New Business Tax System (Integrity and Other Measures) Act 1999 (Incorporating amendments up to Act No. 78 of 2001) (169 of 1999)
Schedule 9 Concessions for capital gains by individuals and some other entities
Part 1 New rules
Income Tax Assessment Act 1997
13 After Division 114
Insert:
Division 115 - Discount capital gains and trusts' net capital gains
Table of Subdivisions
Guide to Division 115
115-A Discount capital gains
115-B Discount percentage
115-C Rules about trusts with net capital gains
Guide to Division 115
115-1 What this Division is about
A discount capital gain remaining after the application of any capital losses and net capital losses from previous income years is reduced by the discount percentage when working out your net capital gain.
A capital gain from a CGT asset is a discount capital gain only if the entity making the gain acquired the asset at least a year before the CGT event causing the gain and no choice has been made to include indexation in the cost base of the asset.
Special rules apply to the net income of trusts with net capital gains, to ensure that the appropriate discount percentage is applied and to let beneficiaries apply their capital losses against their share of the trust's capital gains.
Subdivision 115-A - Discount capital gains
Table of sections
What is a discount capital gain?
115-5 What is a discount capital gain?
115-10 Who can make a discount capital gain?
115-15 Discount capital gain must be made after 21 September 1999
115-20 Discount capital gain must not have indexed cost base
115-25 Discount capital gain must be on asset acquired at least 12 months before
115-30 Special rules about time of acquisition
What are not discount capital gains?
115-40 Capital gain resulting from agreement made within a year of acquisition
115-45 Capital gain from equity in an entity with newly acquired assets
115-50 Discount capital gain from equity in certain entities
What is a discount capital gain?
115-5 What is a discount capital gain ?
A discount capital gain is a *capital gain that meets the requirements of sections 115-10, 115-15, 115-20 and 115-25.
Note: Sections 115-40 and 115-45 identify capital gains that are not discount capital gains, despite this section.
115-10 Who can make a discount capital gain?
To be a *discount capital gain, the *capital gain must be made by:
(a) an individual; or
(b) a *complying superannuation entity; or
(c) a trust.
115-15 Discount capital gain must be made after 21 September 1999
To be a *discount capital gain, the *capital gain must result from a *CGT event happening after 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999.
115-20 Discount capital gain must not have indexed cost base
To be a *discount capital gain, the *capital gain must have been worked out by reference to a *cost base whose elements have not been indexed.
Note: The elements of the cost base will not be indexed unless you choose that they should be: see section 110-25.
115-25 Discount capital gain must be on asset acquired at least 12 months before
(1) To be a *discount capital gain, the *capital gain must result from a *CGT event happening to a *CGT asset that was *acquired by the entity making the capital gain at least 12 months before the CGT event.
Note: Even if the capital gain results from a CGT event happening at least a year after the CGT asset was acquired, the gain may not be a discount capital gain, depending on the cause of the CGT event (see section 115-40) and the nature of the asset (see sections 115-45 and 115-50).
(2) To avoid doubt, subsection (1) applies to the *CGT asset shown in the table for a *CGT event listed in the table.
|
CGT assets to which subsection (1) applies |
||
|---|---|---|
|
Item |
CGT event |
CGT asset to which subsection (1) applies |
|
1 |
E8 |
the interest or part interest in the trust capital |
|
2 |
K6 |
the *share or interest *acquired before 20 September 1985 |
(3) A *capital gain from one of these *CGT events is not a discount capital gain (despite section 115-5):
(a) *CGT event D1;
(b) *CGT event D2;
(c) *CGT event D3;
(d) *CGT event E9;
(e) *CGT event F1;
(f) *CGT event F2;
(g) *CGT event F5;
(h) *CGT event H2;
(i) *CGT event K1.
Note: Capital gains from the CGT events mentioned in paragraphs (3)(a) to (f) are not discount capital gains because the CGT asset involved in the CGT event comes into existence at the time of the event, so it is impossible to meet the requirement in this section that the asset have been acquired at least 12 months before the event.
115-30 Special rules about time of acquisition
You are treated as acquiring some CGT assets early
(1) Sections 115-25 and 115-40 apply as if you had *acquired a *CGT asset described in an item of the table at the time mentioned in that item:
|
Special application of sections 115-25 and 115-40 |
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|---|---|---|
|
Item |
Sections 115-25 and 115-40 apply as if you had acquired this CGT asset: |
At this time: |
|
1 |
A *CGT asset you *acquired in circumstances giving rise to a *same-asset roll-over |
When the entity that owned the CGT asset before the roll-over *acquired it or, if it has been involved in an unbroken series of roll-overs, when the entity that owned it before the first roll-over in the series *acquired it |
|
2 |
A *CGT asset that you *acquired as a replacement asset for a *replacement-asset roll-over |
When you acquired the original asset involved in the roll-over or, if you acquired the replacement asset for a roll-over that was the last in an unbroken series of replacement-asset roll-overs, when you acquired the asset that was the original asset involved in the first roll-over in the series |
|
3 |
A *CGT asset you *acquired as the *legal personal representative of a deceased individual, except one that was a *pre-CGT asset of the deceased immediately before his or her death |
When the deceased *acquired the asset |
|
4 |
A *CGT asset that *passed to you as the beneficiary of a deceased individual's estate, except one that was a *pre-CGT asset of the deceased immediately before his or her death |
When the deceased *acquired the asset |
|
5 |
A *CGT asset that: (a) you *acquired as the *legal personal representative of a deceased individual; and (b) was a *pre-CGT asset of the deceased immediately before his or her death |
When the deceased died |
|
6 |
A *CGT asset that: (a) *passed to you as the beneficiary of a deceased individual's estate; and (b) was a *pre-CGT asset of the deceased immediately before his or her death |
When the deceased died |
|
7 |
The interest (or share of an interest) you are taken under section 128-50 to have *acquired in another *CGT asset that you and another individual held as joint tenants immediately before he or she died |
When the deceased *acquired his or her interest in the other CGT asset |
Note: Under section 128-50, you are taken to acquire the interest of a deceased individual in a CGT asset you and the deceased held as joint tenants immediately before his or her death (or an equal share of that interest if there are other surviving joint tenants).
CGT event E8
(2) For the purposes of applying sections 115-25 and 115-40 in relation to *CGT event E8 and the *CGT asset consisting of a beneficiary's interest in trust capital, it does not matter how long the trustee owned any of the assets of the trust.
Note: Section 115-45 limits the effect of this subsection in some cases.
Relationship with Subdivision 109-A and Division 128
(3) This section has effect despite Subdivision 109-A and Division 128 (which contain rules about the time when you *acquire a *CGT asset).
[The next section is section 115-40.]
What are not discount capital gains?
115-40 Capital gain resulting from agreement made within a year of acquisition
Your *capital gain on a *CGT asset from a *CGT event is not a discount capital gain (despite section 115-5) if the CGT event occurred under an agreement you made within 12 months of *acquiring the CGT asset.
Note: Section 115-30 may affect the time when you are treated as having acquired the CGT asset.
115-45 Capital gain from equity in an entity with newly acquired assets
Your *capital gain from a *CGT event is not a discount capital gain (despite section 115-5 and subsection 115-30(3)) if:
(a) the CGT event happened to a *CGT asset that is:
(i) a *share in a company; or
(ii) an interest in a trust; and
(b) the total of the *cost bases of *CGT assets *acquired by the company or trust (as appropriate) less than 12 months before the time of the CGT event is more than half of the total of the *cost bases of the *CGT assets of the company or trust at that time.
115-50 Discount capital gain from equity in certain entities
Capital gain from share in company with 300 members
(1) Section 115-45 does not prevent a *capital gain from a *CGT event happening to a *share in a company with at least 300 *members from being a *discount capital gain, unless subsection (3) or (6) applies in relation to the company.
Capital gain from interest in fixed trust with 300 beneficiaries
(2) Section 115-45 does not prevent a *capital gain from a *CGT event happening to an interest in a trust from being a *discount capital gain if:
(a) entities have fixed entitlements to all of the income and capital of the trust; and
(b) the trust has at least 300 beneficiaries; and
(c) neither subsection (4) nor subsection (6) applies in relation to the trust.
No discount capital gain if ownership is concentrated
(3) Section 115-45 may prevent a *capital gain from a *share in a company from being a *discount capital gain if an individual owns, or up to 20 individuals own between them, directly or indirectly (through one or more interposed entities) and for their own benefit, *shares in the company:
(a) carrying fixed entitlements to:
(i) at least 75% of the company's income; or
(ii) at least 75% of the company's capital; or
(b) carrying at least 75% of the voting rights in the company.
(4) Section 115-45 may prevent a *capital gain from an interest in a trust from being a *discount capital gain if an individual owns, or up to 20 individuals own between them, directly or indirectly (through one or more interposed entities) and for their own benefit, interests in the trust:
(a) carrying fixed entitlements to:
(i) at least 75% of the trust's income; or
(ii) at least 75% of the trust's capital; or
(b) if beneficiaries of the trust have a right to vote in respect of activities of the trust - carrying at least 75% of those voting rights.
(5) Subsections (3) and (4) operate as if all of these were a single individual:
(a) an individual, whether or not the individual holds *shares in the company or interests in the trust (as appropriate);
(b) the individual's *associates;
(c) for any *shares or interests in respect of which other individuals are nominees of the individual or of the individual's associates - those other individuals.
No discount capital gain if rights can be varied to concentrate ownership
(6) Section 115-45 may prevent a *capital gain from a *share in a company, or from an interest in a trust, from being a *discount capital gain if, because of anything listed in subsection (7), it is reasonable to conclude that the rights attaching to any of the *shares in the company or interests in the trust (as appropriate) can be varied or abrogated in such a way that subsection (3) or (4) would be satisfied.
(7) These are the things:
(a) any provision in the constituent document of the company or trust, or in any contract, agreement or instrument:
(i) authorising the variation or abrogation of rights attaching to any of the *shares in the company or interests in the trust (as appropriate); or
(ii) relating to the conversion, cancellation, extinguishment or redemption of any of those shares or interests;
(b) any contract, *arrangement, option or instrument under which a person has power to acquire any of those shares or interests;
(c) any power, authority or discretion in a person in relation to the rights attaching to any of those shares or interests.
(8) It does not matter for the purposes of subsection (6) whether or not the rights attaching to any of the *shares or interests are varied or abrogated in the way described in that subsection.
Subdivision 115-B - Discount percentage
Table of sections
115-100 What is the discount percentage for a discount capital gain?
115-100 What is the discount percentage for a discount capital gain?
(1) The discount percentage for an amount of a *discount capital gain is:
(a) 50% if the gain is made by an individual or a trust; or
(b) 331/3% if the gain is made by a *complying superannuation entity.
(2) The discount percentage for an amount of a *discount capital gain made by a *complying superannuation entity that is a trust is 331/3%.
Subdivision 115-C - Rules about trusts with net capital gains
Guide to Subdivision 115-C
115-200 What this Division is about
This Subdivision sets out rules for dealing with the net income of a trust that has a net capital gain. The rules treat parts of the net income attributable to the trust's net capital gain as capital gains made by the beneficiary entitled to those parts. This lets the beneficiary reduce those parts by any capital losses and unapplied net capital losses it has.
The part attributable to the trust's discount capital gains is doubled and treated as a discount capital gain of the beneficiary (if appropriate). This lets the beneficiary apply the appropriate discount percentage (if any) after applying its capital losses.
The rules also give the beneficiary a deduction if necessary to prevent it from being taxed twice on the same parts of the trust's net income.
Table of sections
Operative provisions
115-210 When this Subdivision applies
115-215 Assessing presently entitled beneficiaries
115-220 Special rule for assessing trustee under subsection 98(3) of the Income Tax Assessment Act 1936
115-225 Special rule for assessing trustee under section 99A of the Income Tax Assessment Act 1936
[This is the end of the Guide. The next section is section 115-210.]
Operative provisions
115-210 When this Subdivision applies
(1) This Subdivision applies if a trust estate has a *net capital gain for an income year that is taken into account in working out the trust estate's net income (as defined in section 95 of the Income Tax Assessment Act 1936) for the income year.
(2) If the trust estate has a beneficiary that is a *complying superannuation entity that is a trust, this Subdivision applies in relation to the complying superannuation entity as a beneficiary but not as a trust estate. This Subdivision does not apply otherwise to a *complying superannuation entity that is a trust.
115-215 Assessing presently entitled beneficiaries
Purpose
(1) The purpose of this section is to ensure that appropriate amounts of the trust estate's net income attributable to the trust estate's *capital gains are treated as a beneficiary's *capital gains when assessing the beneficiary, so:
(a) the *discount percentage (if any) appropriate to the beneficiary can be applied; and
(b) the beneficiary can apply *capital losses against those amounts.
Application
(2) This section treats you as having certain extra capital gains, and gives you a deduction, if:
(a) you are the beneficiary of the trust estate; and
(b) your assessable income for the income year includes an amount (the trust amount ):
(i) under paragraph 97(1)(a) of the Income Tax Assessment Act 1936; or
(ii) under subsection 98A(1) of that Act because you are a beneficiary described in subsection 98(4) of that Act; or
(iii) under subsection 100(1) of that Act.
Extra capital gains
(3) Division 102 applies to you as if:
(a) you had (in addition to any other *capital gains you have for the income year):
(i) a *capital gain equal to the part (if any) of the trust amount that is attributable to the trust estate's non-discounted capital gain mentioned in subsection 102-5(1) (as it applies to the trust estate); and
(ii) another *capital gain equal to twice the part (if any) of the trust amount that is attributable to the trust estate's discounted capital gain mentioned in subsection 102-5(1) (as it applies to the trust estate); and
(b) the capital gain mentioned in subparagraph (a)(ii) were a *discount capital gain, if you can have a *discount capital gain.
Note: This ensures that your share of the trust estate's net capital gain is taxed as if it were a capital gain you made (assuming you made the same choices about cost bases including indexation as the trustee).
Section 118-20 does not reduce extra capital gains
(4) To avoid doubt, section 118-20 does not reduce a *capital gain that subsection (3) treats you as having for the purpose of applying Division 102.
Deduction
(5) You can deduct for the income year the sum of:
(a) the part (if any) of the trust amount that is attributable to the trust estate's non-discounted capital gain mentioned in subsection 102-5(1); and
(b) the part (if any) of the trust amount that is attributable to the trust estate's discounted capital gain mentioned in subsection 102-5(1).
Note: This deduction ensures you are not taxed twice on the part of the trust amount that is attributable to the trust estate's net capital gain.
115-220 Special rule for assessing trustee under subsection 98(3) of the Income Tax Assessment Act 1936
Purpose
(1) The purpose of this section is to ensure a trustee assessed under subsection 98(3) of the Income Tax Assessment Act 1936 (in respect of the share of the net income to which a beneficiary that is a company is entitled) does not get the benefit in that assessment of the *discount percentage that the company would not have got if it had been assessed in respect of the share.
Modification of subsection 98(3)
(2) The trustee is to be assessed (and pay tax) under subsection 98(3) of the Income Tax Assessment Act 1936 as if the part of the share that is attributable to the trust estate's discounted capital gain mentioned in subsection 102-5(1) were double the amount that it actually is.
115-225 Special rule for assessing trustee under section 99A of the Income Tax Assessment Act 1936
Purpose
(1) The purpose of this section is to reverse the benefit of applying the *discount percentage in working out the trust estate's net income when the trustee is assessed under section 99A of the Income Tax Assessment Act 1936 on an amount of the net income.
Modification of section 99A
(2) The trustee is to be assessed (and pay tax) under section 99A of the Income Tax Assessment Act 1936 as if the part of the amount that is attributable to the trust estate's discounted capital gain mentioned in subsection 102-5(1) were double the amount that it actually is.