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End of attention
There are a number of recent and proposed CGT changes to bear in mind when calculating your capital gain or capital loss.
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'.
Rollover for transition to superannuation safety arrangements
The law has been changed to provide automatic CGT rollover relief for transfers of all CGT assets by a registrable superannuation entity to one or more registrable superannuation entities to comply with licensing requirements under the superannuation safety reforms. CGT rollover only applies to CGT events that happen to CGT assets during the superannuation safety reform transitional period - that is, from 1 July 2004 to 30 June 2006 (inclusive).
For more information, see our fact sheet CGT rollover relief for superannuation entities, available on our website.
Capital gains tax treatment of options
A Bill has been introduced into Parliament to make changes to the CGT treatment of 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 that 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 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.
The law has been changed to allow a deduction over five years for certain capital expenditure, known as 'blackhole' expenditure, incurred in relation to businesses that are, were, or are proposed to be carried on for a taxable purpose. The non-commercial loss rules have been modified to prevent individual taxpayers from deducting expenses in relation to non-commercial business activities. In some circumstances, taxpayers who fund and originate the commencement of a business that will be or is proposed to be carried on by another entity will be able to claim the deduction.
The new provisions apply as a last resort if the expenditure does not have tax treatment or is denied a deduction.
The range of expenditure that forms the cost base of an asset for CGT purposes has also been expanded - in particular, the second, third and fourth elements. See Elements of the cost base for more details. Expenditure on entertainment and penalties have been added to exclusions from the cost base and reduced cost base. The CGT changes apply to expenditure incurred in relation to CGT events that happen on or after 1 July 2005.
Marriage breakdown rollover
On 10 May 2005, as part of the 2005 Budget, the Government announced proposed changes that will extend the scope of the marriage breakdown CGT rollover. The rollover will also apply 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.
Amendments will also be made to ensure that the main residence exemption interacts more appropriately with the marriage breakdown rollover relief to ensure that marriage breakdown cash settlements do not give rise to CGT liabilities.
The Government's intention is that the changes will apply to CGT events that happen after the date of Royal Assent of the amending legislation.
International tax reform
On 10 May 2005, as part of the 2005 Budget, the Government announced that it proposes to amend the CGT rules as they apply to non-residents by narrowing the range of assets on which a non-resident is subject to Australian CGT to real property and the business assets of Australian branches of a non-resident.
The integrity of the measure will be protected by applying CGT to non-portfolio interests in interposed entities, where the value of such an interest is wholly or principally attributable to Australian real property.
The Government's intention is for the changes to apply to CGT events happening after the date of Royal Assent of the amending legislation.
The law has been changed to provide a foreign income exemption for temporary residents. It will ensure that capital gains and capital losses made by temporary residents:
- are disregarded except if a foreign resident would have been taxed on them, and
- in the case of capital gains and capital losses on employee shares and rights, are disregarded to the extent that the relevant employment is not in Australia.
The changes will apply to CGT events that happen on or after 1 July 2006.
The law has been changed to deny deductions for expenditure relating to illegal activities for which a taxpayer has been convicted of an indictable offence. Also, such expenditure does not form part of the cost base or reduced cost base of a CGT asset. This ensures no capital loss or reduced capital gain can arise from such expenditure.
This change applies to expenditure incurred after 29 April 2005.
Extending rollover for assets that are compulsorily acquired
A Bill has been introduced into Parliament to extend rollover on the disposal of CGT assets (and depreciating assets) compulsorily acquired by a private acquirer under a statutory power. Under the existing law, rollover only applies to such acquisitions by Australian government agencies.
Under the changes, rollover will also apply where a landowner whose land is compulsorily subject to a mining lease sells the land to the lessee and acquires a replacement asset. Rollover will only apply if the lease would significantly affect the landowner's use of the land.
Rollover will not apply to compulsory acquisitions of minority interests under the Corporations Law - such as shares compulsorily acquired under a takeover.
The changes are expected to apply to disposals made on or after 11 November 1999. For more information, see our website.
Last modified: 06 Oct 2009QC 18504