the third amount is: [GRAPHIC]Value shifted to shares acquired before 20 September 1985 140-90 Making a capital gain (1) This section sets out what happens if a *share value shift results in *shares that were *acquired before 20 September 1985 becoming *increased value shares. Example: A controller of a company owns 100 shares in the company that were acquired in 1999. A share value shift causes each one to fall in value from $100 to $60. The controller's associate owns 50 shares in the company that were acquired in 1984. Each one (the increased value shares) increases in value from $20 to $60. (2) An entity owning *decreased value shares that have *materially decreased in market value makes a capital gain if the *shift proceeds are more than the part of those shares' *cost base worked out under subsection (4). Note: The entity cannot make a capital loss. (3) The shift proceeds are: [GRAPHIC] Example: To continue the example, suppose someone else (who is not an associate of the controller) owns 50 shares in the company. Each one increases in value from $20 to $60. The total share value increase is: [GRAPHIC] The controller's shift proceeds are: [GRAPHIC] Note: This represents the decrease in the market value of the controller's shares which has shifted into other shares owned by the controller or the controller's associate. (4) The part of those *shares' *cost base is: [GRAPHIC] Example: To continue the example, suppose the cost base of the controller's shares just after they decreased in value is $5,000. Their market value just before they decreased in value is $10,000. The part of those shares' cost base is: [GRAPHIC] The controller makes a capital gain of $2,000 - $1,000 = $1,000. 140-95 Adjustments to cost base and reduced cost base (1) The *cost base and *reduced cost base of each *decreased value share that has *materially decreased in market value are reduced by the lesser of the following: (a) this fraction: [GRAPHIC] (b) the amount of the decrease in the market value of the share. Example: To continue the example in section 140-90, the cost base and reduced cost base of each of the controller's shares is $50. Each one decreased in value from $100 to $60. The $50 is reduced by: [GRAPHIC] This is less than $40 (the decrease in the market value of each of the controller's shares). So, the cost base and reduced cost base of each one are reduced from $50 to $40. (2) The reduction occurs when the *share value shift happens. Division 149--When an asset stops being a pre-CGT asset Table of Subdivisions 149-A Key concepts 149-B When asset of non-public entity stops being a pre-CGT asset 149-C When asset of public entity stops being a pre-CGT asset 149-D How to treat holdings of less than 1% in certain entities 149-E How to treat certain interposed funds, companies and government bodies 149-F How to treat a "demutualised" public entity Subdivision 149-A--Key concepts Table of sections 149-10 What is a pre-CGT asset? 149-15 Majority underlying interests in a CGT asset 149-10 What is a pre-CGT asset? A *CGT asset that an entity owns is a pre-CGT asset if, and only if: (a) the entity last acquired the asset before 20 September 1985; and (b) the entity was not, immediately before the start of the 1998-99 income year, taken under: (i) subsection 160ZZS(1) of the Income Tax Assessment Act 1936; or (ii) Subdivision C of Division 20 of Part IIIA of that Act; to have acquired the asset on or after 20 September 1985; and (c) the asset has not stopped being a pre-CGT asset of the entity because of this Division. Note: There are transitional rules for assets that stopped being pre-CGT assets under the Income Tax Assessment Act 1936: see section 149-5 of the Income Tax (Transitional Provisions) Act 1997. 149-15 Majority underlying interests in a CGT asset (1) Majority underlying interests in a *CGT asset consist of: (a) more than 50% of the beneficial interests that *ultimate owners have (whether directly or *indirectly) in the asset; and (b) more than 50% of the beneficial interests that *ultimate owners have (whether directly or *indirectly) in any *ordinary income that may be *derived from the asset. (2) An underlying interest in a *CGT asset is a beneficial interest that an *ultimate owner has (whether directly or *indirectly) in the asset or in any *ordinary income that may be *derived from the asset. (3) An ultimate owner is: (a) an individual; or (b) a company whose *constitution prevents it from making any distribution, whether in money, property or otherwise, to its members; or (c) the Commonwealth, a State or a Territory; or (d) a municipal corporation; or (e) a local governing body; or (f) the government of a foreign country, or of part of a foreign country. (4) An *ultimate owner indirectly has a beneficial interest in a *CGT asset of another entity (that is not an *ultimate owner) if he, she or it would receive for his, her or its own benefit any of the capital of the other entity if: (a) the other entity were to distribute any of its capital; and (b) the capital were then successively distributed by each entity interposed between the other entity and the ultimate owner. (5) An *ultimate owner indirectly has a beneficial interest in *ordinary income that may be *derived from a *CGT asset of another entity (that is not an *ultimate owner) if he, she or it would receive for his, her or its own benefit any of a *dividend or income if: (a) the other entity were to pay that dividend, or otherwise distribute that income; and (b) the dividend or income were then successively paid or distributed by each entity interposed between the other entity and the ultimate owner. Subdivision 149-B--When asset of non-public entity stops being a pre-CGT asset Table of sections 149-25 Which entities are affected 149-30 Effects if asset no longer has same majority underlying ownership 149-35 Cost base elements of asset that stops being a pre-CGT asset 149-25 Which entities are affected This Subdivision provides for when a *CGT asset of an entity stops being a *pre-CGT asset (unless the entity is covered by section 149-50). Note: Subdivision 149-C deals with when an asset of such an entity stops being a pre-CGT asset. 149-30 Effects if asset no longer has same majority underlying ownership (1) The asset stops being a *pre-CGT asset at the earliest time when *majority underlying interests in the asset were not had by *ultimate owners who had *majority underlying interests in the asset immediately before 20 September 1985. Also, Part 3-1 and this Part (except this Division) apply to the asset as if the entity had acquired it at that earliest time. (2) If the Commissioner is satisfied, or thinks it reasonable to assume, that at all times on and after 20 September 1985 and before a particular time *majority underlying interests in the asset were had by *ultimate owners who had *majority underlying interests in the asset immediately before that day, subsection (1) applies as if that were in fact the case. New owner standing in shoes of former owner (3) Subsection (4) affects how the *majority underlying interests in the asset are worked out if an *ultimate owner (the new owner) has acquired a percentage (the acquired percentage) of the *underlying interests in the asset because of an event described in column 2 of an item in the table. The former owner is the entity described in column 3 of that item. Events leading to new owner standing in for former owner Item For this kind of event: The former owner is: 1 *CGT event A1 or B1 if there is a roll-over under Subdivision 126-A (about marriage break-downs) for the event the entity that, immediately before the event happened, owned the *CGT asset to which the event relates 2 the death of a person that person (4) This section applies as if the new owner had (in addition to any other *underlying interests), at any time when the former owner had a percentage (the former owner's percentage) of the underlying interests in the asset, a percentage of the underlying interests in the asset equal to the acquired percentage, or the former owner's percentage at that time, whichever is the less. 149-35 Cost base elements of asset that stops being a pre-CGT asset (1) This section affects the *cost base and *reduced cost base of the asset if it stops being a *pre-CGT asset. (2) The first element of each is the asset's market value at the time referred to in subsection 149-30(1). Subdivision 149-C--When asset of public entity stops being a pre-CGT asset Table of sections 149-50 Which entities are affected 149-55 Entity to determine periodically whether asset still has same majority underlying ownership 149-60 What the determination must show 149-65 Effects of not making the determination 149-70 Effects if asset no longer has same majority underlying ownership 149-75 Cost base elements of asset that stops being a pre-CGT asset 149-80 No further determination needed after asset stops being a pre-CGT asset 149-50 Which entities are affected (1) This Subdivision provides for when a *CGT asset of an entity of any of these kinds stops being a *pre-CGT asset: (a) a company *shares in which (except shares that carry the right to a fixed rate of *dividend) are listed for quotation in the official list of an *approved stock exchange; (b) a *publicly traded unit trust; (c) a *mutual insurance company; (d) a *mutual affiliate company; (e) a company (other than one covered by paragraph (a)) all the *shares in which are beneficially owned by one or more of the following: (i) a company covered by paragraph (a); (ii) a *mutual insurance company; (iii) a *mutual affiliate company; (iv) a *publicly traded unit trust; (f) a *100% subsidiary of a company covered by paragraph (e). (2) A publicly traded unit trust is a unit trust the units in which: (a) are listed for quotation in the official list of an *approved stock exchange; or (b) are ordinarily available for subscription or purchase by the public. (3) This Division applies as if what is done or not done by the trustee of a *publicly traded unit trust had been done or not done by the trust. 149-55 Entity to determine periodically whether asset still has same majority underlying ownership (1) Within 6 months after each *test day, the entity must examine its records to make a determination about the *majority underlying interests in the asset at the end of that day. (The Commissioner can extend the period for making the determination.) Test days (2) Each of these days is a test day: (a) a day that is 5 years (or a multiple of 5 years) after 20 January 1997 (but see subsection (3)); (b) if the entity is covered by paragraph 149-50(1)(a), (e) or (f)--a day on which there is *abnormal trading in *shares in the company; (c) if the entity is a *publicly traded unit trust--a day on which there is *abnormal trading in units in the trust; (d) if the entity is a company all the *shares in which are beneficially owned: (i) by a company *shares in which (except shares that carry the right to a fixed rate of *dividend) are listed for quotation in the official list of an *approved stock exchange; or (ii) by a *publicly traded unit trust; a day on which there is *abnormal trading in *shares in the other company or in units in that unit trust; (e) if the entity is a 100% subsidiary of a company of the kind first mentioned in paragraph (d)--a day on which there is *abnormal trading in *shares in the company referred to in subparagraph (d)(i) or in units in that unit trust. Note: Subsections (6) and (7) change the normal rules about abnormal trading. (3) If a day (the fifth anniversary) that would otherwise be a *test day because of paragraph (2)(a) is: (a) a Saturday; or (b) a Sunday; or (c) a day that is a public holiday or a bank holiday in the place where the records of ownership of shares or other interests in the entity are kept; the next day that is not covered by a paragraph of this subsection is a test day instead of the fifth anniversary. Determining the end of a day (4) For the purposes of this section, the end of a day is determined according to legal time in the place where the records of ownership of shares or other interests in the entity are kept. Special rules about abnormal trading (5) Subsections (6) and (7) change how Subdivision 960-H applies for the purposes of determining under this section whether there is *abnormal trading in *shares in a company or in units in a unit trust. (6) An issue, redemption or transfer, or any other dealing, is a trading if, and only if, it changes the respective proportions in which *ultimate owners have *underlying interests in *CGT assets of the company or trust. (7) Section 960-235 (about suspected transactions involving 5% or more of *shares in the company or units in the trust) is disregarded. 149-60 What the determination must show (1) The determination must show whether, at the end of the *test day, *majority underlying interests in the asset were had by *ultimate owners who also had *majority underlying interests in the asset at the end of the starting day. The starting day is: (a) a day the entity chooses under subsection (2); or (b) if no day is so chosen--19 September 1985. (2) The day chosen: (a) must be no earlier than 1 July 1985 and no later than 30 June 1986; and (b) must be one the choice of which will result in a determination that gives a reasonable approximation of the *ultimate owners who had *underlying interests in the assets of the entity at the end of 19 September 1985. How unidentified owners are treated (3) So far as the entity cannot identify from examining its records who had *underlying interests in the asset at the end of the *starting day, it must make the determination on the basis that those interests were then had by *ultimate owners who did not have *underlying interests in the asset at the end of the *test day. New owner standing in the shoes of former owner (4) Subsection (5) affects how the entity must make the determination if an *ultimate owner (the new owner) has acquired a percentage (the acquired percentage) of the *underlying interests in the asset because of an event described in column 2 of an item in the table. The former owner is the entity described in column 3 of that item. Events leading to new owner standing in for former owner Item For this kind of event: The former owner is: 1 *CGT event A1 or B1 if there is a roll-over under Subdivision 126-A (about marriage break-downs) for the event the entity that, immediately before the event happened, owned the *CGT asset to which the event relates 2 the death of a person that person (5) The entity must make the determination on the basis that the new owner had (in addition to any other *underlying interests), at any time when the former owner had a percentage (the former owner's percentage) of the *underlying interests in the asset, a percentage of the underlying interests in the asset equal to the acquired percentage, or the former owner's percentage at that time, whichever is the less. Determining the end of a day (6) For the purposes of this section, the end of a day is determined according to legal time in the place where the records of ownership of shares or other interests in the entity are kept. 149-65 Effects of not making the determination (1) The asset stops being a *pre-CGT asset if the entity fails to make the determination as required by this Division. (2) Also, Part 3-1 and this Part (except this Division) apply to the asset as if the entity had acquired it at the end (as determined under subsection 149-55(4)) of the last *test day before the one for which the determination was required to be made. (3) However, if the *test day is the first one after the entity began to be covered by section 149-50 (which lists the entities affected by this Division), Part 3-1 and this Part (except this Division) apply to the asset as if the entity had acquired it when the entity began to be covered by that section. 149-70 Effects if asset no longer has same majority underlying ownership (1) The asset stops being a *pre-CGT asset if the determination shows that at the end of the *test day *majority underlying interests in the asset were not had by *ultimate owners who had *majority underlying interests in the asset at the end of the *starting day. (2) Also, Part 3-1 and this Part (except this Division) apply to the asset as if the entity had acquired it at the end of the *test day (as determined under subsection 149-55(4)). (3) However, disregard subsections (1) and (2) if the Commissioner is satisfied, or thinks it reasonable to assume, that at the end of the *test day *majority underlying interests in the asset were had by *ultimate owners who had *majority underlying interests in the asset at the end of the *starting day. 149-75 Cost base elements of asset that stops being a pre-CGT asset (1) This section affects the *cost base and *reduced cost base of the asset if it stops being a *pre-CGT asset. (2) The first element of each is the asset's market value at the time referred to in subsection 149-65(2) or (3) or 149-70(2), as appropriate. (3) The other elements do not include any expenditure before the time when the entity is taken to have acquired the asset. 149-80 No further determination needed after asset stops being a pre-CGT asset After the asset stops being a *pre-CGT asset, the entity need not make a further determination about it under section 149-55. Subdivision 149-D--How to treat holdings of less than 1% in certain entities Guide to Subdivision 149-D 149-100 What this Subdivision is about If the entity is a company covered by paragraph 149-50(1)(a), (e) or (f) or a publicly traded unit trust, this Subdivision has rules that make it easier for it to determine who had underlying interests in the asset. Table of sections 149-105 Basic principles Special tracing rules for certain companies and publicly traded unit trusts 149-110 Holdings of less than 1% in the entity 149-115 Holdings of less than 1% in interposed company or unit trust 149-120 Notional single shareholder or unitholder of head entity 149-125 Notional single shareholder or unitholder of interposed company or trust 149-130 Notional shareholder taken to have minimum rights to distributions 149-135 Income and capital unitholding of less than 1% When the rules in this Subdivision do not apply 149-140 If company or unit trust would not otherwise pass the continuity of ownership test 149-105 Basic principles (1) All holdings of shares or units of less than 1% in the entity are treated as if they were held by a single notional individual. This means that the entity does not have to trace through to the actual ultimate owners who have underlying interests in the asset. (2) A similar rule applies if another company covered by paragraph 149-50(1)(a), (e) or (f) or publicly traded unit trust is interposed between the entity and those ultimate owners. All holdings of less than 1% in the interposed company or trust are treated as if they were held by a different single notional individual. (3) This means that the entity does not have to trace through the interposed company or trust to the actual ultimate owners who have underlying interests in the asset. Note: The rules in this Subdivision may not apply if they would hide a change in majority underlying interests in the asset: see section 149-140. [This is the end of the Guide.] Special tracing rules for certain companies and publicly traded unit trusts 149-110 Holdings of less than 1% in the entity (1) If the entity (the head entity) is a company covered by paragraph 149-50(1)(a), (e) or (f) or a *publicly traded unit trust, this Subdivision modifies how it may determine under section 149-60 the *ultimate owners who had *underlying interests in the asset at a particular time. (2) If the entity is a company, there must have been at that time: (a) *dividend shareholdings of less than 1% in it; or (b) *capital shareholdings of less than 1% in it. (3) If the entity is a unit trust, there must have been at that time: (a) *income unitholdings of less than 1% in it; or (b) *capital unitholdings of less than 1% in it. 149-115 Holdings of less than 1% in interposed company or unit trust (1) This Subdivision also modifies how the head entity may determine under section 149-60 the *ultimate owners who had *underlying interests in the asset at a particular time if, at that time: (a) the head entity was a company covered by paragraph 149-50(1)(a), (e) or (f) or a *publicly traded unit trust; and (b) another entity (an interposed company or trust) was such a company or unit trust and met the condition in subsection (2) and the one in either subsection (3) or (4). (2) The interposed company or trust must have been interposed between the head entity and *ultimate owners who *indirectly had beneficial interests in the asset or in any *ordinary income that may be derived from the asset. (3) In the case of a company, there must have been: (a) *dividend shareholdings of less than 1% in it; or (b) *capital shareholdings of less than 1% in it. (4) In the case of a unit trust, there must have been: (a) *income unitholdings of less than 1% in it; or (b) *capital unitholdings of less than 1% in it. 149-120 Notional single shareholder or unitholder of head entity Notional single shareholder (1) If the head entity is a company, it may make the determination on the basis that a single notional individual (the notional holder) had the right to receive, for his or her own benefit and directly: (a) any *dividends it may pay in respect of each *dividend shareholding of less than 1% in the entity at that time; and (b) any distributions of capital of the entity in respect of each *capital shareholding of less than 1% in the entity at that time. (2) If the head entity makes the determination on the basis mentioned in subsection (1), it must also make it on the basis that the *ultimate owners who at that time had the right to receive for their own benefit (whether directly, or *indirectly through one or more interposed entities): (a) any *dividends the entity may pay in respect of each *dividend shareholding of less than 1% in the entity at that time; and (b) any distributions of capital of the entity in respect of each *capital shareholding of less than 1% in the entity at that time; did not have that right. Notional single unitholder (3) If the head entity is a unit trust, it may make the determination on the basis that a single notional individual (the notional holder) had the right to receive, for his or her own benefit and directly: (a) any income that the entity may distribute in respect of each *income unitholding of less than 1% in the entity at that time; and (b) any distributions of capital of the entity in respect of each *capital unitholding of less than 1% in the entity at that time. (4) If the head entity makes the determination on the basis mentioned in subsection (3), it must also make it on the basis that the *ultimate owners who at that time had the right to receive for their own benefit (whether directly, or *indirectly through one or more interposed entities): (a) any income that the entity may distribute in respect of each *income unitholding of less than 1% in the entity at that time; and (b) any distributions of capital of the entity in respect of each *capital unitholding of less than 1% in the entity at that time; did not have that right. 149-125 Notional single shareholder or unitholder of interposed company or trust Notional shareholder (1) The entity may make the determination on the basis that, for each interposed company that is covered by paragraph 149-50(1)(a), (e) or (f), a different single notional individual (the notional holder) had the right to receive, for his or her own benefit and directly: (a) any *dividends the interposed company may pay in respect of each *dividend shareholding of less than 1% in the interposed company at that time; and (b) any distributions of capital of the interposed company in respect of each *capital shareholding of less than 1% in the interposed company at that time. (2) If the head entity makes the determination on the basis mentioned in subsection (1), it must also make it on the basis that the *ultimate owners who at that time had the right to receive for their own benefit (whether directly, or *indirectly through one or more interposed entities): (a) any *dividends the interposed company may pay in respect of each *dividend shareholding of less than 1% in the interposed company at that time; and (b) any distributions of capital of the interposed company in respect of each *capital shareholding of less than 1% in the interposed company at that time; did not have that right. Notional unitholder (3) The entity may make the determination on the basis that, for each interposed trust that is a *publicly traded unit trust, a different single notional individual (the notional holder) had the right to receive, for his or her own benefit and directly: (a) any income that the interposed trust may distribute in respect of each *income unitholding of less than 1% in the interposed trust at that time; and (b) any distributions of capital of the interposed trust in respect of each *capital unitholding of less than 1% in the interposed trust at that time. (4) If the head entity makes the determination on the basis mentioned in subsection (3), it must also make it on the basis that the *ultimate owners who at that time had the right to receive for their own benefit (whether directly, or indirectly through one or more interposed entities): (a) any income that the interposed trust may distribute in respect of each *income unitholding of less than 1% in the interposed trust at that time; and (b) any distributions of capital of the interposed trust in respect of each *capital unitholding of less than 1% in the interposed trust at that time. did not have that right. 149-130 Notional shareholder taken to have minimum rights to distributions If: * the percentage of the distributions of capital, dividends or income of the head entity, or of the interposed company or trust, that the notional holder had the right to receive at that time; is greater than: * the percentage (the lower percentage) of the distributions of capital, dividends or other income of the head entity, or of the interposed company or trust, that the notional holder had the right to receive at the end of the *starting day (as determined under subsection 149-60(6)); the notional holder is taken to have the right to receive the lower percentage of the distributions of capital, dividends or other income at that time. 149-135 Income and capital unitholding of less than 1% Meaning of income unitholding of less than 1% (1) If all the units in a unit trust of which an entity is the registered holder at a particular time carry (between them) the right to receive less than 1% of any distribution of income of the trust, those units constitute an income unitholding of less than 1% in the trust at that time. Meaning of capital unitholding of less than 1% (2) If all the units in a unit trust of which an entity is the registered holder at a particular time carry (between them) the right to receive less than 1% of any distribution of capital of the trust, those units constitute a capital unitholding of less than 1% in the trust at that time. When the rules in this Subdivision do not apply 149-140 If company or unit trust would not otherwise pass the continuity of ownership test (1) This Subdivision does not apply for the purposes of a determination under section 149-55 if the Commissioner decides that it is reasonable to assume that at the end of the *test day '*majority underlying interests in the asset were not had by *ultimate owners who had *majority underlying interests in the asset at the end of the *starting day. (2) If the Commissioner so decides after the head entity has already made the determination on the basis of a rule in this Subdivision, the determination is taken never to have been made. Note: The head entity may still have time to make a fresh determination, or the Commissioner may extend the time for making one: see subsection 149-55(1). Subdivision 149-E--How to treat certain interposed funds, companies and government bodies Guide to Subdivision 149-E 149-145 What this Subdivision is about If the entity is a company covered by paragraph 149-50(1)(a), (e) or (f) or a publicly traded unit trust, this Subdivision has rules that make it easier for it to determine who had underlying interests in the asset. The entity does not have to trace through complying superannuation funds, complying approved deposit funds, companies of certain kinds, or government bodies, that are interposed between the entity and the ultimate owners who have underlying interests in the asset. Table of sections Special tracing rules for certain companies and publicly traded unit trusts 149-150 When certain funds, companies or government bodies are taken to have rights to capital, dividends or other income 149-155 Limits on tracing through interposed fund or body [This is the end of the Guide.] Special tracing rules for certain companies and publicly traded unit trusts 149-150 When certain funds, companies or government bodies are taken to have rights to capital, dividends or other income (1) If the entity (the head entity) is a company covered by paragraph 149-50(1)(a), (e) or (f) or a *publicly traded unit trust, and the conditions in this section are met, this Subdivision modifies how it may determine under section 149-55 the *ultimate owners who had *underlying interests in the asset at a particular time. (2) An entity of any of these kinds (the interposed fund or body): (a) a *superannuation fund; (b) an *approved deposit fund; (c) a *mutual insurance company; (d) a *mutual affiliate company; (e) a company whose *constitution prevents it from making any distribution, whether in money, property or otherwise, to its members; (f) a company that is prescribed by the regulations; (g) the Commonwealth, a State or a Territory; (h) a municipal corporation (i) a local governing body; (j) the government of a foreign country, or of part of a foreign country; must have been interposed at that time between the head entity and *ultimate owners. (3) At that time, those *ultimate owners must have had the right to receive for their own benefit, and *indirectly through the interposed fund or body (or through entities including it): (a) a percentage of any distributions of capital of the head entity; or (b) a percentage of any *dividends that the head entity may pay or any income that the head entity may distribute. (4) If the interposed fund or body is a *superannuation fund, it must have been a *complying superannuation fund, or *a foreign superannuation fund, at the end of the *test day to which the determination relates. (5) If the interposed fund or body is an *approved deposit fund, it must have been a *complying approved deposit fund at the end of the *test day to which the determination relates. 149-155 Limits on tracing through interposed fund or body Interposed fund or body has more than 50 members or is a government body (1) If: (a) the interposed fund or body had more than 50 members at that time; or (b) the interposed fund or body is covered by any of paragraphs 149-150(2)(g) to (j) (which describe certain Australian and foreign government bodies); the head entity may make the determination on the basis that the interposed fund or body was at that time an individual who had the right to receive, for his or her own benefit, the percentage of distributions, *dividends or income mentioned in paragraph 149-150(3)(a) or (b). If fund or special company has not more than 50 members (2) Otherwise, the head entity may make the determination on the basis that each member of the interposed fund or body was at that time an individual who had a right to receive, for his or her own benefit, an equal proportion of the percentage of distributions, *dividends or income mentioned in paragraph 149-150(3)(a) or (b). Persons who actually had the right are taken not to have had it (3) If the head entity makes the determination on the basis mentioned in subsection (1) or (2), it must also make it on the basis that the *ultimate owners who at that time had the right mentioned in subsection 149-150(3) did not have that right (except as provided by subsection (2) of this section). Subdivision 149-F--How to treat a "demutualised" public entity Table of sections 149-165 Members treated as having underlying interests in assets until demutualisation 149-170 Effect of demutualisation of interposed company 149-165 Members treated as having underlying interests in assets until demutualisation (1) This section modifies how the entity may determine under section 149-60 the *ultimate owners who had *underlying interests in the asset at a particular time if the entity: (a) was: (i) a *mutual insurance company; or (ii) a *mutual affiliate company; at the end of the *starting day (as determined under subsection 149-60(6)); and (b) has since stopped being a company of either of those kinds, but has continued in existence as either a company covered by paragraph 149-50(1)(a), (e) or (f) or a *publicly traded unit trust; and (c) when it stopped being an entity of either of those kinds (the stopping time), had more than 50 members. (2) The entity may make the determination on the basis that an *ultimate owner who: (a) immediately before the stopping time was a member of the entity; and (b) immediately after the stopping time had an *underlying interest in the asset; had the interest at all times from and including the end of the *starting day until immediately after the stopping time. 149-170 Effect of demutualisation of interposed company (1) This section modifies how the entity (the head entity) may determine under section 149-60 the *ultimate owners who had *underlying interests in the asset at a particular time if another entity (the interposed company): (a) was: (i) a *mutual insurance company; or (ii) a *mutual affiliate company; at the end of the *starting day (as determined under subsection 149-60(6)) for the head entity; and (b) has since stopped being a company of either of those kinds, but has continued in existence as either a company covered by paragraph 149-50(1)(a), (e) or (f) or a *publicly traded unit trust; and (c) when it stopped being an entity of either of those kinds (the stopping time), had more than 50 members. (2) The head entity may make the determination on the basis that an *ultimate owner who: (a) immediately before the stopping time was a member of the interposed company; and (b) immediately after the stopping time had, through the interposed company, an *underlying interest in the asset; had the interest at all times from and including the end of the *starting day until immediately after the stopping time. [The next Part is Part 3-5.] 2 Section 165-90 (link note) Repeal the link note, substitute: Subdivision 165-CA--Applying net capital losses of earlier income years Guide to Subdivision 165-CA 165-93 What this Subdivision is about In working out its net capital gain for an income year, a company cannot apply a net capital loss for an earlier income year unless: it has the same owners and the same control throughout the loss year and the income year; or it carried on the same business, entered no new kinds of transactions and conducted no new kinds of business. Table of sections Operative provisions 165-96 When a company cannot apply a net capital loss [This is the end of the Guide.] Operative provisions 165-96 When a company cannot apply a net capital loss (1) In working out its *net capital gain or *net capital loss for the *current year, a company cannot apply a *net capital loss it has for an earlier income year if Subdivision 165-A would prevent it from deducting the loss for the current year if: (a) the loss were a *tax loss of the company for that earlier income year; and (b) section 165-20 (about deducting part of a tax loss) were disregarded. Note 1: A company's net capital gain or net capital loss for an income year is usually worked out under section 102-5. Note 2: 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 *net capital loss, it can apply the part of the loss that it made during a part of that earlier income year, 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 net capital loss. Subdivision 165-CB--Working out the net capital gain and the net capital loss for the income year of the change Guide to Subdivision 165-CB 165-99 What this Subdivision is about A company that has not had the same ownership and control during the income year, and has not satisfied the same business test, works out its net capital gain and net capital loss under this Subdivision. Table of sections When a company must work out its net capital gain and net capital loss under this Subdivision 165-102 On a change of ownership, or of control of voting power, unless the company carries on the same business Working out the company's net capital gain and net capital loss 165-105 First, divide the income year into periods 165-108 Next, calculate the notional net capital gain or notional net capital loss for each period 165-111 How to work out the company's net capital gain 165-114 How to work out the company's net capital loss [This is the end of the Guide.] When a company must work out its net capital gain and net capital loss under this Subdivision 165-102 On a change of ownership, or of control of voting power, unless the company carries on the same business A company must calculate its *net capital gain and *net capital loss for the income year under this Subdivision if: (a) it must calculate its taxable income and *tax loss for the income year under Subdivision 165-B; or (b) it would be required to calculate them under that Subdivision but for subsection 165-50(3) (about cases where that Subdivision would make no difference to the taxable income). Note: In the case of a listed public company or its 100% subsidiary, Subdivision 166-B modifies how this Subdivision applies, unless the company chooses otherwise. Working out the company's net capital gain and net capital loss 165-105 First, divide the income year into periods Divide the income year into periods according to section 165-45 (which is about working out the company's taxable income under Subdivision 165-B). 165-108 Next, calculate the notional net capital gain or notional net capital loss for each period (1) The company has a notional net capital gain for a period if the total of the *capital gains it made during the period exceeds the total of the *capital losses it made during the period. The notional net capital gain is the amount of the excess. (2) On the other hand, if the total of those losses exceeds the total of those gains, the company has a notional net capital loss for the period, equal to the excess. (3) If the company has a *notional net capital loss for none of the periods in the income year, this Subdivision has no further application, and the company's *net capital gain for the income year is calculated in the usual way. The usual way of working out the net capital gain is set out in section 102-5. Trust's capital gain attributed to company beneficiary (4) If some or all (the attributable amount) of an amount included in the company's assessable income for the income year under: (a) section 97 (Beneficiary of a trust estate who is not under a legal disability) of the Income Tax Assessment Act 1936; or (b) section 98A (Non-resident beneficiaries assessable in respect of certain income) of that Act; is attributable to a *capital gain that the trust made at a particular time during the period, this section applies to the attributable amount as if it were a *capital gain made by the company at that time. 165-111 How to work out the company's net capital gain The company's net capital gain for the income year is worked out in this way: Working out the company's net capital gain Step 1. Add up the *notional net capital gains (if any) worked out under section 165-108. Note: A notional net capital loss for a period is not taken into account, but counts towards the company's net capital loss for the income year. Step 2. Add to the Step 1 amount so much of each amount included in the company's assessable income for the income year under: (a) section 97 (Beneficiary of a trust estate who is not under a legal disability) of the Income Tax Assessment Act 1936; or (b) section 98A (Non-resident beneficiaries assessable in respect of certain income) of that Act; as is attributable to a *capital gain that the trust made outside the income year. Note: This is relevant only if the trust has an income year that starts and ends at a different time from when the company's income year starts and ends. Step 3. If the Step 2 amount is more than zero, reduce it by applying any unapplied *net capital losses from previous income years. (If this reduces it to zero, the company has no net capital gain for the income year.) Note: To apply net capital losses: see section 102-15. Step 4. If the Step 3 amount is more than zero, it is the company's net capital gain. Note : For exceptions and modifications to these rules: see section 102-30. 165-114 How to work out the company's net capital loss The company's net capital loss for the income year is worked out in this way: Working out the company's net capital loss Step 1. Add up the *notional net capital losses (if any) worked out under section 165-108. Step 2. If the Step 1 amount is more than zero, it is the company's net capital loss. Note 1: The net capital loss can be applied against the company's capital gains for a later income year: see sections 102-5 and 102-15. Note 2: For exceptions and modifications to these rules: see section 102-30. Subdivis ion 165-C--Deducting bad debts Guide to Subdivision 165-C 165-117 What this Subdivision is about A company cannot deduct a bad debt unless: if the debt was incurred in an earlier income year--the company had the same owners and the same control during the rest of that income year and also during the income year in which it writes off the debt as bad; or * if the debt was incurred in the current year--the company had the same owners and the same control during the income year both before and after the debt was incurred; or, if there has been a change of ownership or control, the company has since carried on the same business, entered no new kinds of transactions and conducted no new kinds of business. Table of sections Operative provisions 165-120 To deduct a bad debt 165-123 Company must maintain the same owners 165-126 Alternatively, company must carry on same business 165-129 Same people must control the voting power, or company must carry on same business 165-132 When tax losses resulting from bad debts cannot be deducted Operative provisions 165-120 To deduct a bad debt (1) A company cannot deduct a debt (or part of a debt) that it writes off as bad in the *current year unless: (a) it meets the conditions in section 165-123 (which is about the company maintaining the same owners); or (b) the Commissioner thinks it would be unreasonable to require the company to meet the conditions in that section, having regard to the entities that beneficially owned the shares in the company when (in the Commissioner's opinion) the debt (or part) became bad; or (c) the company meets the conditions in section 165-126 (which is about the company carrying on the same business). Note 1: In the case of a listed public company or its 100% subsidiary, Subdivision 166-C modifies how this Subdivision applies, unless the company chooses otherwise. Note 2: Normally bad debts are deductible under section 8-1 or 25-35. (2) The conditions in section 165-123 or 165-126 apply to different periods, depending on whether the debt was incurred in the *current year or an earlier income year: Meaning of first continuity period and second continuity period In this case: the "first continuity period": and the second continuity period: the debt was incurred in an earlier income year * starts on the day when the debt was incurred; and * ends at the end of that income year is the *current year the debt was incurred in the *current year (but not on the last day of it) * starts on the first day of the *current year; and * ends on the day when the debt was incurred * starts on the day after the debt was incurred; and * ends on the last day of the *current year (3) A company cannot deduct a debt (or part of a debt) that it writes off as bad on the last day of the *current year if the debt was also incurred on that day. 165-123 Company must maintain the same owners Voting power (1) There must be persons who had *more than 50% of the voting power in the company during the whole of the *first continuity period. Also, those persons must have had *more than 50% of the voting power in the company during the whole of the *second continuity period. See section 165-150 to work out who had more than 50% of the voting power. Rights to dividends (2) There must be persons who had rights to *more than 50% of the company's dividends during the whole of the *first continuity period. Also, those persons must have had rights to *more than 50% of the company's dividends during the whole of the *second continuity period. See section 165-155 to work out who had rights to more than 50% of the company's dividends. Rights to capital distributions (3) There must be persons who had rights to *more than 50% of the company's capital distributions during the whole of the *first continuity period. Also, those persons must have had rights to *more than 50% of the company's capital distributions during the whole of the *second continuity period. See section 165-160 to work out who had rights to more than 50% of the company's capital distributions. When to apply the primary test (4) To work out whether a condition in this section was satisfied during a period (the ownership test period) that is: (a) the *first continuity period; or (b) the *second continuity period; apply the primary test for that condition unless subsection (5) requires the alternative test to be applied. For the primary test: see subsections 165-150(1), 165-155(1) and 165-160(1). When to apply the alternative test (5) Apply the alternative test for that condition if one or more other companies beneficially owned *shares, or interests in shares, in the company at any time during the *first continuity period or the *second continuity period. For the alternative test: see subsections 165-150(2), 165-155(2) and 165-160(2). Applying the tests for the purposes of this Subdivision (6) In applying a test for the purposes of this Subdivision, subsection 165-180(2) and sections 165-185 and 165-190 have effect as if they referred to the *second continuity period instead of the income year. 165-126 Alternatively, company must carry on same business (1) If the company fails to meet a condition in section 165-123 (which is about the company maintaining the same owners), it can instead meet the conditions in this section. (2) There must be some period (the minimum continuity period) that satisfies these conditions: (a) it must start at the start of the *first continuity period (and end before, at or after the end of that period); (b) if the minimum continuity period were the first continuity period, each of the conditions in section 165-123 about the first continuity period would be satisfied. (3) The company must satisfy the *same business test for the *second continuity period (the same business test period). Apply the test to the *business that the company carried on immediately before the time (the test time) when the *minimum continuity period ends. For the same business test: see Subdivision 165-E. 165-129 Same people must control the voting power, or company must carry on same business (1) Even if section 165-120 does not prevent a company from deducting a bad debt (or part of one), it cannot deduct the bad debt (or that part of it) if: (a) for some or all of the *second continuity period, a person controlled, or was able to control, the voting power in the company (whether directly, or indirectly through one or more interposed entities); and (b) for some or all of the *first continuity period, that person did not control, and was not able to control, that voting power (directly, or indirectly in that way); and (c) that person began to control, or became able to control, that voting power (directly, or indirectly in that way) for the purpose of: (i) getting some benefit or advantage in relation to how this Act applies; or (ii) getting such a benefit or advantage for someone else; or for purposes including that purpose. (2) However, that person's control of the voting power, or ability to control it, does not prevent the company from deducting the bad debt (or that part of it) if the company satisfies the *same business test for the *second continuity period (the same business test period). (3) Apply the *same business test to the *business that the company carried on immediately before the time (the test time) when the person began to control that voting power, or became able to control it. For the same business test: see Subdivision 165-E. 165-132 When tax losses resulting from bad debts cannot be deducted (1) If: (a) a company can deduct a debt (or part of a debt) that it wrote off as bad in an income year; and (b) because the company failed to meet a condition in section 165-123 (about the company maintaining the same owners), it could not have deducted the debt (or part) apart from section 165-126 (about the company carrying on the same business); and (c) the company wrote off the debt after the *minimum continuity period; and (d) because of the deduction, the company has a *tax loss for that income year, or there was an increase in the amount of its *tax loss for that income year; and (e) the company carried on a *business during that income year for the purpose, or for purposes including the purpose, of securing a deduction for the debt (or part) by relying on section 165-126; the company cannot deduct the *tax loss for a later income year, or cannot deduct it to the extent of the increase, unless it also satisfies the *same business test for the later income year (the same business test period). (2) Apply the test to the *business that the company carried on immediately before the time (the test time) when the *minimum continuity period ended. For the same business test: see Subdivision 165-E. 3 Section 166-35 (link note) Repeal the link note, substitute: Subdivision 166-C--Deducting bad debts Table of sections 166-40 How Subdivision 165-C applies to a listed public company 166-45 How Subdivision 165-C applies to a 100% subsidiary of a listed public company 166-50 Companies can choose that this Subdivision is not to apply to them 166-40 How Subdivision 165-C applies to a listed public company (1) This Subdivision modifies the way Subdivision 165-C applies to a company that is a *listed public company at all times during a period (the test period) consisting of the *first continuity period, the *second continuity period and any intervening period. Note 1: Subdivision 165-C is about the conditions a company must satisfy before it can deduct a bad debt. Note 2: This Subdivision also modifies how Subdivision 165-C applies to a 100% subsidiary of a listed public company: see section 166-45. Note 3: A company can choose that this Subdivision is not to apply to it: see section 166-50. Substantial continuity of ownership (2) The *listed public company is taken to have met the conditions in section 165-123 (about the company maintaining the same owners) if there is *substantial continuity of ownership of the company as between whichever of these times the company chooses: (a) the start of the income year in which the debt was incurred; (b) the start of the *test period; and each of these other times in the test period: (c) the time of each *abnormal trading in *shares in the company; (d) the end of each income year. See section 166-145 to work out whether there is substantial continuity of ownership. No substantial continuity of ownership (3) The *listed public company is taken to have failed to meet the conditions in section 165-123 if there is no *substantial continuity of ownership of the company as between the start of the *test period and one or more of the other times referred to in subsection (2). Satisfies the same business test (4) However, if the *listed public company satisfies the *same business test for the *second continuity period (the same business test period), it is taken to have satisfied the condition in section 165-126 (which is about the company carrying on the same business). For the same business test: see Subdivision 165-E. (5) Apply the *same business test to the *business that the *listed public company carried on immediately before the first time (the test time) covered by paragraph (2)(a) or (b) for which there was no *substantial continuity of ownership of the company as between the start of the test period and that time. 166-45 How Subdivision 165-C applies to a 100% subsidiary of a listed public company (1) This Subdivision also modifies the way Subdivision 165-C applies to a company that is not a *listed public company, but only if the conditions in subsections (2) and (3) are met. Note: Subdivision 165-C is about the conditions a company must satisfy before it can deduct a bad debt for an earlier income year. (2) The company (the subsidiary) must be a *100% subsidiary of another company (the holding company) at all times during a period consisting of: (a) the *first continuity period of the subsidiary; and (b) the *second continuity period of the subsidiary; and (c) any intervening period. (3) Also, the *holding company must be a *listed public company at all times during that period. (4) If the conditions are met then, for the purposes of applying Subdivision 165-C to the subsidiary, this Subdivision applies to the subsidiary as if: (a) the subsidiary were itself a *listed public company at all times during that period; and (b) an *abnormal trading in *shares in the *holding company during that period were an abnormal trading in shares in the subsidiary. (Subdivisions 166-D, 166-F and 166-G apply to the subsidiary in the same way and for the same purpose.) 166-50 Companies can choose that this Subdivision is not to apply to them (1) The *listed public company or subsidiary can choose that Subdivision 165-C is to apply to it for the income year without the modifications made by this Subdivision. (2) The company must choose on or before the day it lodges its *income tax return for the income year, or before a later day if the Commissioner allows. 4 Section 170-70 (link note) Repeal the link note, substitute: Subdivision 170-B--Transfer of net capital losses within wholly-owned groups of companies Guide to Subdivision 170-B 170-101 What this Subdivision is about A company can transfer a surplus amount of its net capital loss to another company so that the other company can apply the amount in working out its net capital gain for the income year of the transfer. Both companies must be members of the same wholly-owned group. Table of sections 170-105 Basic principles for transferring a net capital loss Effect of transferring a net capital loss 170-110 When a company can transfer a net capital loss 170-115 Who can apply transferred loss 170-120 Gain company is taken to have made transferred loss 170-125 Tax treatment of consideration for transferred tax loss Conditions for transfer 170-130 Companies must be in existence and members of the same wholly-owned group 170-135 The loss company 170-140 The gain company 170-145 Maximum amount that can be transferred 170-150 Transfer by written agreement 170-155 Losses must be transferred in order they are made 170-160 Gain company cannot transfer transferred net capital loss Effect of agreement to transfer more than can be transferred 170-165 Agreement transfers as much as can be transferred 170-170 Amendment of assessments Effect of transfer on cost base of equity or debt interest held by company in the same wholly-owned group 170-175 Direct and indirect interests in the loss company 170-180 Direct and indirect interests in the gain company [This is the end of the Guide.] 170-105 Basic principles for transferring a net capital loss (1) A company can transfer a net capital loss (except a net capital loss from collectables) to another company so that the other company can apply it in working out its net capital gain for the income year of the transfer. (2) Both companies must be members of the same wholly-owned group. There are other eligibility requirements that they must also satisfy. (3) The transferred loss must be "surplus" in the sense that, for the income year of the transfer, the transferring company does not have enough capital gains against which to apply it. The other company must have enough capital gains against which to apply it. (4) Also, it must not exceed the total cost bases (without indexation) of equity and debt interests in the loss company held by companies in the same wholly-owned group, unless the other company is a 100% subsidiary of the loss company. (5) Neither company must be prevented by Subdivision 165-CA or 175-CA from applying the loss in working out its net capital gain for the income year of the transfer. Note: Subdivision 165-CA deals with the consequences of changing ownership or control of a company. Subdivision 175-CA deals with using a company's net capital losses to avoid income tax. (6) The net capital loss is transferred by an agreement between the 2 companies. (7) The net capital loss can be transferred in the same year as it is made. In that case different rules apply. Effect of transferring a net capital loss 170-110 When a company can transfer a net capital loss (1) A company (the loss company) can transfer an amount of its *net capital loss for an income year (the capital loss year) to another company (the gain company) if the conditions in this Subdivision are met. (2) The amount transferred can be the whole or part of the *net capital loss. Note: A PDF cannot transfer a net capital loss, except one for a period before it became a PDF: see section 195-30 of the Income Tax Assessment Act 1997. 170-115 Who can apply transferred loss (1) If an amount of a *net capital loss is transferred, the gain company can apply the amount in working out its *net capital gain, but only for the income year of the gain company for which the amount is transferred. That income year is called the application year. Note: A company's net capital gain or net capital loss for an income year is usually worked out under section 102-5. (2) The loss company can no longer apply the transferred amount and is taken not to have made the *net capital loss to the extent of that amount. 170-120 Gain company is taken to have made transferred loss (1) If an amount of a *net capital loss is transferred, the amount is taken to be a *net capital loss of the gain company for the capital loss year. (2) However, if the capital loss year is the same as the application year, the amount is taken to be a *capital loss of the gain company for the application year. 170-125 Tax treatment of consideration for transferred tax loss (1) If the loss company receives consideration from the gain company for the transferred amount: (a) the consideration is neither assessable income nor exempt income of the loss company; and (b) the loss company does not make a *capital gain because of receiving the consideration. Note: However, the consideration may affect how section 170-175 modifies the cost base of direct and indirect interests in the loss company. (2) If the gain company gives consideration to the loss company for the transferred amount: (a) the gain company cannot deduct the consideration; and (b) the gain company does not make a *capital loss because of giving the consideration. Note: However, the consideration may affect how section 170-175 modifies the cost base of direct and indirect interests in the gain company. Conditions for transfer 170-130 Companies must be in existence and members of the same wholly-owned group (1) Both companies must be *in existence during at least part of each of the following income years: (a) the capital loss year; and (b) the application year; and (c) any intervening income year. (2) Also, both companies must be members of the same *wholly-owned group at all times during those income years when both companies were *in existence. 170-135 The loss company (1) The loss company: (a) must be an Australian resident throughout the capital loss year; and (b) must not be a *dual resident investment company in either the capital loss year or the application year. (2) It must be the case that the loss company was not required to calculate the *net capital loss: (a) under section 165-114 (because of a change in ownership or control); or (b) under section 175-75 (because of an injected capital gain or loss). (3) Also, it must be the case that neither Subdivision 165-CA nor Subdivision 175-CA would have prevented the loss company from applying the *net capital loss in working out its *net capital gain for the application year if it had made enough capital gains in that year. Note 1: Subdivision 165-CA deals with the consequences of changing ownership or control of a company. Subdivision 175-CA deals with using a company's net capital losses to avoid income tax. Note 2: A company's net capital gain or net capital loss for an income year is usually worked out under section 102-5. 170-140 The gain company (1) The gain company must be an Australian resident throughout the application year. (2) If the capital loss year and the application year are not the same, the gain company must not be prevented by Subdivision 165-CA or 175-CA from applying the transferred amount in working out its *net capital gain for the application year. Note 1: Subdivision 165-CA deals with the consequences of changing ownership or control of a company. Subdivision 175-CA deals with using a company's net capital losses to avoid income tax. Note 2: A company's net capital gain or net capital loss for an income year is usually worked out under section 102-5. (3) If the capital loss year and the application year are the same, it must be the case that the gain company was not required to calculate its own *net capital gain or *net capital loss for the application year: (a) under Subdivision 165-CB (because of a change in ownership or control); or (b) under section 175-75 (because of an injected capital gain or loss). Note: In deciding whether paragraph (b) applies, remember that the transferred amount is taken to be a capital loss of the gain company for the application year (because of subsection 170-120(2)). 170-145 Maximum amount that can be transferred Loss company can only transfer what it cannot use itself (1) The amount transferred cannot exceed the amount of the loss company's *net capital loss that, apart from the transfer, the loss company would carry forward to the next income year after the application year. Note: If the capital loss year and the application year are the same, the loss company would carry forward the whole of the net capital loss, because section 102-5 does not allow a net capital loss to be applied in the income year in which it was made. Example: In the application year the loss company has: a net capital loss from an earlier income year of $25,000; and other capital losses totalling $10,000; and capital gains totalling $20,000; Of the $25,000 loss, the loss company can transfer to the gain company no more than: [GRAPHIC]Transferred loss must not exceed total cost bases of equity and debt interests in the loss company held by companies in the same wholly-owned group (2) The amount transferred also cannot exceed the total of the respective *cost bases at the end of the application year (excluding indexation) of: (a) each *share in the loss company that is held at the end of the application year by a company that: (i) was a member of the same *wholly-owned group as the loss company throughout the application year (disregarding a period when either was not *in existence); and (ii) *acquired the share on or after 20 September 1985; and (b) each debt that the loss company owes at the end of the application year, for money it *borrowed, to a company that: (i) was a member of the same *wholly-owned group as the loss company throughout the application year (disregarding a period when either was not *in existence); and (ii) *acquired the debt on or after 20 September 1985. (3) No amount can be transferred if there is no such share or debt. (4) Subsections (2) and (3) do not apply if the gain company is a *100% subsidiary of the loss company throughout the application year (disregarding a period when either was not *in existence). Transferred loss must not exceed what the gain company can use (5) No amount can be transferred if, apart from the operation of this section, the gain company would not have a *net capital gain for the application year. (6) The amount transferred also cannot exceed the amount worked out as follows: Method statement Step 1. Work out what, apart from the operation of this section, would have been the gain company's *net capital gain for the application year. Step 2. Subtract each amount that: (a)