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TAXATION LAWS AMENDMENT ACT (NO. 7) 2000 NO. 173, 2000 - SCHEDULE 5

- Technical amendment

Income Tax Assessment Act 1997

1 Paragraph 26-53(2)(c)

Omit "foreign".

Income Tax Assessment Act 1997

1 Section 115-20

Repeal the section, substitute:

(1) To be a * discount capital gain, the * capital gain must have been worked out using a * cost base that has been calculated without reference to indexation at any time.
(2) For the purposes of working out whether the * capital gain is a * discount capital gain and the amount of that gain, the * cost base taken into account in working out the capital gain may be recalculated without reference to indexation if the cost base had an element including indexation because of another provision of this Act. This subsection has effect despite that other provision.

Note: This lets a capital gain of an entity (the gain entity ) on a CGT asset be a discount capital gain even if:

(a) another provision of this Act (such as a provision for a same-asset roll-over or Division 128) set the gain entity's cost base for the asset by reference to the cost base for the asset when it was owned by another entity (the earlier owner ), and the earlier owner's cost base for the asset included indexation; or
(b) another provision of this Act (such as a provision for a replacement-asset roll-over) set the cost base of the asset by reference to the cost base of the original asset involved in the roll-over, and the original asset's cost base included indexation.

Example: In 1995 Elizabeth acquired land from her ex-husband under an order made by a court under the Family Law Act 1975 . Section 160ZZM of the Income Tax Assessment Act 1936 treated her as having paid $56,000 for the land, equal to her ex-husband's indexed cost base for it. His cost base for the land then was $40,000.

In 2000, she sold the land for capital proceeds of $150,000.

Her discount capital gain on the land is $110,000 (equal to the capital proceeds less the cost base for the land without indexation).

2 Subsection 115-30(1)

Repeal the subsection, substitute:

Entity is treated as acquiring some CGT assets early

(1) Sections 115-25, 115-40 and 115-45 (the affected sections ) apply as if an entity (the acquirer ) had acquired a * CGT asset described in an item of the table at the time mentioned in the item:









When the acquirer is treated as having acquired a CGT asset
Item
The affected sections apply as if the acquirer had acquired this CGT asset:
At this time:
1

A * CGT asset the acquirer * acquired in circumstances giving rise to a * same-asset roll-over
(a) when the entity that owned the CGT asset before the roll-over * acquired it; or
(b) if the asset has been involved in an unbroken series of roll-overs—when the entity that owned it before the first roll-over in the series * acquired it
2

A * CGT asset that the acquirer * acquired as a replacement asset for a * replacement-asset roll-over
(a) when the acquirer acquired the original asset involved in the roll-over; or
(b) if the acquirer acquired the replacement asset for a roll-over that was the last in an unbroken series of replacement-asset roll-overs—when the acquirer acquired the original asset involved in the first roll-over in the series
3

A * CGT asset the acquirer * acquired as the * legal personal representative of a deceased individual, except one that was a * pre-CGT asset of the deceased immediately before his or her death
When the deceased * acquired the asset
4

A * CGT asset that * passed to the acquirer as the beneficiary of a deceased individual's estate, except one that was a * pre-CGT asset of the deceased immediately before his or her death
When the deceased * acquired the asset
5

A * CGT asset that: (a) the acquirer * acquired as the * legal personal representative of a deceased individual; and
(b) was a * pre-CGT asset of the deceased immediately before his or her death
When the deceased died
6

A * CGT asset that: (a) * passed to the acquirer as the beneficiary of a deceased individual's estate; and
(b) was a * pre-CGT asset of the deceased immediately before his or her death
When the deceased died
7

The interest (or share of an interest) the acquirer is taken under section 128-50 to have * acquired in another * CGT asset that the acquirer and another individual held as joint tenants immediately before he or she died
When the deceased * acquired his or her interest in the other CGT asset
Note: Under section 128-50, the acquirer is taken to acquire the interest of a deceased individual in a CGT asset the acquirer and the deceased held as joint tenants immediately before the deceased's death (or an equal share of that interest if there are other surviving joint tenants).

3 Section 115-45

Repeal the section, substitute:

115-45 Capital gain from equity in an entity with newly acquired assets

Purpose of this section

(1) The purpose of this section is to deny you a * discount capital gain on your * share in a company or interest in a trust if you would not have had * discount capital gains on the majority of * CGT assets (by cost and by value) underlying the share or interest if:

(a)
you had owned them for the time the company or trust did; and

(b)
* CGT events had happened to them when the CGT event happened to your share or interest.

When a capital gain is not a discount capital gain

(2) Your * capital gain from a * CGT event happening to:

(a)
your * share in a company; or

(b)
your * trust voting interest, unit or other fixed interest in a trust;

is not a discount capital gain if the 3 conditions in subsections (3), (4) and (5) are met. This section has effect despite section 115-5 and subsection 115-30(2).

Note: This section does not prevent a capital gain from being a discount capital gain if:

(a) there are at least 300 members or beneficiaries of the company or trust and control of the company or trust is not and cannot be concentrated (see section 115-50); or
(b) the capital gain is from CGT event E4 due to payments from the discounted parts of the trust's discount capital gains (see section 115-60).

You had at least 10% of the equity in the entity before the event

(3) The first condition is that, just before the * CGT event, you and your * associates beneficially owned:

(a)
at least 10% by value of the * shares in the company (except shares that carried a right only to participate in a distribution of profits or capital to a limited extent); or

(b)
at least 10% of the * trust voting interests, issued units or other fixed interests (as appropriate) in the trust.

Cost bases of new assets are more than 50% of all cost bases of entity's assets

(4) The second condition is that the total of the * cost bases of * CGT assets that the company or trust owned at the time of the * CGT event and had * acquired less than 12 months before then is more than half of the total of the * cost bases of the * CGT assets the company or trust owned at the time of the event.

Note: Section 115-30 may affect the time when the company or trust is treated as having acquired a CGT asset.

Net capital gain on entity's new assets would be more than 50% of net capital gain on all the entity's assets

(5) The third condition is that the amount worked out under subsection (6) is more than half of the amount worked out under subsection (7).
(6) Work out the amount that would be the * net capital gain of the company or trust for the income year if:

(a)
just before the * CGT event, the company or trust had * disposed of all of the * CGT assets that it owned then and had * acquired less than 12 months before the * CGT event; and

(b)
it had received the market value of those assets for the disposal; and

(c)
the company or trust did not have any * capital gains or * capital losses from * CGT events other than the disposal; and

(d)
the company or trust did not have a * net capital loss for an earlier income year.

Note: Section 115-30 may affect the time when the company or trust is treated as having acquired a CGT asset.

(7) Work out the amount that would be the * net capital gain of the company or trust for the income year if:

(a)
just before the * CGT event, the company or trust had * disposed of all of the * CGT assets that it owned then; and

(b)
it had received the market value of those assets for the disposal; and

(c)
all of the * capital gains and * capital losses from those assets were taken into account in working out the net capital gain, despite any rules providing that one or more of those capital gains or losses are not to be taken into account in working out the net capital gain; and

(d)
the company or trust did not have any * capital gains or * capital losses from * CGT events other than the disposal; and

(e)
the company or trust did not have a * net capital loss for an earlier income year.

4 At the end of Subdivision 115-A

Add:

[The next section is section 115-60.]

115-60 Discount capital gain from CGT event E4

Purpose of this section

(1) The purpose of this section is to ensure that section 115-45 does not prevent your * capital gain from * CGT event E4 happening in the income year in relation to your unit or interest in a trust from being a * discount capital gain, if the gain is attributable to * CGT assets the trust * acquired at least 12 months before the event.

Note: Basically, you make a capital gain from CGT event E4 if the trustee of a trust makes one or more payments to you in relation to your interest in the trust, and the parts of those payments that are not included in your assessable income add up to more than the cost base of your interest: see section 104-70.

(2) Section 115-45 does not prevent your * capital gain described in subsection (1) of this section from being a * discount capital gain if the gain is not more than the sum of the amounts that are:

(a)
amounts of the non-assessable parts (mentioned in section 104-70) of the payments made to you in the income year by the trustee in respect of the unit or interest as described in that section; and

(b)
attributable to * discount capital gains made by the trust.

Note 1: The non-assessable parts of the payments may be from amounts not included in the trust's net income under Division 6 of Part III of the Income Tax Assessment Act 1936 , such as the discount percentage of amounts of discount capital gains of the trust remaining after applying any capital losses and net capital losses of the trust.

Note 2: If your capital gain from CGT event E4 is a discount capital gain, you must work it out using the cost base of your unit or interest in the trust worked out under section 115-20 without reference to indexation, despite Divisions 110 and 114 (which are about indexation).

5 After subsection 115-215(4)

Insert:

(4A) To avoid doubt, subsection (3) treats you as having a * capital gain for the purposes of Division 102, despite section 102-20.
6 Application of amendments

The amendments of Division 115 of the Income Tax Assessment Act 1997 made by this Schedule apply to assessments for the income year including 21 September 1999 and for later income years, in relation to CGT events happening after 11.45 am (by legal time in the Australian Capital Territory) on that day.



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