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

10   Amendment of Chapter 6 (the Dictionary) of the Income Tax Assessment Act 1997

10   At the end of Division 960

Add:

Subdivision 960-M - Indexation

Guide to Subdivision 960-M

960-260 What this Subdivision is about

There are a number of provisions in this Act that require amounts to be indexed. This Subdivision shows you:

? how to index those amounts; and

? how to calculate the indexation factor.

Table of sections

Operative provisions

960-270 Indexing amounts

960-275 Indexation factor

960-280 Index number

[This is the end of the Guide.]

960-265 The provisions for which indexation is relevant

This table sets out the provisions for which indexation is relevant.

Note: There are provisions of the Income Tax Assessment Act 1936 dealing with indexation that have not yet been rewritten.

Operative provisions

960-270 Indexing amounts

(1) Some provisions of this Act require amounts to be indexed. You index an amount by multiplying it by its *indexation factor.

(2) You do not index the amount if its *indexation factor is 1 or less.

960-275 Indexation factor

(1) For indexation of amounts on an annual basis, the indexation factor is:

Sum of the index numbers fro the quarters in the year ending on 31 March just before the start of the relevant financial year / Sum of the index numbers for the quarters in the year ending on the previous 31 March

Example: The business exemption threshold is an amount that is indexed on an annual basis: see section 118-260.

(2) For indexation of the *cost base of a *CGT asset (except the first element of the cost base of an asset covered by subsection (3)), the indexation factor for expenditure in an element of the cost base is:

The index number for the quarter of the year in which the CGT event happened to the asset / The index number for the quarter in which the expenditure was incurred

Note 1: This rule applies even if you do not actually pay some of the expenditure until a later time (for example, under a contract to purchase an asset by instalments).

Note 2: There are rules affecting when the expenditure was incurred: see sections 114-15 and 114-20.

(3) For indexation of the first element of the *cost base of a *CGT asset that is:

(a) a *share in a company that was issued or allotted by the company; or

(b) a unit in a unit trust that was issued by the trustee of the unit trust;

the indexation factor for an amount in the first element of the *cost base of the asset that was paid at a time after it was issued or allotted is:

The index number for the quarter of the year in which the CGT event happened to the asset / The index number for the quarter in which the amount was paid

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

Example: A company issues shares to you. You acquire the shares in circumstances that did not involve a CGT event. If the shares are partly-paid and the company later makes a call on the shares, you use the index number for the quarter in which you paid that later payment.

Note: This subsection does not apply to shares or units you acquired before 16 August 1989: see section 960-275 of the Income Tax (Transitional Provisions) Act 1997.

(4) However, you cannot index expenditure in the third element of the *cost base of a CGT asset (non-capital costs of ownership).

(5) You work out the *indexation factor to 3 decimal places (rounding up if the fourth decimal place is 5 or more).

Example: If the factor is 1.102795, it would be rounded up to 1.103.

960-280 Index number

(1) In most cases, the index number for a quarter is the All Groups Consumer Price Index number (being the weighted average of the 8 capital cities) first published by the Australian Statistician for the quarter.

(2) For calculating the *car depreciation limit under Subdivision 42-K, the index number for a quarter is the index number for the motor vehicle purchase sub-group of the Consumer Price Index, being the weighted average of the 8 capital cities, first published by the Australian Statistician for the quarter.

(3) If the Australian Statistician changes the reference base for an *index number, only index numbers published in terms of the new base are to be used after the change.

[The next Division is Division 975.]

A