Commonwealth Consolidated Acts Commonwealth Consolidated Acts
Income Tax Assessment Act 1997
1 Sections 104 - 70, 104 - 71 and 104 - 72
Repeal the sections, substitute:
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 your unit or your 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.
To avoid doubt, in applying paragraph ( b) to work out what part of the payment is included in your assessable income, disregard your share of the trust's net income that is subject to the rules in subsection 115 - 215(3).
Note 1: Subsections 104 - 71(1) (tax - exempted amounts), 104 - 71(3) (tax - free amounts) and 104 - 71(4) (CGT concession amounts) can affect the calculation of the non - assessable part.
Note 2: The non - assessable part includes amounts (tax - deferred amounts) associated with the small business 50% reduction, frozen indexation, building allowance and accounting differences in income.
Note 3: A payment made to you after you stop owning the unit or interest in the trust forms part of the capital proceeds for the CGT event that happened when you stopped owning it.
(2) The payment can include giving property (see section 103 - 5).
(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 other CGT event.
(4) You make a capital gain if the sum of the amounts of the non - assessable parts 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.
Note: A capital gain under section 160ZM of the Income Tax Assessment Act 1936 is also taken into account for the purposes of this subsection: see subsection 104 - 70(3) of the Income Tax (Transitional Provisions) Act 1997 .
(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 adjustment in subsection 104 - 71(3)).
Example: Mandy owns units in a unit trust that she bought on 1 July 1998 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.
Exception
(7) A * capital gain you make from * CGT event E4 is disregarded if you * acquired the * CGT asset that is the unit or interest before 20 September 1985.
104 - 71 Adjustment of non - assessable part
(1) In working out the non - assessable part referred to in section 104 - 70, disregard any part of the payment that is:
(a) * excluded exempt income; or
(b) * exempt income subject to withholding tax; or
(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
(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).
(2) However, the non - assessable part is not reduced by any part of the payment that you can deduct.
(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
(b) proceeds from a * CGT event that happens in relation to * shares in a company that was a * PDF when that event happened.
(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 | 1 / 2 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) | 1 / 4 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: (a) that capital loss or net capital loss is more than 1 / 2 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 | The excess of the reduction amount over the Subdivision 152 - C reduction to the paragraph 115 - 215(3)(c) amount |
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: (a) that capital loss or net capital loss is more than 1 / 2 of the trust gain referred to in subsection 115 - 215(3); and (b) that trust gain is reduced under Subdivision 152 - C | 1 / 2 of the amount of the capital loss or net capital loss |
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: (a) that capital loss or net capital loss is more than 1 / 4 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 | The excess of the reduction amount over the Subdivision 152 - C reduction to the paragraph 115 - 215(3)(c) amount |
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 .
Note 1: Step 3 of the method statement in subsection 102 - 5(1) (see table item 1) reduces by 50% the trust's discount capital gains remaining after applying capital losses and earlier net capital losses. That 50% is excluded from the trust's net capital gain.
Note 2: Subdivision 152 - C (small business 50% reduction--see table items 2, 3, 4, 5, 6 and 7) reduces by 50% the trust's capital gains or discount capital gains remaining after applying step 3 of the method statement in subsection 102 - 5(1). That 50% is also excluded from the trust's net capital gain.
Note 3: Paragraph 115 - 215(3)(b) or (c) (see table items 2, 3, 4, 5 and 6) treats a beneficiary as having an extra capital gain if an amount of the trust's net income that is included in the beneficiary's assessable income is attributable to trust gains that were reduced by step 3 of the method statement in subsection 102 - 5(1) and/or the small business 50% reduction.
(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.
104 - 72 Reducing your capital gain under CGT event E4 if you are a trustee
(1) A * capital gain you make under subsection 104 - 70(4) is reduced if:
(a) you are the trustee of another trust that is a * fixed trust and is not a * complying superannuation entity; and
(b) you are taken to have a * capital gain under paragraph 115 - 215(3)(b) or (c) (your notional gain ) in respect of a corresponding trust gain (the trust gain ); and
(c) some or all (the attributable amount ) of the total of the non - assessable parts referred to in subsection 104 - 70(4) is attributable to proceeds from the trust gain.
(2) The * capital gain is reduced (but not below 0) by the lesser of:
(a) your notional gain; and
(b) the attributable amount.
2 Section 115 - 60
Repeal the section.
3 Subsection 995 - 1(1)
Insert:
"chain of trusts" has the meaning given by section 104 - 71.
4 Transitional
(1) The amount of the non - assessable part referred to in section 104 - 70 of the Income Tax Assessment Act 1997 is reduced by a further amount if:
(a) the trustee of a trust makes a payment to you in respect of your unit or your interest in the trust; and
(b) the payment is made on or after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 and before 1 July 2001; and
(c) you are the trustee of a trust that is not a complying superannuation entity; and
(d) a discount capital gain is 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) of that Act.
(2) The reduction is so much of the excluded discount capital gain as is reflected in the payment.
5 Application
(1) The amendments made by this Schedule apply to payments by trustees made on or after 1 July 2001.
(2) Item 4 applies to payments by trustees made on or after 11.45 am, by legal time in the Australian Capital Territory, on 21 September 1999 and before 1 July 2001.