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 108

Division 108 - CGT assets

Table of Subdivisions

Guide to Division 108

108-A What a CGT asset is

108-B Collectables

108-C Personal use assets

108-D Separate CGT assets

Guide to Division 108

108-1 What this Division is about

This Division defines the various categories of assets that are relevant to working out your capital gains and losses. They are CGT assets, collectables and personal use assets.

It also tells you how capital losses from collectables and personal use assets are relevant to working out your net capital gain or loss.

It also sets out when land, buildings and capital improvements are taken to be separate CGT assets.

Subdivision 108-A - What a CGT asset is

Table of sections

108-5 CGT assets

108-7 Interest in CGT assets as joint tenants

108-5 CGT assets

(1) A CGT asset is:

(a) any kind of property; or

(b) a legal or equitable right that is not property.

(2) To avoid doubt, these are CGT assets :

(a) part of, or an interest in, an asset referred to in subsection (1);

(b) goodwill or an interest in it;

(c) an interest in an asset of a partnership;

(d) an interest in a partnership that is not covered by paragraph (c).

Note 1: Examples of CGT assets are:

· land and buildings;

· shares in a company and units in a unit trust;

· options;

· debts owed to you;

· a right to enforce a contractual obligation;

· foreign currency.

Note 2: A capital gain or loss from a CGT asset is disregarded if the asset was last acquired before 26 June 1992 and was not an asset for the purposes of Part IIIA of the Income Tax Assessment Act 1936: see section 108-5 of the Income Tax (Transitional Provisions) Act 1997.

108-7 Interest in CGT assets as joint tenants

Individuals who own a *CGT asset as joint tenants are treated as if they each owned a separate CGT asset constituted by an equal interest in the asset and as if each of them held that interest as a tenant in common.

Note: Section 128-50 contains rules that apply when a joint tenant dies.

Subdivision 108-B - Collectables

Table of sections

108-10 Losses from collectables to be offset only against gains from collectables

108-15 Sets of collectables

108-17 Cost base of a collectable

108-10 Losses from collectables to be offset only against gains from collectables

(1) In working out your *net capital gain or *net capital loss for the income year, *capital losses from *collectables can be used only to reduce *capital gains from collectables.

Example: Your capital gains from collectables total $200 and your capital losses from collectables total $400. You have other capital gains of $500. You have a net capital gain of $500 and a net capital loss from collectables of $200.

The losses from collectables cannot be used to reduce the $500 capital gain.

(2) A collectable is:

(a) *artwork, jewellery, an antique, or a coin or medallion; or

(b) a rare folio, manuscript or book; or

(c) a postage stamp or first day cover;

that is used or kept mainly for your (or your *associate's) personal use or enjoyment.

(3) These are also collectables :

(a) an interest in any of the things covered by subsection (2); or

(b) a debt that arises from any of those things; or

(c) an option or right to *acquire any of those things.

Note: Collectables acquired for $500 or less are exempt. However, you get an exemption for an interest in one only if the market value of all the interests combined is $500 or less: see Subdivision 118-A.

(4) If some or all of a *capital loss from a *collectable cannot be applied in an income year, the unapplied amount can be applied in the next income year for which your *capital gains from *collectables exceed your *capital losses (if any) from collectables.

Example: You have a capital gain from a collectable for the income year of $200 and a capital loss from another collectable of $600.

Your capital loss from one collectable reduces your capital gain from the other to zero. You cannot apply the remaining $400 of the capital loss in this income year, but you can apply it in a later income year.

(5) If you have 2 or more unapplied *net capital losses from *collectables, you must apply them in the order you made them.

108-15 Sets of collectables

(1) This section sets out what happens if:

(a) you own *collectables that are a set; and

(b) they would ordinarily be *disposed of as a set; and

(c) you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10.

Example: You buy a set of 3 books for $900. You apportion the $900 among each book: see section 112-30. If the books are of equal value, you have acquired each one for $300.

If you dispose of each book individually, you would ordinarily obtain the exemption in section 118-10, because you acquired each one for less than $500.

(2) The set of *collectables is taken to be a single *collectable and each of your *disposals is a disposal of part of that collectable.

Example: To continue the example, the 3 books are taken to be a single collectable. You will not obtain the exemption in section 118-10, because you acquired the set for more than $500.

You work out if you make a capital gain or loss from a disposal of part of an asset by comparing the capital proceeds from it with the cost base or reduced cost base (as appropriate) of the disposed part.

Note 1: Section 112-30 tells you how to apportion the cost base and reduced cost base of a CGT asset on a disposal of part of an asset.

Note 2: This section does not apply to a collectable you last acquired before 16 December 1995: see section 108-15 of the Income Tax (Transitional Provisions) Act 1997.

108-17 Cost base of a collectable

In working out the *cost base of a *collectable, disregard the third element (about non-capital costs of ownership).

Subdivision 108-C - Personal use assets

Table of sections

108-20 Losses from personal use assets must be disregarded

108-15 Sets of personal use assets

108-30 Cost base of a personal use asset

108-20 Losses from personal use assets must be disregarded

(1) In working out your *net capital gain or *net capital loss for the income year, any *capital loss you make from a *personal use asset is disregarded.

(2) A personal use asset is:

(a) a *CGT asset (except a *collectable) that is used or kept mainly for your (or your *associate's) personal use or enjoyment; or

(b) an option or right to *acquire a *CGT asset of that kind; or

(c) a debt arising from a *CGT event in which the *CGT asset the subject of the event was one covered by paragraph (a); or

(d) a debt arising other than:

(i) in the course of gaining or producing your assessable income; or

(ii) from your carrying on a *business.

Note 1: There is an exemption for a personal use asset you acquire for $10,000 or less: see section 118-10.

Note 2: A debt arising from a CGT event involving a CGT asset kept mainly for your personal use and enjoyment is a personal use asset to prevent any loss arising from the debt being a normal capital loss.

(3) A personal use asset does not include land, a *stratum unit or a building or structure that is taken to be a separate *CGT asset because of Subdivision 108-D.

108-25 Sets of personal use assets

(1) This section sets out what happens if:

(a) you own *personal use assets that are a set; and

(b) they would ordinarily be *disposed of as a set; and

(c) you dispose of them in one or more transactions for the purpose of trying to obtain the exemption in section 118-10.

(2) The set of *personal use assets is taken to be a single *personal use asset and each of your *disposals is a disposal of part of that asset.

108-30 Cost base of a personal use asset

In working out the *cost base of a *personal use asset, disregard the third element (about the non-capital costs of ownership).

Subdivision 108-D - Separate CGT assets

Guide to Subdivision 108-D

108-50 What this Subdivision is about

For CGT purposes, there are:

• exceptions to the common law principle that what is attached to the land is part of the land; and

• special rules about buildings and adjacent land; and

• rules about when a capital improvement to a CGT asset is treated as a separate CGT asset.

Table of sections

Operative provisions

108-55 When is a building a separate asset from land?

108-60 Plant that is part of a building is a separate asset

108-65 Land adjacent to land acquired before 20 September 1985

108-70 When is a capital improvement a separate asset?

108-75 Capital improvements to CGT assets for which a roll-over may be available

108-80 Deciding if capital improvements are related to each other

108-85 Meaning of improvement threshold

Operative provisions

108-55 When is a building a separate asset from land?

(1) A building or structure on land that you *acquired on or after 20 September 1985 is taken to be a separate *CGT asset from the land if one of the balancing adjustment provisions in this table applies to the building or structure (whether or not there is a balancing adjustment):

Example: You construct a timber mill building on land you own. The building is subject to a balancing adjustment on its disposal, loss or destruction. It is taken to be a separate CGT asset from the land.

(2) A building or structure that is constructed on land that you *acquired before 20 September 1985 is taken to be a separate *CGT asset from the land if:

(a) you entered into a contract for the construction on or after that day; or

(b) if there is no contract - the construction started on or after that day.

Example: You bought a block of land with a building on it on 10 August 1984. On 1 December 1999 you construct another building on the land. The other building is taken to be a separate CGT asset from the land.

108-60 Plant that is part of a building is a separate asset

A unit of *plant that is part of a building or structure is taken to be a separate *CGT asset from the building or structure.

Example: You own a factory from which you carry on a business. You install rest rooms for your employees. The plumbing fixtures and fittings are plant. These are taken to be a separate CGT asset from the factory.

108-65 Land adjacent to land acquired before 20 September 1985

Land that you *acquire on or after 20 September 1985 that is adjacent to land (the original land ) you acquired before that day is taken to be a separate *CGT asset from the original land if it and the original land are amalgamated into one title.

Example: On 1 April 1984 you bought a block of land. On 1 June 1999 you bought another block of land adjacent to the first block. You amalgamate the titles to the 2 blocks into 1 title.

The second block is treated as a separate CGT asset. You can make a capital gain or loss from it if you sell the whole area of land.

108-70 When is a capital improvement a separate asset?

Improvements to land

(1) A capital improvement to land is taken to be a separate *CGT asset from the land if one of the balancing adjustment provisions set out in the table in section 108-55 applies to the improvement (whether or not there is a balancing adjustment).

Example: You own land that you use for pastoral operations. You build some fences that are destroyed by fire. The fences are plant and are subject to a balancing adjustment on their destruction under Division 42. The fences are taken to be a separate CGT asset from the land.

Unrelated improvements to pre-CGT assets

(2) A capital improvement to a *CGT asset (the original asset ) that you *acquired before 20 September 1985 (that is not related to any other capital improvement to the asset) is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when a *CGT event happens in relation to the original asset is:

(a) more than the *improvement threshold for the income year in which the event happened; and

(b) more than 5% of the *capital proceeds from the event.

Example: In 1983 you bought a boat. In 1999 you install a new mast (a capital improvement) for $30,000. Later, you sell the boat for $150,000.

If the cost base of the improvement in the sale year is $41,000 and the improvement threshold for that year is $96,000, the improvement will not be treated as a separate asset.

Note 1: Section 108-80 sets out the factors for deciding whether capital improvements are related to each other.

Note 2: If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvement: see section 116-40.

Related improvements to pre-CGT assets

(3) Capital improvements to a *CGT asset (the original asset ) that you *acquired before 20 September 1985 that are related to each other are taken to be a separate *CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when a *CGT event happens in relation to the original asset is:

(a) more than the *improvement threshold for the income year in which the event happened; and

(b) more than 5% of the *capital proceeds from the event.

Note: If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the original asset and the improvements: see section 116-40.

Some improvements not relevant

(4) This section does not apply to a capital improvement:

(a) that took place under a contract that you entered into before 20 September 1985; or

(b) if there is no contract - that started or occurred before that day.

(5) Subsections (2) and (3) do not apply if the capital improvement is made to:

(a) a *Crown lease; or

(b) a *prospecting entitlement or *mining entitlement; or

(c) a *statutory licence; or

(d) *plant to which Subdivision 124-K applies.

Note: Section 108-75 deals with this situation.

(6) This section does not apply to a capital improvement consisting of repairs to or restoration of a *CGT asset *acquired before 20 September 1985 in circumstances where there is a roll-over under Subdivision 124-B.

108-75 Capital improvements to CGT assets for which a roll-over may be available

(1) This section is relevant only if a *CGT event happens in relation to a *CGT asset that is:

(a) a *Crown lease; or

(b) a *prospecting entitlement or *mining entitlement; or

(c) a *statutory licence; or

(d) *plant to which Subdivision 124-K applies.

You must have *acquired it before 20 September 1985.

Note: Division 124 treats you as having acquired a CGT asset before that day in some situations.

(2) There are possible consequences if there has been one or more capital improvements to:

(a) the *CGT asset the subject of the *CGT event; or

(b) any *CGT assets of the same kind that were in existence before the CGT asset and came to an end where a roll-over was obtained under a provision set out in this table:

Note: Roll-overs under sections 160ZWA, 160ZZF, 160ZZPE and 160ZWC of the Income Tax Assessment Act 1936 are also relevant: see section 108-75 of the Income Tax (Transitional Provisions) Act 1997.

Example: In 1984 you acquired a commercial fishing licence. In 1986 you paid $62,000 to get an extra right (a capital improvement) attached to the licence.

In June 1999 the licence expired and you got a new licence. You obtained a roll-over for the old licence expiring. In April 2000 you sold the new fishing licence for $200,000.

(3) Any capital improvement that is not related to another capital improvement is taken to be a separate *CGT asset if its *cost base (assuming it were a separate CGT asset) when the *CGT event happens is:

(a) more than the *improvement threshold for the income year in which the event happened; and

(b) more than 5% of the *capital proceeds from the event.

Example: To continue the example, suppose the cost base of the right is $101,000 and the improvement threshold for the 1999-2000 income year is $96,000.

Since the cost base of the right is more than the improvement threshold and more than 5% of the capital proceeds, the right is taken to be a separate CGT asset.

Note 1: Section 108-80 sets out the factors for deciding whether capital improvements are related to each other.

Note 2: If the improvement is a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvement: see section 116-40.

(4) Any capital improvements that are related to each other are taken to be a separate *CGT asset if the total of their *cost bases (assuming each one were a separate CGT asset) when the *CGT event happens is:

(a) more than the *improvement threshold for the income year in which the event happened; and

(b) more than 5% of the *capital proceeds from the event.

Note: If the improvements are a separate asset, the capital proceeds from the event must be apportioned between the asset and the improvements: see section 116-40.

(5) This section does not apply to any capital improvement:

(a) that took place under a contract that you entered into before 20 September 1985; or

(b) if there is no contract - that started or occurred before that day.

108-80 Deciding if capital improvements are related to each other

In deciding whether capital improvements are related to each other, the factors to be considered include:

(a) the nature of the *CGT asset to which the improvements are made; and

(b) the nature, location, size, value, quality, composition and utility of each improvement; and

(c) whether an improvement depends in a physical, economic, commercial or practical sense on another improvement; and

(d) whether the improvements are part of an overall project; and

(e) whether the improvements are of the same kind; and

(f) whether the improvements are made within a reasonable period of time of each other.

108-85 Meaning of improvement threshold

(1) The improvement threshold for the 1997-98 income year is $89,992.

(2) The *improvement threshold is indexed annually.

Note: Subdivision 960-M shows you how to index amounts.

(3) The Commissioner must publish before the beginning of each *financial year the *improvement threshold for that year.