INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 104 - CGT events  

Subdivision 104-E - Trusts  

SECTION 104-71   Adjustment of non-assessable part  

104-71(1)  
In working out the non-assessable part referred to in section 104-70, disregard any part of the payment that is:


(a) *non-assessable non-exempt income; or


(b) (Omitted by No 66 of 2003)


(c) paid from an amount that has been assessed to the trustee; or


(d) paid from an amount that is *personal services income included in your assessable income, or another entity's assessable income, under section 86-15; or


(da) a payment to which paragraph 118-37(1)(ba) applies (about compensation paid through a trust); or


(db) a payment to which subsection 118-300(1A) applies (about insurance and annuity payments paid through a trust); or


(e) repaid by you; or


(f) compensation you paid that can reasonably be regarded as a repayment of all or part of the payment; or


(g) an amount referred to in section 152-125 (which exempts a payment of a small business 15-year exemption amount) as an exempt amount.

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

104-71(2)  
However, the non-assessable part is not reduced by any part of the payment that you can deduct.

104-71(3)  
The amount of the non-assessable part referred to in section 104-70 is adjusted to exclude any part of it that is attributable to:


(a) 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


(aa) an amount that is not included in the assessable income of an *ESVCLP because of subsection 51-54(1) or (1A) of this Act; or


(b) proceeds from a *CGT event that happens in relation to *shares in a company that was a *PDF when that event happened; or


(c) proceeds from a CGT event if:


(i) the CGT event relates to an *eligible venture capital investment; and

(ii) the share of a partner in an ESVCLP in a *capital gain or *capital loss from the CGT event is disregarded under section 118-407; or


(d) that part of the proceeds from a CGT event, relating to an eligible venture capital investment, for which there is a partial exemption under section 118-408.

104-71(4)  
The amount of the non-assessable part referred to in section 104-70 for an entity shown in the table is adjusted to exclude the amount or amounts applicable to the entity under the table.


Adjustment of non-assessable part
Item Entity Amount excluded
1 Any entity So much of the amount of a *discount capital gain excluded from the *net capital gain of the trust making the payment because of step 3 of the method statement in subsection 102-5(1) and that is reflected in the payment to the entity
2 Individual, company or trust that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(b) where the trust gain referred to in subsection 115-215(3) is reduced under Subdivision 152-C ½ of the amount of the capital loss or net capital loss
3 Individual or trust that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) ¼ of the amount of the capital loss or net capital loss
4 Company that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) where: The excess of the reduction amount over the Subdivision 152-C reduction to the paragraph 115-215(3)(c) amount
(a) that capital loss or net capital loss is more than ½ of the trust gain referred to in subsection 115-215(3); and
(b) that trust gain is reduced by an amount (the reduction amount) under Subdivision 152-C
5 *Complying superannuation entity that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(b) where: ½ of the amount of the capital loss or net capital loss
(a) that capital loss or net capital loss is more than ½ of the trust gain referred to in subsection 115-215(3); and
(b) that trust gain is reduced under Subdivision 152-C
6 *Complying superannuation entity that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) where: The excess of the reduction amount over the Subdivision 152-C reduction to the paragraph 115-215(3)(c) amount
(a) that capital loss or net capital loss is more than ¼ of the trust gain referred to in subsection 115-215(3); and
(b) that trust gain is reduced by an amount (also the reduction amount) under Subdivision 152-C
7 Any entity receiving the payment where the trust making the payment, or another trust that is part of the same *chain of trusts, has a *capital loss or *net capital loss to reduce its *capital gain described in subsection 115-215(3) The proportion of the capital loss or net capital loss reflected in the payment

Example:

Claude is paid $100 by the trustee of a unit trust. The trustee advises that the amount comprises $50 CGT discount, $25 small business 50% reduction and $25 net income from a capital gain made by the trust.

In applying the rules in Subdivision 115-C of the Income Tax Assessment Act 1997, Claude reduces his capital gain of $100 by a $20 net capital loss from an earlier year. He then reduces the remaining $80 gain by $40 (CGT discount) and $20 (small business 50% reduction) leaving a net capital gain of $20.

In applying the rules in CGT event E4, the $100 payment is reduced by $25 (being the amount assessed under section 97 of the Income Tax Assessment Act 1936). It is further reduced by $50 under item 1 of the table and $5 under item 3. Claude's non-assessable part is $20.

Effectively, CGT event E4 applies to the $20 small business 50% reduction allowed to Claude in applying Subdivision 115-C of the Income Tax Assessment Act 1997.

104-71(5)  
A chain of trusts consists of 2 or more trusts where at least one of these conditions is satisfied for each of the trusts:


(a) the trustee of the trust owns units or interests in another of the trusts; or


(b) the trustee of another of the trusts owns units or interests in the trust.


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