ATO Interpretative Decision
ATO ID 2003/694
Income Tax
Capital gains tax: anti-overlap provisions - effect of CGT discount in working out a net capital gainFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does subsection 118-20(1) of the Income Tax Assessment Act 1997 (ITAA 1997) apply before applying the CGT discount in working out a taxpayer's net capital gain?
Decision
Yes. Subsection 118-20(1) of the ITAA 1997 (which reduces a capital gain that is otherwise assessable) applies before applying the CGT discount in working out a taxpayer's net capital gain.
Facts
A taxpayer acquired an asset after 19 September 1985 for the purpose of profit making by sale. The taxpayer sold the asset and included the profit in their assessable income under section 6-5 of the ITAA 1997.
The taxpayer also made a capital gain from the sale of the asset which exceeded the amount of the profit. The capital gain qualified for the CGT discount.
Reasons for Decision
Subsection 102-5(1) of the ITAA 1997 provides a five step process to work out a taxpayer's net capital gain. Relevantly step 1 requires the taxpayer to reduce the capital gains they made during the income year by any capital losses made during the income year. Step 3 reduces any capital gain remaining after steps 1 and 2 by the CGT discount.
'Note 2' under step 1 of subsection 102-5(1) points out that Divisions 104, 118 and Subdivision 152-B require the taxpayer to disregard certain capital gains or capital losses when working out their net capital gain.
To prevent double taxation, section 118-20 of the ITAA 1997 reduces a capital gain to the extent that it is otherwise included in assessable or exempt income. Section 118-20 applies to reduce a capital gain prior to the five step net capital gain calculation process.
Since the profit arising from the sale of the asset has been included in the taxpayer's assessable income under section 6-5 of the ITAA 1997, the taxpayer, in working out their net capital gain, reduces the amount of the capital gain by the amount so assessable before applying the CGT discount.
Date of decision: 24 June 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 6-5
subsection 102-5(1)
Division 104
section 104-10
Division 118
section 118-20
Subdivision 152-B
Keywords
Capital gains
CGT assets
CGT discount
Net capital gains
Revenue assets
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 24 June 2003 | Original statement |
| 3 November 2006 | Archived |