• Changes and proposed changes to the law

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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.

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    There are a number of recent and proposed CGT changes to bear in mind when calculating your net capital gain for the income year or your net capital losses carried forward to later income years.

    To see if the proposed changes below are now law, visit our website and select For Tax Professionals, then click on Tax Professionals homepage. From the menu on the left, under Rulings, legislation & law, select New legislation, then select New legislation and click on Capital gains tax.

    Marriage breakdown rollover

    The law has been changed to extend the scope of the marriage breakdown CGT rollover. For CGT events that happen after 12 December 2006 the rollover also applies to:

    • assets transferred to a spouse or former spouse under a binding financial agreement or arbitral award under the Family Law Act 1975 or a similar agreement or award under a corresponding foreign law, and
    • assets transferred under a written agreement under a state, territory or foreign law relating to de facto marriage breakdowns where the agreement is similar to a binding financial agreement.

    The law has also been changed to ensure that no CGT liability arises in relation to the ending of the spouses' rights that directly relate to the breakdown of their marriage or de facto marriage, including if they receive cash as part of a marriage breakdown settlement.

    In addition, the law has been amended to ensure that the main residence exemption interacts more appropriately with the marriage breakdown rollover relief.

    For more information, see chapter 8 Marriage breakdown.

    International tax reform

    Foreign residents

    The law has been changed to narrow the range of assets on which a foreign resident is subject to Australian CGT. For CGT events that happen on or after 12 December 2006, foreign residents disregard the capital gain or capital loss unless the CGT asset is taxable Australian property.

    Taxable Australian property includes Australian real property, CGT assets used in carrying on a business through a permanent establishment in Australia, and indirect Australian real property interests. Rights or options to acquire these assets are also taxable Australian property.

    For more information, see Foreign residents, temporary residents and changing residency or visit our website.

    Temporary residents

    The law has been changed in regard to capital gains and capital losses made by temporary residents. These changes apply to CGT events that happen on or after 1 July 2006. Individuals now disregard a capital gain or capital loss from a CGT event where they are a temporary resident at the time of the CGT event or immediately before the CGT event. The exception is if the CGT event happened:

    • before 12 December 2006 to a CGT asset that has the 'necessary connection with Australia', or
    • on or after 12 December 2006 to a CGT asset that is 'taxable Australian property'.

    There are specific rules where the CGT asset is a share or right acquired under an employee share scheme.

    For more information, see Foreign residents, temporary residents and changing residency or visit our website ato.gov.au

    Extending rollover for assets that are compulsorily acquired

    The law has been changed to extend the rollover on the disposal of CGT assets compulsorily acquired by a private acquirer under a statutory power. The changes apply to disposals made on or after 11 November 1999. (Under the previous law, the rollover only applied to such acquisitions by Australian Government agencies.)

    Under the changes, rollover also applies where a landowner whose land is compulsorily subject to a mining lease sells the land to the lessee and acquires a replacement asset. Rollover only applies to the landowner if, just before the sale, the lease significantly affected their use of the land or such a lease would have significantly affected their use of the land.

    The change does not affect compulsory acquisitions of minority interests under the corporations law - such as shares compulsorily acquired under a takeover.

    For more information, see chapter 7 Loss, destruction or compulsory acquisition of an asset.

    Government grants

    The law has been changed to provide a CGT exemption for an amount received as reimbursement or payment of your expenses, including the receipt or use of a certificate, under a scheme established by an Australian government agency. The scheme needs to be established under an Act or a legislative instrument - for example, regulations or local government by-laws. The law has also been changed to ensure that recipients of grants under the Unlawful Termination Assistance Scheme and Alternative Dispute Resolution Assistance Scheme do not have CGT consequences.

    The exemption applies to assessments for the 2005-06 year and later income years.

    Small business CGT concessions

    Changes have been made to the small business CGT concessions. These changes:

    • affect the maximum net asset value test, the active asset test, the 15-year exemption, the retirement exemption, the small business rollover and how the concessions apply to partners in a partnership, and the deceased estate of a person who would have qualified for the concessions had they not died
    • replace the controlling individual 50% test with a more generous significant individual 20% test, which can be satisfied either directly or through one or more interposed entities.

    These changes will apply to CGT events that happen from the 2006-07 income year. For more information, see the Guide to capital gains tax concessions for small business 2006-07 (NAT 8384) which is available on our website.

    In addition, a Bill has been introduced into Parliament which contains changes to:

    • increase the net asset threshold for the small business CGT concessions from $5 million to $6 million
    • allow simplified tax system (STS ) taxpayers access to the concessions without having to satisfy the net asset threshold.

    The Government's intention is that these changes will apply to CGT events that happen from the 2007-08 income year.

    Employee share schemes - stapled securities

    The employee share scheme and CGT rules have only applied to ordinary shares or rights to acquire ordinary shares. The law has been changed to extend the rules to include stapled securities where an ordinary share in an ASX listed company and another security, such as a unit in a unit trust, are contractually bound together so that they cannot be sold separately.

    The change applies from the 2006-07 income year.

    Donating shares

    A Bill has been introduced into Parliament which will allow a tax deduction for the donation of small parcels of publicly listed shares to eligible deductible gift recipients where the shares have been held for at least 12 months and valued at $5,000 or less. There will be no change to the CGT treatment: a capital gain or capital loss will continue to arise on donated shares.

    The Government's intention is that the changes will apply from the first income year after the date of royal assent of the amending legislation.

    Testamentary trusts

    A Bill has been introduced into Parliament which will improve the tax treatment of income beneficiaries in testamentary trusts, such as life tenants.

    The amendments will allow the trustee of a testamentary trust to choose to be assessed on some part or all of an amount of net capital gain that is included in the net income of the trust where:

    • that part or all of the net capital gain would be assessed to a presently entitled income beneficiary of the trust, and
    • that beneficiary is not entitled under the terms of the trust to benefit from the gain.

    These amendments will ensure that an income beneficiary is not assessed in respect of trust capital gains from which they will not benefit. The Government intends that the changes apply to the 2005-06 and later income years.

    Last modified: 06 Oct 2009QC 27893