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  • Question 26

    Attention

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    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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    This question seeks information regarding capital gains and capital losses made in relation to non-portfolio interests in foreign companies which will enable us to assess if there is a risk to revenue from foreign sourced capital gains and capital losses not being returned correctly.

    To complete this question, show the total amount of the capital gains and losses made for non-portfolio interests in foreign companies and the amount of any reductions made under Subdivision 768-G of ITAA 1997.

    Under Subdivision 768-G of the ITAA 1997, if a company held a voting interest of at least 10% in a foreign company, and held that interest for a continuous period of at least 12 months in the two years before the specified capital gains tax (CGT) event, it may be entitled to apply this measure; see Subdivision 768-G of the ITAA 1997.

    Any reduction you may make in applying Subdivision 768-G of the ITAA 1997 to a relevant capital gain or capital loss will depend on whether you choose to use either the market value method or the book value method to calculate the active foreign business asset percentage of the foreign company.

    Each method is subject to meeting eligibility conditions. If the book value method is chosen, a further choice can be made in certain circumstances to use the consolidated accounts method for a foreign company which has wholly-owned foreign subsidiaries. The choice to use any of these methods must be made by the time you lodge your income tax return.

    The default method applies if you do not choose to use the market value method or the book value method to calculate the active foreign business asset percentage of the foreign company, or you choose a method that is not available because the eligibility conditions for the method are not satisfied. Under the default method any foreign sourced capital gain you make will not be reduced and any foreign sourced capital loss you make will be reduced to nil. Any choice you make is irrevocable. Once the default method has applied because you do not make a choice or your choice is not available, you cannot make a choice to apply a different method. The way you prepare your income tax return sufficiently evidences you making a choice, or not making a choice resulting in the default method applying.

    If you had a CGT event in relation to your interest in a foreign company, answer Yes at A item 26 and complete the following:

    • At B item 26, write the total of your capital gain amounts in respect of your interests in foreign companies (before any reduction under Subdivision 768-G).
    • At C item 26, write the total amount of any capital gain reduction under Subdivision 768-G.
    • At D item 26, write the total of your capital loss amounts in respect of your interests in foreign companies (before any reduction under Subdivision 768-G).
    • At E item 26, write the total amount of any capital loss reduction under Subdivision 768-G.

    For more information, see Subdivision 768-G of the ITAA 1997.

    Example

    During the income year, AAA Co, an Australian resident company, sold shares in three foreign-resident companies BBB Co, CCC Co and DDD Co.

    AAA Co makes a choice to use either the market value method or the book value method for each disposal event and prepares its income tax return on the basis of these choices.

    The sale of the shares in BBB Co resulted in a capital gain under CGT event A1 of $750,000. This amount of capital gain was reduced by 42%, or $315,000, in accordance with Subdivision 768-G of the ITAA 1997 resulting in a capital gain amount of $435,000.

    The sale of shares in CCC Co resulted in a capital loss under CGT event A1 of $769,000. This amount of capital loss was reduced by 50%, or $384,500, in accordance with Subdivision 768-G of the ITAA 1997 resulting in a capital loss amount of $384,500.

    The sale of shares in DDD Co resulted in a capital loss under CGT event A1 of $50,000. This amount was not reduced by Subdivision 768-G of the ITAA 1997.

    To complete this question AAA Co writes the total capital gain amount of $750,000 at B and the total capital gain reduction amount of $315,000 at C. AAA Co adds the capital loss amounts from the sale of shares in CCC Co and DDD Co and writes the total amount of $819,000 at D. AAA Co writes the total capital loss reduction amount of $384,500 at E. This image shows an example of how to complete question 26.

    AAA Co completes question 26.

    End of example
    Last modified: 06 Nov 2018QC 55230