House of Representatives

Taxation Laws Amendment Bill 1993

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Capital Gains Tax - Cancellation of Statutory Licences

Summary of proposed amendments

Purpose of amendment: To prevent a statutory licensee from being deemed to receive the market value of his/her statutory licence when it is disposed of by way of cancellation for no consideration.

Date of effect: 16 August 1989. [Clause 49]

Background to the legislation

The amount of a capital gain or capital loss is determined by comparing the amount of consideration received for the disposal of an asset that was acquired after 19 September 1985 with its cost base (indexed or reduced as appropriate).

For the purposes of Part IIIA, section 160ZD generally defines what constitutes consideration for the disposal of an asset. In circumstances where there is no consideration, it provides that the person disposing of the asset is deemed to receive the market value of that asset. This deeming provision does not apply where an asset is lost, destroyed or expires.

Where an asset is disposed of without being acquired by another person (eg where it is cancelled, forfeited or released, such as where a debt is forgiven), subsection 160ZD(2A) requires the market value to be determined as though that disposal did not occur and was never proposed to occur.

Statutory licences (within the meaning of section 160ZZPE) are assets for the purposes of Part IIIA. In some circumstances, those licences will be cancelled (a disposal for capital gains purposes) by the issuing authority or others and the licensee will not receive any consideration for the disposal. The current provisions [subsections 160ZD(2) and 160ZD(2A)] will operate to deem the licensee to receive the market value of the licence. This tax treatment is inappropriate where the licence is cancelled as the result of an exercise of statutory power and the owner of the licence receives no consideration for the cancellation.

Explanation of proposed amendments

The Bill will amend section 160ZD to ensure that when a statutory licence is cancelled, unless the taxpayer receives some consideration for the disposal, the licence will be taken to have been disposed of for nil consideration. [Clause 48]

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