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    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    The following is a summary of recent CGT changes and proposed changes to remember when calculating your capital gain or capital loss:

    • New demerger rules apply to owners of interests in a company or trust which are affected by a demerger of interests owned by that company or trust on or after 1 July 2002. Generally a CGT event will occur in respect of those interests.

    CGT relief is provided to:

    • the owners of the head entity of a demerger group, and
    • entities in the demerger group.

    Refer to Demergers for further details.

    • Land owners who enter into a conservation covenant after 1 July 2002 and do not receive any capital proceeds for entering into it are taken to have disposed of part of their land if they are entitled to a deduction under Division 31 of the Income Tax Assessment Act 1997. The capital proceeds that the land owner is taken to have received is the amount they can deduct under Division 31.

    Also, the Government has announced that it will extend the tax concession for conservation covenants to include those entered into with government agencies on or after 1 July 2002 (Source: Joint media release of the Minister for the Environment and the Assistant Treasurer C008/ 03, 20 February 2003).

    • The Government has introduced legislation into Parliament to change the tax treatment of convertible notes issued by a company after 14 May 2002 if the notes are traditional securities. Under the proposal:
      • gains made when these convertible notes are converted or exchanged for ordinary shares in a company will not be ordinary income at the time of conversion and losses made will not be deductible. Instead gains will only be taxed when the shares are sold or disposed of
      • for ordinary investors, any gains or losses on the sale or disposal of the shares will be subject to CGT.
       
    • As part of the Ralph review of business taxation, the Government announced measures to provide exemptions from Australian tax for individuals who are first time temporary residents of Australia. Under the proposed amendments any capital gains or capital losses made by such persons on the disposal of assets that do not have the necessary connection with Australia (except for the disposal of portfolio interests in publicly listed companies and resident unit trusts) will be disregarded if the CGT event happens on or after 1 July 2002. As at June 2003 the legislation for this measure has not been passed by parliament.
    • The general value shifting regime (GVSR) replaces the value shifting rules in Divisions 138, 139 and 140 of the Income Tax Assessment Act 1997. Subject to transitional rules, the GVSR applies from 1 July 2002.

    Broadly, value shifting describes transactions and other arrangements that reduce the value of an asset and (usually) increase the value of another asset.

    The GVSR consists of direct value shifting (DVS) and indirect value shifting (IVS) rules that impact primarily on equity and loan interests in companies and trusts. There is also a DVS rule dealing with non-depreciating assets over which a right has been created.

    Where the rules apply to a value shift there may be a deemed gain (but not a loss), adjustments to adjustable values (for example, cost bases), or adjustments to losses or gains on realisation of assets.

    There are thresholds and exclusions that will minimise the cost of complying with the GVSR, particularly for small business. Entities dealing at arm's length or on market value terms are generally excluded from the GVSR.

    For more information, refer to the General Value Shifting Regime.

    Last modified: 25 Feb 2020QC 27448