Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)CHANGE OF TITLE - TAX LAW IMPROVEMENT BILL (No. 1) 1998 - SENATE - Explanatory Memorandum.
Chapter 2.2 - Assessable income includes net capital gain
Overview
This segment covers the rewritten rules in Division 102 for working out if a taxpayer has a net capital gain or net capital loss for an income year.
Part A summarises these rules.
Part B explains the changes to the 1936 Act.
A. Summary of the new law
Division 102: Assessable income includes net capital gain
Division 102 explains how to work out whether a net capital gain or a net capital loss has been made for an income year.
Net capital gains are assessable income. A net capital loss cannot be deducted from assessable income but is instead applied against capital gains made in later years.
Making a capital gain or capital loss
A capital gain or capital loss is determined when a CGT event happens. [section 102-20]
For each event, there is provision for calculating the amount of the capital gain or loss from the event. [section102-22]
Generally, only one event can apply to any particular transaction. There are rules that specify when more than one event can apply, and what order of precedence applies. [sections 102-23 and 102-25]
Working out your net capital gain
The steps in working out a net capital gain are:
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- Add up capital gains for the income year.
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- Subtract from this the total sum of any capital losses for the year.
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- Subtract any unapplied capital losses from previous years.
The remainder is the net capital gain for the income year. [section 102-5]
Working out your net capital loss
The steps in working out a net capital loss are:
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- Add up capital losses for the income year.
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- Subtract from this total, any capital gains for the year.
The remainder is the net capital loss for the income year. [section 102-10]
Applying net capital losses in later years
If there are net capital losses from two or more earlier years, they are applied in the order in which they were made. [section 102-15]
There are rules that exclude certain losses and net capital losses from the calculation of net capital gains. These are contained in a table of exceptions and modifications to the general calculation rules. [section 102-30]
B. Discussion of changes
Division 102 Assessable income includes net capital gain
Sections 102-5 and 102-10 explain how to calculate for an income year the amount of:
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- a net capital gain included in assessable income; and
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- a net capital loss.
Section 102-15 has the rules for applying net capital losses in later income years. The calculation method applies to capital gains and losses from all CGT assets, including collectables.
Standardise the method for calculating a net capital gain when net capital losses from collectables are brought forward from previous income years.
The 1936 Act attaches net capital losses to the income years in which they occur and carries them forward to be applied against later gains on an 'earliest year first' basis. However, this method is not used for the disposal of collectables (known as listed personal-use assets in the 1936 Act). For these assets, a listed personal-use asset loss made in one income year is always taken into account in calculating the net listed personal-use asset gain or loss in the next year even if there are no listed personal-use asset gains in that year.
The rewritten provisions will, in this respect, bring the calculation of net capital gains and losses from collectables into line with that used for other assets.