Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 7 - CGT asset register
Overview
7.1 The amendments in Schedule 7 of the Bill will amend the capital gains tax (CGT) record keeping requirements contained in section160ZZU of the Income Tax Assessment Act 1936 (the Act).
7.2 The amendments will allow taxpayers to transfer some or all of the information contained in the records they must keep for CGT purposes records to an 'asset register'.
Summary of the amendments
7.3 The amendments will give all CGT taxpayers more flexibility in how they keep the records necessary to work out their CGT liability. Taxpayers will, from 1 January 1998, be able to transfer some or all of the information contained in records held for CGT purposes into an asset register.
7.4 The amendments will allow taxpayers who transfer information contained in records required to be kept under the current law to dispose of the documents containing that information 5 years after the entry is certified by a third party (ie. a registered tax agent or other person approved by the Commissioner).
7.5 The amendments will apply to all assets, whether acquired before or after the commencement of the new rules. The new rules will only apply to entries in asset registers that are certified on or after 1 January 1998.
Background to the legislation
7.6 The CGT record keeping requirements are contained in section 160ZZU of the Act. Broadly, taxpayers must keep sufficient records to be able to work out when the asset was acquired and, if the asset has not been disposed of, any amount that would have formed part of the cost base of the asset if it had been disposed of.
7.7 When the asset is disposed of, taxpayers must also keep records about the date of disposal, any amount that formed part of the cost base and the consideration in respect of the disposal.
7.8 The records must be in English. For most assets records must be kept for five years after the asset has been disposed of (paragraph160ZZU(6)(a)). A taxpayer who fails to keep or retain these records for the required time may be liable for an offence punishable with a maximum penalty of up to 30 penalty units. A penalty unit is currently $110 (see subsection 4AA(1) of the Crimes Act 1914 ).
7.9 In November 1996 the Report of the Small Business Deregulation Taskforce ("Time For Business") recommended the introduction of a CGT asset register to allow small businesses to record details of assets potentially liable for CGT.
7.10 On 24 March 1997 the Government announced that it would allow the use of asset registers for CGT purposes.
Explanation of the amendments
7.11 Subsections 160ZZU(6) and (6C) set out the periods records needed for CGT purposes must be retained. Generally, records must be kept for 5 years from the date of disposal of an asset. However, special rules exist to require records relating to group companies and rollover assets and mergers of qualifying superannuation funds (see subsections 160ZZU(3), (6A) and (6B)).
7.12 Both subsections 160ZZU(6) and (6C) will be amended so that the current requirement to retain records is expanded so that a person required to keep records will be able to:
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- keep records in the same way they do now;
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- make asset register entries for those records containing all the information required to be contained in those records by subsections 160ZZU(6) or (6C); or
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- keep a combination of both records and asset register entries. [Items 1 to 4 - amended subsection 160ZZU(6) and subsection 160ZZU(6C)]
What is an asset register entry?
7.13 An asset register entry is defined in new subsection 160ZZU(9) .
7.14 An entry is a valid asset register entry if:
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- the person (record keeper) making the entry is required by subsections 160ZZU(1), (3), (6A) or (6B) to keep records containing particular information; [Item 5 - new paragraph 160ZZU(9)(a)]
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- the record keeper makes an entry in a register setting out some or all of the information contained in those records. The information in the record must not be changed when it is entered in the register. The asset register must contain the same information as the document. Entries in the register must be in English; [Item 5 - new paragraph 160ZZU(9)(b)]
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- a registered tax agent (within the meaning of section 251A of the Act) or other person approved by the Commissioner certifies that the information in the register is the same as the information in the record. The record keeper cannot certify their own asset register entries; and [Item 5 - new paragraph 160ZZU(9)(c)]
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- the records that contain the information entered in the asset register are kept for at least 5 years after the entry is certified. [Item 5 - new paragraph 160ZZU(9)(d)]
What information can be entered into the asset register?
7.15 Any information required to be kept under subsections 160ZZU(1), (3), (6A) or (6B) may be transferred into an asset register. All entries must be in English.
How long must the records and register be retained?
7.16 The records containing the information entered into the asset register must be retained for 5 years after the entry has been certified. If the original document is discarded before the end of the 5 year time limit, the record keeper may not have satisfied the requirements of subsections 160ZZU(6) or (6C) as the case may be.
7.17 An asset register entry is to be retained for the same period all records for CGT purposes are to be retained. Generally, this will be 5 years after the disposal of the asset to which the information relates.
7.18 A registered tax agent may certify an asset register entry. The Commissioner has the discretion to allow other persons to certify asset register entries.
7.19 The amendments will apply to all assets, whether acquired before or after the commencement of the new rules. The new rules will only apply to entries in asset registers that are certified on or after 1 January 1998.
7.20 Taxpayers may make entries in an asset register before 1 January 1998. However, the new rules will only apply to entries which are certified (see Item 5 - new subsection 160ZZU(9) ) on or after 1 January 1998. [Item 6]
Regulation Impact Statement
7.21 To implement the Government's response to recommendation 4 of the Small Business Deregulation Task Force Report in relation to the use of an asset register for capital gains tax (CGT) record keeping purposes. The asset register proposal is designed to minimise the record keeping requirements of taxpayers with CGT obligations.
7.22 The record keeping provisions of the CGT legislation are contained in section 160ZZU of the Income Tax Assessment Act 1936 (the Act). Broadly, subsection 160ZZU(1) requires a taxpayer to keep such records in the English language as are necessary to ascertain the date on which the person acquired the asset and, if the asset has not been disposed of, any amount that would have formed part of the cost base of the asset if it had been disposed of.
7.23 When the asset is disposed of a taxpayer is also required to keep records in relation to the date of disposal, any amount that formed part of the cost base and the consideration in respect of the disposal. For most assets records will need to be kept for five years after the asset has been disposed of (s.160ZZU(6)(a)).
7.24 The Small Business Deregulation Task Force recommended the introduction of an asset register, appropriately certified for correctness by a third party, which could hold all asset details without the need to maintain source documents. Where an asset has been entered into the register, source documents would only need to be retained for five years, as is the case with other business records kept for taxation purposes.
7.25 The Task Force suggested that under the current record keeping provisions, taxpayers are required to keep CGT records for long periods of time, creating the risk of loss or damage and administrative costs in storage and tracking.
7.26 In its response to the recommendation of the Task Force, the Government agreed to implement the asset register proposal, and asked the ATO to consult with small business groups, professional bodies and other affected parties.
7.27 The implementation of the Government's asset register proposal would require amendment of the CGT record keeping provisions in order to allow taxpayers to maintain an asset register. The asset register would be an alternative and not a mandatory system of record keeping.
7.28 The amendments set out the effect of keeping an asset register.
7.29 Taxpayers will be able to use an asset register for CGT record keeping purposes from 1 January 1998. Information about any asset taken to have been acquired by a taxpayer after 19 September 1985 may be recorded in an asset register.
Assessment of impacts (costs and benefits)
7.30 This measure will affect taxpayers who need to maintain records for CGT purposes. In particular, the implementation of the asset register proposal will minimise the record keeping requirements of small businesses.
7.31 Taxpayers who choose to maintain an asset register in preference to the usual record keeping requirements will still have to retain the register itself for a significant period of time. There may be some additional compliance costs incurred by taxpayers. These costs, associated with accounting fees and the certification process, etc would be offset by savings in the costs of retaining receipts etc for long periods.
7.32 The impact on Commonwealth tax revenue of this measure is unknown at this stage. It is expected that there will however be some impact due to the additional costs to taxpayers outlined above, where these are allowable as deductions or included in the cost of the asset.
7.33 The measure will have significant benefits for taxpayers with CGT record keeping obligations. Taxpayers should no longer have to keep source documents for unreasonable periods of time, but will instead only need to retain source documents for five years after the details have been entered into the asset register and certified.
7.34 Small businesses, professional bodies and other affected parties have been consulted in the preparation of this proposal. On 23 May 1997 the ATO released an issues paper for public comment.
7.35 A wide range of comments were received. Comments received from the public on that paper have been taken into account in developing this proposal.
7.36 It is anticipated that the Commissioner of Taxation will issue a Taxation Ruling on the practical administration of the asset register rules. In the normal course of events, this would give taxpayers a further opportunity to give comments on the administration aspects of the new arrangements.
7.37 This measure will give taxpayers the option of using an asset register for CGT record keeping purposes from 1 January 1998, with respect to assets acquired both before and after that date. The significant benefits taxpayers are expected to derive from using the asset register will outweigh any additional compliance costs that may be incurred as a result of establishing and maintaining the asset register.