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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 104

Division 104 - CGT events

Table of Subdivisions

Guide to Division 104

104-A Disposals

104-B Use and enjoyment before title passes

104-C End of a CGT asset

104-D Bringing into existence a CGT asset

104-E Trusts

104-F Leases

104-G Shares

104-H Special capital receipts

104-I Australian residency ends

104-J Reversals of roll-overs

104-K Other CGT events

Guide to Division 104

104-1 What this Division is about

This Division sets out all the CGT events for which you can make a capital gain or loss. It tells you how to work out if you have made a gain or loss from each event and the time of each event. It also contains exceptions for gains and losses for many events (such as the exception for CGT assets acquired before 20 September 1985) and some cost base adjustment rules.

104-5 Summary of the CGT events

CGT events
Event number and description	Time of event is:	Capital gain is:	Capital loss is:
A1 Disposal of a CGT asset [See section 104-10]	when disposal contract is entered into or, if none, when entity stops being asset's owner	capital proceeds from disposal less asset's cost base	asset's reduced cost base less capital proceeds
B1 Use and enjoyment before title passes [See section 104-15]	when use of CGT asset passes	capital proceeds less asset's cost base	asset's reduced cost base less capital proceeds
C1 Loss or destruction of a CGT asset [See section 104-20]	when compensation is first received or, if none, when loss discovered or destruction occurred	capital proceeds less asset's cost base	asset's reduced cost base less capital proceeds
C2 Cancellation, surrender and similar endings [See section 104-25]	when contract ending asset is entered into or, if none, when asset ends	capital proceeds from ending less asset's cost base	asset's reduced cost base less capital proceeds
C3 End of option to acquire shares etc. [See section 104-30]	when option ends	capital proceeds from granting option less expenditure in granting it	expenditure in granting option less capital proceeds
D1 Creating contractual or other rights [See section 104-35]	when contract is entered into or right is created	capital proceeds from creating right less incidental costs of creating it	incidental costs of creating right less capital proceeds
D2 Granting an option [See section 104-40]	when option is granted	capital proceeds from grant less expenditure to grant it	expenditure to grant option less capital proceeds
D3 Granting a right to income from mining [See section 104-45]	when contract is entered into or, if none, when right is granted	capital proceeds from grant of right less expenditure to grant it	expenditure to grant right less capital proceeds
E1 Creating a trust over a CGT asset [See section 104-55]	when trust is created	capital proceeds from creating trust less asset's cost base	asset's reduced cost base less capital proceeds
E2 Transferring a CGT asset to a trust [See section 104-60]	when asset transferred	capital proceeds from transfer less asset's cost base	asset's reduced cost base less capital proceeds
E3 Converting a trust to a unit trust [See section 104-65]	when trust is converted	market value of asset at that time less its cost base	asset's reduced cost base less that market value
E4 Capital payment for trust interest [See section 104-70]	when trustee makes payment	non-assessable part of the payment less cost base of the trust interest	no capital loss
E5 Beneficiary becoming entitled to a trust asset [See section 104-75]	when beneficiary becomes absolutely entitled	for trustee - market value of CGT asset at that time less its cost base; for beneficiary - that market value less cost base of beneficiary's capital interest	for trustee - reduced cost base of CGT asset at that time less that market value; for beneficiary - reduced cost base of beneficiary's capital interest less that market value
E6 Disposal to beneficiary to end income right [See section 104-80]	the time of the disposal	for trustee - market value of CGT asset at that time less its cost base; for beneficiary - that market value less cost base of beneficiary's right to income	for trustee - reduced cost base of CGT asset at that time less that market value; for beneficiary - reduced cost base of beneficiary's right to income less that market value
E7 Disposal to beneficiary to end capital interest [See section 104-85]	the time of the disposal	for trustee - market value of CGT asset at that time less its cost base; for beneficiary - that market value less cost base of beneficiary's capital interest	for trustee - reduced cost base of CGT asset at that time less that market value; for beneficiary - reduced cost base of beneficiary's capital interest less that market value
E8 Disposal by beneficiary of capital interest [See section 104-90]	when disposal contract entered into or, if none, when beneficiary ceases to own CGT asset	capital proceeds less appropriate proportion of the trust's net assets	appropriate proportion of the trust's net assets less capital proceeds
E9 Creating a trust over future property [See section 104-105]	when entity makes agreement	market value of the property (as if it existed when agreement made) less incidental costs in making agreement	incidental costs in making agreement less market value of the property (as if it existed when agreement made)
F1 Granting a lease [See section 104-110]	for grant of lease - when entity enters into lease contract or, if none, at start of lease; for lease renewal or extension - at start of renewal or extension	capital proceeds less expenditure on grant, renewal or extension	expenditure on grant, renewal or extension less capital proceeds
F2 Granting a long term lease [See section 104-115]	for grant of lease - when lessor grants lease; for lease renewal or extension - at start of renewal or extension	capital proceeds from grant, renewal or extension less cost base of leased property	reduced cost base of leased property less capital proceeds from grant, renewal or extension
F3 Lessor pays lessee to get lease changed [See section 104-120]	when lease term is varied or waived	no capital gain	amount of expenditure to get lessee's agreement
F4 Lessee receives payment for changing lease [See section 104-125]	when lease term is varied or waived	capital proceeds less cost base of lease	no capital loss
F5 Lessor receives payment for changing lease [See section 104-130]	when lease term is varied or waived	capital proceeds less expenditure in relation to variation or waiver	expenditure in relation to variation or waiver less capital proceeds
G1 Capital payment for shares [See section 104-135]	when company pays non-assessable amount	payment less cost base of shares	no capital loss
G2 Shifts in share values [See section 104-140 and Division 140]	when the shift happens	the decrease in the shares' market value (so far as it has shifted into certain other shares) less the corresponding proportion of the shares' cost base	no capital loss
G3 Liquidator declares shares worthless [See section 104-145]	when liquidator makes declaration	no capital gain	shares' reduced cost base
H1 Forfeiture of a deposit [See section 104-150]	when deposit is forfeited	deposit less expenditure in connection with prospective sale	expenditure in connection with prospective sale less deposit
H2 Receipt for event relating to a CGT asset [See section 104-155]	when act, transaction or event occurred	capital proceeds less incidental costs	incidental costs less capital proceeds
I1 Individual or company stops being a resident [See section 104-160]	when individual or company stops being Australian resident	for each CGT asset the person owns, its market value less its cost base	for each CGT asset the person owns, its reduced cost base less its market value
I2 Trust stops being a resident trust [See section 104-170]	when trust ceases to be resident trust for CGT purposes	for each CGT asset the trustee owns, its market value of asset less its cost base	for each CGT asset the trustee owns, its reduced cost base less its market value
J1 Company stops being member of wholly-owned group after roll-over [See section 104-175]	when the company stops	market value of asset at time of event less its cost base	reduced cost base of asset less that market value
K1 Partial realisation of intellectual property right [See section 104-205]	when contract is entered into or, if none, when partial realisation happens	capital proceeds from partial realisation less cost base of the item of intellectual property	no capital loss
K2 Bankrupt pays amount in relation to debt [See section 104-210]	when payment is made	no capital gain	so much of payment as relates to denied part of a net capital loss
K3 Asset passing to tax-advantaged entity [See section 104-215]	when individual dies	market value of asset at death less its cost base	reduced cost base of asset less that market value
K4 CGT asset starts being trading stock [See section 104-220]	when asset starts being trading stock	market value of asset less its cost base	reduced cost base of asset less its market value
K5 Special capital loss from collectable that has fallen in market value [See section 104-225]	when CGT event A1, C2 or E8 happens to shares in the company, or an interest in the trust, that owns the collectable	no capital gain	market value of the shares or interest (as if the collectable had not fallen in market value) less the capital proceeds from CGT event A1, C2 or E8
K6 Pre-CGT shares or trust interest [See section 104-230]	when another CGT event involving the shares or interest happens	capital proceeds from the shares or trust interest (so far as attributable to post-CGT assets owned by the company or trust) less the assets' cost bases	no capital loss

[This is the end of the Guide]

Subdivision 104-A - Disposals

104-10 Disposal of a CGT asset: CGT event A1

(1) CGT event A1 happens if you *dispose of a *CGT asset.

(2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur:

(a) if you stop being the legal owner of the asset but continue to be its beneficial owner; or

(b) merely because of a change of trustee.

(3) The time of the event is:

(a) when you enter into the contract for the *disposal; or

(b) if there is no contract - when the change of ownership occurs.

Example: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000.

The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place).

Note 1: If the contract falls through before completion, this event does not happen because no change in ownership occurs.

Note 2: If the asset was compulsorily acquired from you: see subsection (6).

(4) You make a capital gain if the *capital proceeds from the disposal are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base.

Exceptions

(5) A *capital gain or *capital loss you make is disregarded if:

(a) you *acquired the asset before 20 September 1985; or

(b) for a lease:

(i) it was granted before that day; or

(ii) if it has been renewed or extended - the start of the last renewal or extension occurred before that day.

Note: You can make a gain if you dispose of shares in a company, or an interest in a trust, that you acquired before that day: see CGT event K6.

Compulsory acquisition

(6) If the asset was *acquired from you by an entity under a power of compulsory acquisition conferred by an *Australian law or a *foreign law, the time of the event is the earliest of:

(a) when you received compensation from the entity; or

(b) when the entity became the asset's owner; or

(d) when the entity took possession under that power.

Note: You may be able to choose a roll-over if an asset is compulsorily acquired: see Subdivision 124-B.

(7) CGT event A1 does not happen if the *disposal of the asset was done to provide or redeem a security.

Subdivision 104-B - Use and enjoyment before title passes

104-15 Use and enjoyment before title passes: CGT event B1

(1) CGT event B1 happens if you enter into an agreement with another entity under which:

(a) the right to the use and enjoyment of a *CGT asset you own passes to the other entity; and

(b) title in the asset will or may pass to the other entity at the end of the agreement.

(2) The time of the event is when the other entity first obtains the use and enjoyment of the asset.

(3) You make a capital gain if the *capital proceeds from the agreement are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base.

Exceptions

(4) A *capital gain or *capital loss you make is disregarded if:

(a) title in the asset does not pass to the other entity when the agreement ends; or

(b) you *acquired the asset before 20 September 1985.

Subdivision 104-C - End of a CGT asset

Table of sections

104-20 Loss or destruction of a CGT asset: CGT event C1

104-25 Cancellation, surrender and similar endings: CGT event C2

104-30 End of option to acquire shares etc.: CGT event C3

104-20 Loss or destruction of a CGT asset: CGT event C1

(1) CGT event C1 happens if a *CGT asset you own is lost or destroyed.

Note: This event can apply to part of a CGT asset: see section 108-5 (definition of CGT asset ).

(2) The time of the event is:

(a) when you first receive compensation for the loss or destruction; or

(b) if you receive no compensation - when the loss is discovered or the destruction occurred.

(3) You make a capital gain if the *capital proceeds from the loss or destruction are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base.

Exception

(4) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

104-25 Cancellation, surrender and similar endings: CGT event C2

(1) CGT event C2 happens if your ownership of an intangible *CGT asset ends by the asset:

(a) being redeemed or cancelled; or

(b) being released, discharged or satisfied; or

(d) being abandoned, surrendered or forfeited.

(2) The time of the event is:

(a) when you enter into the contract that results in the asset ending; or

(b) if there is no contract - when the asset ends.

(3) You make a capital gain if the *capital proceeds from the ending are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base.

(4) A lease is taken to have expired even if it is extended or renewed.

Exceptions

(5) A *capital gain or *capital loss you make is disregarded if:

(a) you *acquired the asset before 20 September 1985; or

(b) for a lease:

(i) it was granted before that day; or

(ii) if it has been renewed or extended - the start of the last renewal or extension occurred before that day.

Note 1: There are other exceptions if:

· your lease expires and you did not use it mainly to produce assessable income: see section 118-40; or

· you exercise rights to acquire shares or units: see section 130-40; or

· you acquire shares or units by converting a convertible note: see section 130-60; or

· you exercise an option: see section 134-1.

Note 2: A company can agree to forgo any capital loss it makes as a result of forgiving a commercial debt owed to it by another company where the companies are under common ownership: see section 245-90 of Schedule 2C to the Income Tax Assessment Act 1936.

Note 3: A capital gain or loss a company makes because shares in its 100% subsidiary are cancelled (an example of CGT event C2) on the liquidation of the subsidiary may be reduced if there was a roll-over for a CGT asset under Subdivision 126-B: see section 126-85.

104-30 End of option to acquire shares etc.: CGT event C3

(1) CGT event C3 happens if an option a company or a trustee of a unit trust granted to an entity to *acquire a *CGT asset that is:

(a) *shares in the company or units in the unit trust; or

(b) *debentures of the company or unit trust;

ends in one of these ways:

(d) it is cancelled;

(e) the entity releases or abandons it.

(2) The time of the event is when the option ends.

(3) The company or trustee makes a capital gain if the *capital proceeds from the grant of the option are more than the expenditure incurred in granting it. It makes a capital loss if those *capital proceeds are less.

(4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income.

Exception

(5) A *capital gain or *capital loss the company or trustee makes is disregarded if it granted the option before 20 September 1985.

Note: This subsection is modified for the purpose of calculating the attributable income of a CFC: see section 418 of the Income Tax Assessment Act 1936.

Subdivision 104-D - Bringing into existence a CGT asset

Table of sections

104-35 Creating contractual or other rights: CGT event D1

104-40 Granting an option: CGT event D2

104-45 Granting a right to income from mining: CGT event D3

104-35 Creating contractual or other rights: CGT event D1

(1) CGT event D1 happens if you create a contractual right or other legal or equitable right in another entity.

Example: You enter into a contract with the purchaser of your business not to operate a similar business in the same town. The contract states that $20,000 was paid for this.

You have created a contractual right in favour of the purchaser. If you breach the contract, the purchaser can enforce that right.

(2) The time of the event is when you enter into the contract or create the other right.

(3) You make a capital gain if the *capital proceeds from creating the right are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those *capital proceeds are less.

Example: To continue the example: If you paid your lawyer $1,500 to draw up the contract, you make a capital gain of:

$20,000 - $1,500 = $18,500

(4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it.

Exceptions

(5) CGT event D1 does not happen if:

(a) you created the right by borrowing money or obtaining credit from another entity; or

(b) the right requires you to do something that is another *CGT event that happens to you; or

(d) the trustee of a unit trust issues units in the trust to you.

Example: You agree to sell land. You have created a contractual right in the buyer to enforce completion of the transaction. The sale results in you disposing of the land, an example of CGT event A1. This means that a gain or loss from CGT event D1 is disregarded.

104-40 Granting an option: CGT event D2

(1) CGT event D2 happens if you grant an option to an entity, or renew or extend an option you had granted.

Note: Some options are not covered: see subsections (6) and (7).

(2) The time of the event is when you grant, renew or extend the option.

(3) You make a capital gain if the *capital proceeds from the grant, renewal or extension of the option are more than the expenditure you incurred to grant, renew or extend it. You make a capital loss if those *capital proceeds are less.

(4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income, or an amount to the extent that you have deducted or can deduct it.

Exceptions

(5) A *capital gain or *capital loss you make from the grant, renewal or extension of the option is disregarded if the other entity exercises the option.

Note: Section 134-1 sets out the consequences of an option being exercised.

(6) This section does not apply to an option granted, renewed or extended by a company or the trustee of a unit trust to *acquire a *CGT asset that is:

(a) *shares in the company or units in the unit trust; or

(b) debentures of the company or unit trust.

Note: Section 104-30 deals with this situation.

(7) Nor does it apply to an option relating to a *personal use asset or a *collectable.

104-45 Granting a right to income from mining: CGT event D3

(1) CGT event D3 happens if you own a *prospecting entitlement or *mining entitlement, or an interest in one, and you grant another entity a right to receive *ordinary income or *statutory income from operations permitted to be carried on by the entitlement.

Note: If this event applies, there is no disposal of the entitlement.

(2) The time of the event is:

(a) when you enter into the contract with the other entity; or

(b) if there is no contract - when you grant the right to receive *ordinary income or *statutory income.

(3) You make a capital gain if the *capital proceeds from the grant of the right are more than the expenditure you incurred in granting it. You make a capital loss if those *capital proceeds are less.

Subdivision 104-E - Trusts

Table of sections

104-55 Creating a trust over a CGT asset: CGT event E1

104-60 Transferring a CGT asset to a trust: CGT event E2

104-65 Converting a trust to a unit trust: CGT event E3

104-70 Capital payment for trust interest: CGT event E4

104-75 Beneficiary becoming entitled to a trust asset: CGT event E5

104-80 Disposal to beneficiary to end income right: CGT event E6

104-85 Disposal to beneficiary to end capital interest: CGT event E7

104-90 Disposal by beneficiary of capital interest: CGT event E8

104-95 Making a capital gain

104-100 Making a capital loss

104-105 Creating a trust over future property: CGT event E9

104-55 Creating a trust over a CGT asset: CGT event E1

(1) CGT event E1 happens if you create a trust over a *CGT asset by declaration or settlement.

(2) The time of the event is when the trust over the asset is created.

(3) You make a capital gain if the *capital proceeds from the creation are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base.

Cost base rule

(4) If you are the trustee of the trust and no beneficiary is absolutely entitled to the asset as against you (disregarding any legal disability), the first element of the asset's *cost base and *reduced cost base in your hands is its market value when the trust is created.

Exceptions

(5) CGT event E1 does not happen if:

(a) you are the sole beneficiary of the trust and:

(i) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and

(ii) the trust is not a unit trust; or

(b) the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same.

(6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

104-60 Transferring a CGT asset to a trust: CGT event E2

(1) CGT event E2 happens if you transfer a *CGT asset to an existing trust.

(2) The time of the event is when the asset is transferred.

(3) You make a capital gain if the *capital proceeds from the transfer are more than the asset's *cost base. You make a capital loss if those *capital proceeds are less than the asset's *reduced cost base.

Exceptions

(5) CGT event E2 does not happen if:

(a) you are the sole beneficiary of the trust and:

(i) you are absolutely entitled to the asset as against the trustee (disregarding any legal disability); and

(ii) the trust is not a unit trust; or

(b) the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same.

Note: There is also an exception for employee share trusts: see section 130-90.

(6) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

104-65 Converting a trust to a unit trust: CGT event E3

(1) CGT event E3 happens if:

(a) a trust (that is not a unit trust) over a *CGT asset is converted to a unit trust; and

(b) just before the conversion, a beneficiary under the trust was absolutely entitled to the asset as against the trustee (disregarding any legal disability the beneficiary is under).

(2) The time of the event is when the trust is converted.

(3) The trustee of the original trust makes a capital gain if the market value of the asset (when the trust is converted) is more than the asset's *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base.

Exception

(4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985.

104-70 Capital payment for trust interest: CGT event E4

(1) CGT event E4 happens if:

(a) the trustee of a trust makes a payment to you in respect of a unit or an interest in the trust (except for *CGT event A1, C2, E1, E2, E6 or E7 happening in relation to it); and

(b) some or all of the payment (the non-assessable part ) is not included in your assessable income.

The payment can include giving property: see section 103-5.

(2) In working out the non-assessable part, disregard any part of the payment that is:

(a) *excluded exempt income; or

(b) *exempt income subject to withholding tax; or

(3) The time of the event is:

(a) just before the end of the income year in which the trustee makes the payment; or

(b) if another *CGT event (except CGT event E4) happens in relation to the unit or interest or part of it after the trustee makes the payment but before the end of that income year - just before the time of that CGT event.

(4) You make a capital gain if the sum of the amounts of the non-assessable parts (adjusted by subsection (7)) of the payments made in the income year made by the trustee in respect of the unit or interest is more than its *cost base.

Note: You cannot make a capital loss.

(5) If you make a *capital gain, the *cost base and *reduced cost base of the unit or interest are reduced to nil.

(6) However, if that sum is not more than the *cost base:

(a) the cost base is reduced by that sum; and

(b) the *reduced cost base is reduced by that sum (without the subsection (7) adjustment).

Example: Mandy owns units in a unit trust that she bought on 1 July 1999 for $10 each. During the 1999-2000 income year the trustee makes 4 non-assessable payments of $0.50 per unit. If at the end of the income year Mandy's cost base for each unit (including indexation) would otherwise be $10.10, the payments require that it be reduced by $2, giving a new cost base of $8.10. If Mandy sells the units (CGT event A1) in the 2000-01 year for more than their cost base at that time, she will make a capital gain equal to the difference.

(7) The amount of the non-assessable part is adjusted to exclude any part of it that is attributable to:

(a) deductions under Division 43 (about capital works); or

(b) an amount that is not included in the assessable income of an entity because of:

(i) section 124ZM or 124ZN (which exempt income arising from *shares in a *PDF) of the Income Tax Assessment Act 1936; or

(ii) section 159GZZZZE (which exempts certain payments related to infrastructure borrowings) of that Act; or

(c) proceeds from a *CGT event that happens in relation to *shares in a company that was a *PDF when that event happened.

Note 1: Deductions under Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 (about capital works) are also relevant: see section 104-72 of the Income Tax (Transitional Provisions) Act 1997.

Note 2: In working out the cost base of the unit or interest, the non-assessable part does not exclude any part attributable to a deduction under Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 (about capital works) if the payment was made before 18 December 1986: see section 104-70 of the Income Tax (Transitional Provisions) Act 1997.

Exception

(8) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the unit or interest before 20 September 1985.

104-75 Beneficiary becoming entitled to a trust asset: CGT event E5

(1) CGT event E5 happens if a beneficiary becomes absolutely entitled to a *CGT asset of a trust (except a unit trust or a trust to which Division 128 applies) as against the trustee (disregarding any legal disability the beneficiary is under).

Note: Division 128 deals with the effect of death.

(2) The time of the event is when the beneficiary becomes absolutely entitled to the asset.

Trustee makes a capital gain or loss

(3) The trustee makes a capital gain if the market value of the asset (at the time of the event) is more than its *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base.

Exception for trustee

(4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985.

Note: There is also an exception for employee share trusts: see section 130-90.

Beneficiary makes a capital gain or loss

(5) The beneficiary makes a capital gain if the market value of the asset (at the time of the event) is more than the *cost base of the beneficiary's interest in the trust capital to the extent it relates to the asset.

The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that beneficiary's interest in the trust capital to the extent it relates to the asset.

Exceptions for beneficiary

(6) A *capital gain or *capital loss the beneficiary makes is disregarded if the beneficiary:

(a) *acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or

(b) acquired it before 20 September 1985.

Expenditure can include giving property: see section 103-5.

104-80 Disposal to beneficiary to end income right: CGT event E6

(1) CGT event E6 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's right, or part of it, to receive *ordinary income or *statutory income from the trust.

Note: Division 128 deals with the effect of death.

(2) The time of the event is when the disposal occurs.

Trustee makes a capital gain or loss

(3) The trustee makes a capital gain if the market value of the asset (at the time of the disposal) is more than its *cost base. It makes a capital loss if that market value is less than the asset's *reduced cost base.

Exception for trustee

(4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985.

Beneficiary makes a capital gain or loss

(5) The beneficiary makes a capital gain if the market value of the asset (at the time of the disposal) is more than the *cost base of the right, or the part of it. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of the right or part.

Note: If the beneficiary did not pay anything for the right, the market value substitution rule does not apply: see section 112-20.

Exception for beneficiary

(6) A *capital gain or *capital loss the beneficiary makes is disregarded if it *acquired the *CGT asset that is the right before 20 September 1985.

104-85 Disposal to beneficiary to end capital interest: CGT event E7

(1) CGT event E7 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) *disposes of a *CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's interest, or part of it, in the trust capital.

Note: Division 128 deals with the effect of death.

(2) The time of the event is when the disposal occurs.

Trustee makes a capital gain or loss

Exception for trustee

(4) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985.

Beneficiary makes a capital gain or loss

(5) The beneficiary makes a capital gain if the market value of the asset (at the time of the disposal) is more than the *cost base of the interest, or the part of it, being satisfied. The beneficiary makes a capital loss if that market value is less than the *reduced cost base of that interest or part.

Exceptions for beneficiary

(6) A *capital gain or *capital loss the beneficiary makes is disregarded if the beneficiary:

(a) *acquired the *CGT asset that is the interest (except by way of an assignment from another entity) for no expenditure; or

(b) acquired it before 20 September 1985.

Expenditure can include giving property: see section 103-5.

104-90 Disposal by beneficiary of capital interest: CGT event E8

(1) CGT event E8 happens if:

(a) you are the beneficiary under a trust (except a unit trust or a trust to which Division 128 applies); and

(b) you did not give any money or property to *acquire the *CGT asset that is your interest in the trust capital and you did not acquire it by assignment; and

Note: Division 128 deals with the effect of death.

(2) The time of the event is:

(a) when you enter into the contract for the *disposal; or

(b) if there is no contract - when you stop owning the interest or part.

Note 1: You work out if you have made a capital gain or capital loss under sections 104-95 and 104-100.

Note 2: There is a special indexation rule for this event: see section 114-10.

104-95 Making a capital gain

You are the only beneficiary

(1) If you are the only beneficiary with an interest in the trust capital and you *dispose of that interest, you work out if you have made a *capital gain in this way:

Working out your capital gain

Step 1. Work out the *capital proceeds from the *disposal.

Step 2. Work out the *net asset amount.

Step 3. If the Step 1 amount is greater, you make a capital gain equal to the difference.

(2) The net asset amount is worked out in this way:

Working out the net asset amount

Step 1. Work out the total of the *cost bases (at the time of the disposal) of the *CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time.

Step 2. Work out the total of the market values (at the time of the disposal) of the *CGT assets that the trustee *acquired before 20 September 1985 and that formed part of the trust capital at that time.

Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal.

Step 4. Add up the Step 1, 2 and 3 amounts.

Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal.

Step 6. The result is the net asset amount .

Example: You dispose of your interest in the trust capital for $10,000 (the capital proceeds).

The total of the cost bases of the CGT assets that the trustee acquired on or after 20 September 1985 is $6,000.

The total of the market values of the CGT assets that the trustee acquired before 20 September 1985 is $2,500.

There is $1,000 in the trust. The trust liabilities are $500.

The net asset amount is:

$6,000 + $2,500 + $1,000 - $500 = $9,000

You make a capital gain of:

$10,000 - $9,000 = $1,000

(3) If you *dispose of only part of that interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

The net asset amount * The part of the interest you are disposing of (expressed as a fraction)

Example: To vary the example in subsection (2), suppose you dispose of 50% of your interest for $5,000 (the capital proceeds).

The Step 2 amount becomes:

$9,000 * 50% = $4,500

You make a capital gain of:

$5,000 - $4,500 = $500

There is more than one beneficiary

(4) If you are not the only beneficiary with an interest in the trust capital and you *dispose of your interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

The net asset amount * Your interest in the trust capital (expressed as a fraction)

Example: To vary the example in subsection (2), suppose you have a 20% interest in the trust capital and you dispose of it for $4,000 (the capital proceeds).

The Step 2 amount becomes:

$9,000 * 20% = $1,800

You make a capital gain of:

$4,000 - $1,800 = $2,200

(5) If you are not the only beneficiary with an interest in the trust capital and you *dispose of part of your interest, any *capital gain is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

The net asset amount * Your ineterest in the trust capital (expressed as a fraction) * The part of the interest you are disposing of (expresesed as a fraction)

Example: To vary the example in subsection (2), suppose you have a 50% interest in the trust capital. You dispose of 20% of it for $1,000 (the capital proceeds).

The Step 2 amount becomes:

$9,000 * 50% * 20% = $900

You make a capital gain of:

$1,000 - $900 = $100

Exception

(6) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the interest in the trust capital before 20 September 1985.

Note: You can make a gain if you dispose of an interest in a trust that you acquired before that day: see CGT event K6.

104-100 Making a capital loss

You are the only beneficiary

(1) If you are the only beneficiary with an interest in the trust capital and you *dispose of that interest, you work out if you have made a *capital loss in this way:

Working out your capital loss

Step 1. Work out the *capital proceeds from the *disposal.

Step 2. Work out the *reduced net asset amount.

Step 3. If the Step 1 amount is less, you make a capital loss equal to the difference.

(2) The reduced net asset amount is worked out in this way:

Working out the reduced net asset amount

Step 1. Work out the total of the *reduced cost bases (at the time of the disposal) of the *CGT assets that the trustee *acquired on or after 20 September 1985 and that formed part of the trust capital at that time.

Step 3. Work out the amount of money that formed part of the trust capital at the time of the disposal.

Step 4. Add up the Step 1, 2 and 3 amounts.

Step 5. Subtract from the Step 4 amount any liabilities of the trust at the time of the disposal.

Step 6. The result is the reduced net asset amount .

(3) If you *dispose of only part of that interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

The reduced net asset amount * the part of the interest you are disposing of (expresesed as a fraction)

There is more than one beneficiary

(4) If you are not the only beneficiary with an interest in the trust capital and you *dispose of your interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

The reduced net asset amount * The interest in the trust capital (expresesed as a fraction)

(5) If you are not the only beneficiary with an interest in the trust capital and you *dispose of part of your interest, any *capital loss is worked out using the method statement in subsection (1), except that the Step 2 amount is replaced by:

The reduced net asset amount * Your interest in the trust capital (expressed as a fraction) * The part of the interest you are disposing of (*expresesed as a fraction))

Exception

(6) A *capital loss you make is disregarded if you *acquired the *CGT asset that is the interest in the trust capital before 20 September 1985.

104-105 Creating a trust over future property: CGT event E9

(1) CGT event E9 happens if:

(a) you agree for consideration that when property comes into existence you will hold it on trust; and

(b) at the time of the agreement, no potential beneficiary under the trust has a beneficial interest in the rights created by the agreement.

(2) The time of the event is when you made the agreement.

(3) You make a capital gain if the market value the property would have had if it had existed when you made the agreement is more than any *incidental costs you incurred that relate to the event. You make a capital loss if that market value is less.

Subdivision 104-F - Leases

Table of sections

104-110 Granting a lease: CGT event F1

104-115 Granting a long-term lease: CGT event F2

104-120 Lessor pays lessee to get lease changed: CGT event F3

104-125 Lessee receives payment for changing lease: CGT event F4

104-130 Lessor receives payment for changing lease: CGT event F5

104-110 Granting a lease: CGT event F1

(1) CGT event F1 happens if a lessor grants, renews or extends a lease.

Note 1: Other CGT events can apply to leases. An assignment of a lease is an example of CGT event A1.

Note 2: There are special rules that apply to some lease transactions: see Division 132.

(2) The time of the event is:

(a) for the grant of a lease:

(i) when the contract for the lease is entered into; or

(ii) if there is no contract - at the start of the lease; or

(b) for a renewal or extension - at the start of the renewal or extension.

(3) The lessor makes a capital gain if the *capital proceeds from the grant, renewal or extension are more than the expenditure it incurred on the grant, renewal or extension. It makes a capital loss if those *capital proceeds are less.

Exception

(5) The lessor can choose to apply section 104-115 to certain long term leases. If it does so, this section does not apply.

104-115 Granting a long-term lease: CGT event F2

(1) CGT event F2 happens if:

(a) a lessor grants a lease over land (whether or not the lessor owns an estate in fee simple in the land), or renews or extends a lease over land; and

(b) the lease, renewal or extension is for at least 50 years and:

(i) at the time of the grant, renewal or extension, it was reasonable to expect that it would continue for at least 50 years; and

(ii) the terms of the lease, renewal or extension as they apply to the lessee are substantially the same as those under which the lessor owned the land; and

Note: Section 103-25 tells you when the choice must be made.

(2) The time of the event is when the lessor grants the lease, or at the start of the renewal or extension, as appropriate.

(3) The lessor makes a capital gain if the *capital proceeds from the event are more than the *cost base of the lessor's interest in the land. The lessor makes a capital loss if those *capital proceeds are less than the *reduced cost base of that interest.

Exceptions

(4) A *capital gain or *capital loss the lessor makes is disregarded if:

(a) it *acquired the *CGT asset that is the land, or the lease to the lessor was granted, before 20 September 1985; or

(b) the lease to the lessor has been renewed or extended and the last renewal or extension started before that day.

Note: For any later CGT event that happens to the land or the lessor's lease of it: see section 132-10.

104-120 Lessor pays lessee to get lease changed: CGT event F3

(1) CGT event F3 happens if a lessor incurs expenditure in getting the lessee's agreement to vary or waive a term of the lease. The lessor makes a capital loss equal to the amount of expenditure it incurred. (The expenditure can include giving property: see section 103-5.)

(2) The time of the event is when the term is varied or waived.

Exception

(3) However, this event does not apply to expenditure for a lease to which the lessor has chosen to apply section 104-115.

104-125 Lessee receives payment for changing lease: CGT event F4

(1) CGT event F4 happens if a lessee receives a payment from the lessor for agreeing to vary or waive a term of the lease.

The payment can include giving property: see section 103-5.

(2) The time of the event is when the term is varied or waived.

(3) The lessee makes a capital gain if the *capital proceeds from the event are more than the lease's *cost base (at the time of the event). If the lessee makes a *capital gain, the lease's cost base is also reduced to nil.

Note: The lessee cannot make a capital loss.

(4) On the other hand, if those *capital proceeds are less, the lease's *cost base is reduced by that amount at the time of the event.

Example: On 1 January 1999 a lessee enters a lease. On 1 May 1999 the lessee agrees to waive a term. The lessor pays the lessee $1,000 for this.

If the lease's cost base at the time of the waiver is $2,500, it is reduced from $2,500 to $1,500.

On 1 September 1999 the lessee agrees to waive another term. The lessor pays the lessee $2,000 for this.

If the lease's cost base at the time of the waiver is $1,500, the lessee makes a capital gain of $500, and the cost base is reduced to nil.

Exceptions

(5) A *capital gain the lessee makes is disregarded if:

(a) the lease was granted before 20 September 1985; or

(b) for a lease that has been renewed or extended - the start of the last renewal or extension occurred before that day.

104-130 Lessor receives payment for changing lease: CGT event F5

(1) CGT event F5 happens if a lessor receives a payment from the lessee for agreeing to vary or waive a term of the lease.

The payment can include giving property: see section 103-5.

(2) The time of the event is when the term is varied or waived.

(3) The lessor makes a capital gain if the *capital proceeds from the event are more than the expenditure the lessor incurs in relation to the variation or waiver. The lessor makes a capital loss if those *capital proceeds are less.

Example: You own a shopping centre. The lessee of a shop in the centre pays you $10,000 for agreeing to change the terms of its lease. You incur expenses of $1,000 for a solicitor and $500 for a valuer. You make a capital gain of $8,500.

(4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income.

Exceptions

(5) A *capital gain or *capital loss the lessor makes is disregarded if:

(a) the lease was granted before 20 September 1985; or

(b) for a lease that has been renewed or extended - the start of the last renewal or extension occurred before that day.

Subdivision 104-G - Shares

Table of sections

104-135 Capital payment for shares: CGT event G1

104-140 Shifts in share values: CGT event G2

104-145 Liquidator declares shares worthless: CGT event G3

104-135 Capital payment for shares: CGT event G1

(1) CGT event G1 happens if:

(a) a company makes a payment to you for a *share you own in the company (except for *CGT event A1 or C2 happening in relation to the share); and

(b) some or all of the payment (the non-assessable part ) is not a *dividend, or an amount that is taken to be a dividend under section 47 of the Income Tax Assessment Act 1936.

The payment can include giving property: see section 103-5.

(2) The time of the event is when the company makes the payment.

(3) You make a capital gain if the amount of the non-assessable part is more than the *share's *cost base. If you make a *capital gain, the share's *cost base and *reduced cost base are reduced to nil.

Note: You cannot make a capital loss.

(4) However, if the amount of the non-assessable part is not more than the *share's *cost base, that cost base and its *reduced cost base are reduced by the amount of the non-assessable part.

Exceptions

(5) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the *share before 20 September 1985.

(6) You disregard a payment by a liquidator for the purposes of this section if the company is dissolved within 18 months of the payment. The payment will be part of your *capital proceeds for *CGT event C2 happening when the share ends.

104-140 Shifts in share values: CGT event G2

(1) CGT event G2 happens if:

(a) a *share value shift occurs under a *scheme involving a company and an entity (or the entity's *associate); and

(b) the entity is a *controller (for CGT purposes) of the company at any time from when the scheme is entered into to when it has been implemented; and

(c) there is a *material decrease in the market value of a share in the company that is owned by the entity or the entity's associate.

Note 1: Other matters relevant to this event are set out in Division 140.

Note 2: Division 140 is also relevant to interests in shares and rights or options to acquire shares: see section 140-30.

(2) The time of the event is when the *share value shift happens.

(3) An entity makes a capital gain in the circumstances set out in sections 140-55 and 140-90.

Note 1: The entity cannot make a capital loss.

Note 2: The entity will not make a capital gain unless:

· for value shifted into shares acquired before 20 September 1985 - value is shifted into shares owned by the entity or an associate or, in certain circumstances, owned by an associate of an associate; or

· for value shifted into shares acquired on or after 20 September 1985 - value is shifted into shares owned by an associate of the entity or, in certain circumstances, owned by an associate of an associate.

104-145 Liquidator declares shares worthless: CGT event G3

(1) CGT event G3 happens if you own a *share in a company and its liquidator declares in writing that he or she has reasonable grounds to believe (as at the time of the declaration) there is no likelihood that the shareholders in the company, or shareholders of the relevant class of shares, will receive any further distribution in the course of winding up the company.

(2) The time of the event is when the liquidator makes the declaration.

(3) You can choose to make a capital loss equal to the *reduced cost base of your *share (as at the time of the declaration).

(4) If you make the choice, the *cost base and *reduced cost base of the *share are reduced to nil just after the liquidator makes the declaration.

Note: This is for the purpose of working out if you make a capital gain or loss from any later CGT event in relation to the share.

Exception

(5) You cannot choose to make a *capital loss if you *acquired the *CGT asset that is the *share before 20 September 1985.

Subdivision 104-H - Special capital receipts

Table of sections

104-150 Forfeiture of deposit: CGT event H1

104-155 Receipt for event relating to a CGT asset: CGT event H2

104-150 Forfeiture of deposit: CGT event H1

(1) CGT event H1 happens if a deposit paid to you is forfeited because a prospective sale or other transaction does not proceed.

The payment can include giving property: see section 103-5.

Example: You decide to sell land. Before entering into a contract of sale, the prospective purchaser pays you a 2 month holding deposit of $1,000.

The negotiations fail and the deposit is forfeited.

(2) The time of the event is when the deposit is forfeited.

(3) You make a capital gain if the deposit is more than the expenditure you incur in connection with the prospective sale or other transaction. You make a capital loss if the deposit is less.

(4) The expenditure can include giving property: see section 103-5. However, it does not include an amount you have received as *recoupment of it and that is not included in your assessable income.

Example: To continue the example: if you gave a lawyer wine worth $400 in connection with the prospective sale, you make a capital gain of:

$1,000 - $400 = $600

104-155 Receipt for event relating to a CGT asset: CGT event H2

(1) CGT event H2 happens if:

(a) an act, transaction or event occurs in relation to a *CGT asset that you own; and

(b) the act, transaction or event does not result in an adjustment being made to the asset's *cost base or *reduced cost base.

Example: You own land on which you intend to construct a manufacturing facility. A business promotion organisation pays you $50,000 as an inducement to start construction early.

No contractual rights or obligations are created by the arrangement.

The payment is made because of an event (the inducement to start construction early) in relation to your land.

Note: This event does not apply if any other CGT event applies: see section 102-25.

(2) The time of the event is when the act, transaction or event occurs.

(3) You make a capital gain if the *capital proceeds because of the *CGT event are more than the *incidental costs you incurred that relate to the event. You make a capital loss if those *capital proceeds are less.

(4) The costs can include giving property: see section 103-5. However, they do not include an amount you have received as *recoupment of them and that is not included in your assessable income.

Exceptions

(5) CGT event H2 does not happen if:

(a) the act, transaction or event is the borrowing of money or the obtaining of credit from another entity; or

(b) the act, transaction or event requires you to do something that is another *CGT event that happens to you; or

(d) the trustee of a unit trust issues units in the trust to you.

Subdivision 104-I - Australian residency ends

Table of sections

104-160 Individual or company stops being resident: CGT event I1

104-165 Exception for individual who stops being resident

104-170 Trust stops being a resident trust: CGT event I2

104-160 Individual or company stops being resident: CGT event I1

(1) CGT event I1 happens if you stop being an *Australian resident.

(2) The time of the event is when you stop being one.

(3) You need to work out if you have made a *capital gain or a *capital loss for each *CGT asset that you owned just before the time of the event, except one having the *necessary connection with Australia.

(4) You make a capital gain if the market value of the asset (at the time of the event) is more than its *cost base. You make a capital loss if that market value is less than the asset's *reduced cost base.

Exception

(5) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

Note 1: An individual may be able disregard the gain or loss if he or she was a short term resident: see section 104-165.

Note 2: An individual can choose to disregard a capital gain or loss he or she makes until another CGT event happens in relation to the asset or he or she becomes a resident again: see section 104-165.

104-165 Exception for individual who stops being resident

Short term residents

(1) A *capital gain or *capital loss from a *CGT asset covered by *CGT event I1 is disregarded if you are an individual and you were an *Australian resident for less than 5 years during the 10 years before you stopped being one and:

(a) you owned the asset before last becoming one; or

(b) you *acquired the asset (after last becoming one) because of someone's death.

Choosing to disregard making a gain or loss

(2) If you are an individual, you can choose to disregard making a *capital gain or a *capital loss from all *CGT assets covered by *CGT event I1.

(3) If you do so choose, each of those assets is taken to have the *necessary connection with Australia until the earlier of:

(a) a *CGT event happening in relation to the asset;

(b) you again becoming an *Australian resident.

104-170 Trust stops being a resident trust: CGT event I2

(1) CGT event I2 happens if a trust stops being a *resident trust for CGT purposes.

(2) The time of the event is when the trust stops being one.

(3) The trustee needs to work out if it has made a *capital gain or a *capital loss for each *CGT asset that it owned (in the capacity as trustee of the trust) just before the time of the event (except one having the *necessary connection with Australia).

(4) The trustee makes a capital gain if the market value of the asset (at the time of the event) is more than the asset's *cost base. The trustee makes a capital loss if that market value is less than the asset's *reduced cost base.

Exception

(5) A *capital gain or *capital loss the trustee makes is disregarded if it *acquired the asset before 20 September 1985.

Subdivision 104-J - Reversal of roll-overs

Table of sections

104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1

104-180 Sub-group break-up

104-175 Company ceasing to be member of wholly-owned group after roll-over: CGT event J1

(1) CGT event J1 happens if:

(a) there is a roll-over under Subdivision 126-B for a *CGT event (the roll-over event ) that happens in relation to a *CGT asset (the roll-over asset ) involving 2 companies that are members of the same *wholly-owned group; and

(b) the company (the recipient company ) that owns the roll-over asset just after the roll-over stops being a 100% subsidiary of a company in the group in the circumstances set out in subsection (2) or (3); and

(i) the other company involved in the roll-over event (the originating company ); or

(ii) another member of the same *wholly-owned group.

Note: If the roll-over was under section 160ZZO of the Income Tax Assessment Act 1936, CGT event J1 does not happen if there would not have been a deemed disposal and re-acquisition under that Act: see section 104-175 of the Income Tax (Transitional Provisions) Act 1997.

(2) This condition applies if there has been only one roll-over within the *wholly-owned group under Subdivision 126-B involving the roll-over asset.

The recipient company must stop, at a time (the break-up time ) when it still owns the roll-over asset, being a *100% subsidiary of a member of the group (the ultimate holding company ) that is not a 100% subsidiary of any other member of the group at the time of the roll-over event.

(3) This condition applies if the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events.

The recipient company must stop, at a time (also the break-up time ) when it still owns the roll-over asset, being a *100% subsidiary of another member of the group (also the ultimate holding company ) that was not a 100% subsidiary of any other member of the group at the time of the first of the events.

(4) The time of the event is the break-up time.

(5) The recipient company makes a capital gain if the roll-over asset's market value (at the break-up time) is more than its *cost base. It makes a capital loss if that market value is less than its *reduced cost base.

Exceptions

(6) CGT event J1 does not happen if the conditions in section 104-180 are satisfied.

(7) A *capital gain or *capital loss the recipient company makes is disregarded if the roll-over asset is taken to have been *acquired by it before 20 September 1985 under Subdivision 126-B.

Acquisition rule

(8) The recipient company is taken to have *acquired the roll-over asset at the break-up time.

Cost base adjustment

(9) The first element of the recipient company's *cost base and *reduced cost base of the roll-over asset (just after the break-up time) is its market value (at the break-up time).

104-180 Sub-group break-up

(1) The condition in subsection (2) must have been satisfied at each time when there is a roll-over within the *wholly-owned group under Subdivision 126-B for a *CGT event happening in relation to the roll-over asset.

(2) The originating company and the recipient company must have been members of a group of 2 or more companies (the sub-group ) within the *wholly-owned group (excluding the ultimate holding company) for which one of these is satisfied:

(a) if the sub-group consists of 2 companies, either the recipient company is a 100% subsidiary of the other company (the holding company ), or the other company is a 100% subsidiary of the recipient company (also the holding company );

(b) if the sub-group consists of 3 or more companies:

(i) the recipient company is a 100% subsidiary of one of those other companies (also the holding company ) and so are the other companies (except the holding company) in the sub-group; or

(ii) each of the companies in the sub-group (except the recipient company) is a 100% subsidiary of the recipient company (also the holding company ).

(3) If the roll-over event was the last in a series of *CGT events involving the roll-over asset and there was a roll-over within the *wholly-owned group under Subdivision 126-B for all the events, each company that was the originating company or the recipient company for the purposes of that Subdivision for one of those roll-overs must have been members of the sub-group at the time of each of the roll-overs.

(4) The conditions in subsection (5) or (6) must be satisfied just after the break-up time.

(5) If the recipient company was the holding company of the sub-group, none of its *shares can be owned by:

(a) the ultimate holding company; or

(b) a company that is a *100% subsidiary of the ultimate holding company just after the break-up time.

(6) If the recipient company was not the holding company of the sub-group, no *shares in it or in the holding company can be owned by:

(a) the ultimate holding company; or

(b) a company that is a *100% subsidiary of the ultimate holding company just after the break-up time.

Subdivision 104-K - Other CGT events

Table of sections

104-205 Partial realisation of intellectual property: CGT event K1

104-210 Bankrupt pays amount in relation to debt: CGT event K2

104-215 Asset passing to tax-advantaged entity: CGT event K3

104-220 CGT asset starts being trading stock: CGT event K4

104-225 Special collectable losses: CGT event K5

104-230 Pre-CGT shares or trust interest: CGT event K6

104-205 Partial realisation of intellectual property: CGT event K1

(1) CGT event K1 happens if there is a *partial realisation of an item of *intellectual property.

(2) The time of the event is:

(a) when you enter into the contract for the realisation; or

(b) if there is no contract - when the realisation occurred.

(3) You make a capital gain if the *capital proceeds from the realisation are more than the item's *cost base. If you make a *capital gain, the item's *cost base and *reduced cost base are also reduced to nil.

Note: You cannot make a capital loss.

(4) On the other hand, if the *capital proceeds from the realisation are less than the item's *cost base, the item's cost base is reduced by that amount at the time of the realisation.

Example: On 1 January 1999 you buy a patent for an invention for $100,000. On 1 March 1999 you grant a 5 year licence to exploit the patent in South Australia for $60,000 (a partial realisation).

Suppose the patent's cost base just before the grant is $100,000. The capital proceeds ($60,000) are less than the patent's cost base, which is reduced to $40,000.

On 1 September 1999 you receive damages of $70,000 for infringement of the patent (another partial realisation).

Suppose the patent's cost base just before the other realisation is $40,000. The capital proceeds ($70,000) exceed the patent's cost base. You make a capital gain of $30,000 and the patent's cost base is reduced to nil.

Extension of licence treated as grant of new licence

(5) This section has effect as if an extension of the term of a licence relating to a patent, design or copyright were the grant of a new licence (and so a *partial realisation).

Exception

(6) A *capital gain you make is disregarded if you *acquired the *CGT asset that is the item of intellectual property before 20 September 1985.

104-210 Bankrupt pays amount in relation to debt: CGT event K2

(1) CGT event K2 happens if:

(a) you made a *net capital loss for an income year that, because of subsection 102-5(2), cannot be applied in working out whether you made a *net capital gain for the income year or a later one; and

(b) you make a payment in an income year (the payment year ) in respect of a debt that was taken into account in working out the amount of that net capital loss; and

(c) ignoring subsection 102-5(2), some part of the net capital loss (the denied part ) would have been applied (if you had made sufficient *capital gains) in working out whether you had made a *net capital gain for the payment year.

The payment can include giving property: see section 103-5.

Note: A net capital loss mentioned in subsection 160ZC(4A) of the Income Tax Assessment Act 1936 is also relevant: see section 104-210 of the Income Tax (Transitional Provisions) Act 1997.

(2) The time of the event is when you make the payment.

(3) You make a capital loss equal to the smallest of:

(a) the amount you paid; or

(b) that part of it that was taken into account in working out the denied part; or

(c) the denied part less the sum of *capital losses you made as a result of previous payments you made in respect of the debt that was taken into account in working out the denied part.

(4) In calculating that capital loss , disregard any amount you have received as *recoupment of the payment and that is not included in your assessable income.

104-215 Asset passing to tax-advantaged entity: CGT event K3

(1) CGT event K3 happens if you die and a *CGT asset you owned just before dying *passes to a beneficiary in your estate who (when the asset passes):

(a) is an *exempt entity; or

(b) is the trustee of a *complying superannuation fund; or

(d) is the trustee of a *pooled superannuation trust; or

(e) is not an *Australian resident.

(2) If the asset passes to a beneficiary who is not an *Australian resident, CGT event K3 happens only if:

(a) you were an *Australian resident just before dying; and

(b) the asset (in the hands of the beneficiary) does not have the *necessary connection with Australia.

(3) The time of the event is just before you die.

(4) A capital gain is made if the market value of the asset on the day you died is more than the asset's *cost base. A capital loss is made if that market value is less than the asset's *reduced cost base.

Note: The trustee of the estate must include in the date of death return any net capital gain for the income year when you died.

Exception

(5) A *capital gain or *capital loss is disregarded if you *acquired the asset before 20 September 1985.

Note: There is also an exception if the CGT asset is property under the Cultural Bequests Program: see section 118-5.

104-220 CGT asset starts being trading stock: CGT event K4

(1) CGT event K4 happens if:

(a) you start holding as *trading stock a *CGT asset you already own but do not hold as trading stock; and

(b) you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its market value.

Note 1: Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock.

Note 2: There is an exemption if you elect its cost: see section 118-25.

(2) The time of the event is when you start.

(3) You make a capital gain if the asset's market value (just before it became *trading stock) is more than its *cost base. You make a capital loss if that market value is less than its *reduced cost base.

Exception

(4) A *capital gain or *capital loss you make is disregarded if you *acquired the asset before 20 September 1985.

104-225 Special collectable losses: CGT event K5

(1) CGT event K5 happens if the requirements in subsections (2), (3) and (4) are satisfied.

(2) There is a fall in the market value of a *collectable of a company or trust.

(3) *CGT event A1, C2 or E8 happens to:

(a) *shares you own in the company (or in a company that is a member of the same *wholly-owned group); or

(b) an interest you have in the trust;

and there is no roll-over for that CGT event.

(4) As a result of the *capital proceeds from that event being replaced under section 116-80:

(a) you make a *capital gain that you would not otherwise have made; or

(b) you do not make the *capital loss you would otherwise have made; or

Note: The capital proceeds from that event are replaced with the market value of the shares or the interest in the trust as if the fall in the market value of collectables and personal use assets had not occurred: see section 116-80.

(5) The time of CGT event K5 is the time of *CGT event A1, C2 or E8.

(6) You make a capital loss from a *collectable equal to:

• the market value of the *shares or the interest in the trust (worked out as at the time of *CGT event A1, C2 or E8 as if the fall in market value of the collectable had not occurred);

less:

• the actual *capital proceeds from CGT event A1, C2 or E8.

Example: You own 50% of the shares in a company. You bought them in 1999 for $60,000. The company owns a painting worth $100,000 and another asset worth $20,000. The painting falls in value to $50,000.

In 1999 you sell your shares for $35,000 (the actual capital proceeds). You would otherwise make a capital loss of $25,000.

However, the actual capital proceeds are replaced with $60,000 (the market value of the shares if the painting had not fallen in value). You do not make a capital loss from selling the shares.

You do make a collectable loss equal to:

$60,00 - $35,000 = $25,000

Note: You can subtract capital losses from collectables only from your capital gains from collectables: see section 108-10.

104-230 Pre-CGT shares or trust interest: CGT event K6

(1) CGT event K6 happens if:

(a) you own *shares in a company or an interest in a trust you *acquired before 20 September 1985; and

(b) *CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and

(d) the applicable requirement in subsection (2) is satisfied.

(2) Just before the other event happened:

(a) the market value of property of the company or trust (that is not its *trading stock) that was *acquired on or after 20 September 1985; or

(b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was *acquired on or after 20 September 1985;

must be at least 75% of the *net value of the company or trust.

(5) The time of CGT event K6 is when the other event happens.

(6) You make a capital gain if the part of the *capital proceeds from the *shares or interest that is reasonably attributable to the market value of property referred to in subsection (2) is more than the sum of the *cost bases of that property.

Note: You cannot make a capital loss.

(7) This section applies to property that a company that is not an *Australian resident *acquired after 15 August 1989 from another company as if it were acquired before 20 September 1985 if:

(a) the other company acquired it before 20 September 1985; and

(b) the companies are members of the same *wholly-owned group; and

(8) In working out the *net value of a company or trust for the purposes of subsection (2), disregard:

(a) the discharge or release of any liabilities; or

(b) the market value of any *CGT assets acquired;

if the discharge or release, or the *acquisition, was done for a purpose that included ensuring that the requirement in subsection (2) would not be satisfied in a particular situation.

Exceptions

(9) CGT event K6 does not happen if:

(a) for a company referred to in subsection (2) - some of its *shares were listed for quotation in the official list of a stock exchange in Australia or a foreign country at the time of the other event and at all times in the period of 5 years before the time of the other event; or

(b) for a trust referred to in subsection (2) that is a unit trust - some of its units were so listed, or were ordinarily available to the public for subscription or purchase, at the time of the other event and at all times in that period.

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