There are a number of recent and proposed CGT changes to bear in mind when calculating your capital gain or capital loss.
Foreign exchange gains and losses
Recent legislation dealing with foreign exchange (forex) gains and losses generally applies from 1 July 2003. The legislation introduces CGT events K10 and K11. These CGT events mean that short-term forex gains or losses arising under a transaction for the acquisition or disposal of certain capital assets are integrated into the tax treatment of the capital asset or are matched to the character of the gain or loss that would arise from the disposal of the asset. For the rules to apply, the due date for payment must be within 12 months of acquiring the asset or disposing of it. Taxpayers could choose, generally by 16 January 2004, not to have this rule apply so forex gains and losses were instead assessable or deductible.
For more information, see Capital assets and the 12 month rule.
Shares in foreign companies
Legislation has been passed to reduce capital gains and capital losses made on certain disposals by Australian companies of their shares in foreign companies to the extent that there is an underlying active business. The legislation may also reduce attributable income arising from certain CGT events happening to shares owned by a controlled foreign company (CFC) in a foreign company.
The changes only apply if:
- the company held a direct voting percentage in the foreign company of at least 10%, and
- the shares were held by the company for a continuous period of at least 12 months in the two years before the CGT event.
The changes apply to CGT events happening on or after 1 April 2004. For more information, phone the Business Infoline on 13 28 66.
Foreign residents investing in Australian fixed trusts
Changes have been made to the tax treatment of foreign residents making capital gains and capital losses in respect of interests owned in certain Australian trusts. In brief, the changes mean:
- capital gains and capital losses made on or after 21 March 2005 by a foreign resident from a CGT event happening to an interest in a fixed trust are disregarded if at least 90% of the underlying assets of the trust do not have the necessary connection with Australia
- capital gains made by a foreign resident on or after 21 March 2005 in respect of their interests in a fixed trust are disregarded if the gains relate to a trust asset without the necessary connection with Australia
- distributions of foreign source capital gains from the trustee of a trust (other than a corporate unit or public trading trust) on or after 21 March 2005 to a beneficiary that is a foreign resident are disregarded for the purposes of CGT event E4.
For more information, phone the Business Infoline on 13 28 66.
Worthless shares
The law has been changed to allow shareholders to choose to make a capital loss where either a liquidator or an administrator declares in writing that shares are worthless. Previously, the law only allowed shareholders to make such a choice if a liquidator made the declaration. The new law also applies to other financial instruments relating to companies. The change applies to declarations made after 21 March 2005. For more information, see chapter 5.
Testamentary gifts
On 11 May 2004, as part of the 2004 Budget, the Government announced that it proposes to remove the condition that a testamentary gift of property to a deductible gift recipient must be independently valued at greater than $5,000 before a CGT exemption can apply to the gift. The Government's intention is that the change will apply to gifts made after the date the amending law receives Royal Assent.
Rollover for transition to superannuation safety arrangements
The Government has introduced legislation into Parliament to allow CGT rollover for certain mergers of superannuation entities. The rollover will apply to mergers caused by trustees not satisfying the licensing requirements under the new superannuation safety arrangements. The Government's intention is that the change will commence on 1 July 2004 and operate for a two-year period.
CGT implications for employee shares and rights under a corporate restructure
The law has been changed so that if employee shares or rights are exchanged for replacement shares or rights in a new company under a corporate restructure that happens on or after 1 July 2004, automatic rollover relief may be available so that there is no taxing point under the employee share scheme income tax rules. Corporate restructures affected include mergers, demergers and 100% takeovers. The CGT provisions have been amended to ensure that no unintended capital gain or capital loss arises where this rollover relief applies
For more information about this, see ESS – rollover relief.
Non-resident individuals with shares in listed investment companies
The Government has introduced legislation into Parliament that will give non-resident individuals access to the concession for shareholders in listed investment companies. The concession is proposed to apply to dividends distributed on or after the date of Royal Assent.
For more information, phone the Business Infoline on 13 28 66.
Individuals with employee shares or rights who cease to be residents
The Government has introduced legislation into Parliament to ensure that a person who ceases to be a resident will not be taxed on the same gain under both the employee share provisions and the CGT provisions. The legislation is expected to apply to persons who cease to be residents on or after the date of Royal Assent.
Individuals with employee shares or rights who become residents
The Government has introduced legislation into Parliament to clarify the CGT rules applying to individuals with employee shares or rights who become residents. The legislation is expected to apply to CGT events that happen on or after the date of Royal Assent.
For more information, phone the Business Infoline on 13 28 66.
Capital gains tax treatment of options
On 27 May 2005, the Government announced proposed changes to the CGT legislation on options. The new law will ensure that the provisions concerning options and capital proceeds will now apply to options for the creating, granting or issuing of assets, and their renewal or extension, in the same way as they apply to options for the disposal of assets or the issuing of shares. The amount paid for such an option plus any amount paid to exercise it will now be included in the CGT cost base of the newly acquired asset.
The Government intends the changes to apply to options exercised on or after 27 May 2005. Transitional amendments will ensure a similar treatment for pre-CGT options except where such options were last renewed or extended on or after 20 September 1985.