Tax Law Improvement Act (No. 1) 1998 (46 of 1998)

Schedule 1   Amendment of the Income Tax Assessment Act 1997

1   Part 3-1 Division 102

Division 102 - Assessable income includes net capital gain

Guide to Division 102

102-1 What this Division is about

This Division tells you how to work out if you have made a net capital gain or a net capital loss for the income year. A net capital gain is included in your assessable income. However, you cannot deduct a net capital loss. (Amounts otherwise included in your assessable income do not form part of a net capital gain.)

Table of sections

Operative provisions

102-5 Assessable income includes net capital gain

102-10 How to work out your net capital loss

102-15 How to apply net capital losses

102-20 Ways you can make a capital gain or a capital loss

102-22 Amounts of capital gains and losses

102-23 CGT event still happens even if gain or loss disregarded

102-25 Order of application of CGT events

102-30 Exceptions and modifications

Operative provisions

102-5 Assessable income includes net capital gain

(1) Your assessable income includes your net capital gain (if any) for the income year. You work out your net capital gain in this way:

Working out your net capital gain

Step 1. Add up the *capital gains you made during the income year. Also add up the *capital losses you made.

Step 2. Subtract your *capital losses from your *capital gains. (If your capital losses exceed your capital gains, you have no net capital gain for the income year.)

Note: You do have a net capital loss if your capital losses exceed your capital gains: see section 102-10.

Step 3. If the Step 2 amount is more than zero, reduce it by applying any unapplied *net capital losses from previous income years. (If this reduces it to zero, you have no net capital gain for the income year.)

Note: To apply net capital losses: see section 102-15.

Step 4. If the Step 3 amount is more than zero, it is your net capital gain for the income year.

Note: For exceptions and modifications to these rules: see section 102-30.

(2) However, if during the income year:

(a) you became bankrupt; or

(b) you were released from debts under a law relating to bankruptcy;

any *net capital loss you made for an earlier income year must be disregarded in working out whether you made a *net capital gain for the income year or a later one.

(3) Subsection (2) applies even though your bankruptcy is annulled if:

(a) the annulment happens under section 74 of the Bankruptcy Act 1966; and

(b) under the composition or scheme of arrangement concerned, you were, will be or may be released from debts from which you would have been released if instead you had been discharged from the bankruptcy.

102-10 How to work out your net capital loss

(1) You work out if you have a net capital loss for the income year in this way:

Working out your net capital loss

Step 1. Add up the *capital losses you made during the income year. Also add up the *capital gains you made.

Step 2. Subtract your *capital gains from your *capital losses.

Step 3. If the Step 2 amount is more than zero, it is your net capital loss for the income year.

Note: For exceptions and modifications to these rules: see section 102-30.

(2) You cannot deduct from your assessable income a *net capital loss for any income year.

Note: However, it can be applied against your capital gains for a later income year: see section 102-5 and subsection 102-15(3).

102-15 How to apply net capital losses

(1) In working out if you have a *net capital gain, your *net capital losses are applied in the order in which you made them.

(2) A *net capital loss can be applied only to the extent that it has not already been applied.

(3) To the extent that a *net capital loss cannot be applied in an income year, it can be carried forward to a later income year.

Example: You have capital gains for the income year of $1,000 and capital losses for the income year of $600. Your capital losses are subtracted from your capital gains to leave a balance of $400.

You have available net capital losses of $300 (for last year) and $200 (for the year before that).

The $400 is reduced to zero by applying the available net capital losses in the order in which you made them. This leaves $100 of the $300 to be carried forward and extinguishes the $200.

Note: For applying a net capital loss for the 1997-98 income year or an earlier income year: see section 102-15 of the Income Tax (Transitional Provisions) Act 1997.

102-20 Ways you can make a capital gain or a capital loss

You can make a *capital gain or *capital loss if and only if a *CGT event happens. The gain or loss is made at the time of the event.

Note 1: The full list of CGT events is in section 104-5.

Note 2: These Divisions of Part IIIA of the Income Tax Assessment Act 1936 continue to have effect for the purposes of working out capital gains and capital losses under this Part and Part 3-3:

· Division 17A (about roll-over relief on certain disposals of assets of small businesses);

· Division 17B (about disposal of small business assets where the proceeds are used for retirement);

· Division 19A (about transfers of assets between companies under common ownership).

See sections 160ZZPJA, 160ZZPZAA and 160ZZRAAAA of that Act.

102-22 Amounts of capital gains and losses

Most *CGT events provide for calculating a *capital gain or *capital loss by comparing 2 different amounts. The amount of the gain or loss is the difference between those amounts.

102-23 CGT event still happens even if gain or loss disregarded

A *CGT event still happens even if:

(a) it does not result in a *capital gain or *capital loss; or

(b) a capital gain or capital loss from the event is disregarded.

Example: Lindy sells a car. Section 118-5 says that any capital gain or loss from a CGT event happening to a car is disregarded. However, the sale is still an example of CGT event A1.

102-25 Order of application of CGT events

(1) Work out if a *CGT event (except *CGT events D1 and H2) happens to your situation. If more than one event can happen, the one you use is the one that is the most specific to your situation.

(2) However, there is an exception for *CGT event K5 (which depends on CGT event A1, C2 or E8 happening). In that case, CGT event K5 happens in addition to the other event.

(3) If no *CGT event (except *CGT events D1 and H2) happens:

(a) work out if CGT event D1 happens and use that event if it does; and

(b) if it does not, work out if CGT event H2 happens and use that event if it does.

Note: The full list of CGT events is in section 104-5.

102-30 Exceptions and modifications

Provisions of this Act are in normal text. The other provisions, in bold , are provisions of the Income Tax Assessment Act 1936.