You work out the amount to include in a CFC's notional assessable income in broadly the same way as for the usual operation of the capital gains tax provisions. That is, you must determine the excess of a CFC's capital gains over the CFC's capital losses and include that excess - the net capital gain - in the CFC's notional assessable income. A net loss can only be carried forward to be offset against future capital gains. However, there are certain modifications to the capital gains tax provisions that apply when working out attributable income.
Valuation date for assets owned on 30 June 1990
An unrealised gain that accumulated before 1 July 1990 will not be taxed. Correspondingly, any unrealised loss accumulated up to that date will not be allowed. This is done by valuing the assets on 30 June 1990 and, in general, using that value as the consideration paid.
However, where an asset had decreased in value before 1 July 1990, the gain using the market value as the consideration paid could be bigger than the actual gain. Similarly, where the asset had appreciated in value before 1 July 1990, the loss using the market value as the consideration paid could be greater than the actual loss. In either of these cases, only the actual gain or loss is taken into account. To achieve this result, you must use as the consideration paid for such assets either the market value of the asset at 30 June 1990 or the actual cost base of the asset, whichever produces the smaller gain or loss. That is:
- in working out a gain, use the greater of the unindexed cost base and the market value on 30 June 1990
- in working out a loss, use the lower of the unindexed cost base and market value on 30 June 1990.
Indexation of the cost base
The cost base of an asset is indexed for inflation and only the amount of the consideration that is more than the indexed cost base is treated as a capital gain. Generally, an asset must be held for 12 months before indexation applies.
The indexation factor used is the same as that normally used under the capital gains tax provisions - the consumer price index. This index is published in the Guide to capital gain tax, appendix 2. You can obtain it from the Australian Bureau of Statistics in your capital city or from any tax office.
Adjustment to the cost base
In some cases, the cost base of an asset will need to be adjusted. This would occur where, for example, there was a return of capital on shares or a tax free distribution from a unit trust. For further information, contact the tax office where you lodge your return.
Provisions for profit-making ventures
The provisions of the Act that include in assessable income a capital gain from the disposal of an asset purchased for profit-making by sale or from carrying out a profit-making undertaking or that allow a deduction for a loss - that is, sections 25A and 52 - do not apply in working out the attributable income of a CFC.