Senate

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 2.7 - Acquisition of CGT assets

Overview

This segment explains provisions which identify the various ways in which CGT assets can be acquired and establish the time at which the acquisition occurs in each case.

These rules are in Division 109 of the Bill.

Part A is a summary of Division 109.

Part B identifies a provision of the 1936 Act that has not been rewritten.

A. Summary of the new law

Division 109: CGT acquisitions

What the Division does

Division 109 sets out the various ways in which you can acquire a CGT asset and establishes the time of acquisition for CGT purposes.

Acquisition of a CGT asset

A taxpayer may acquire a CGT asset as a result of:

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a CGT event - as examples, by transfer of land under a contract of sale or the creation of a right such as by the grant of an option;

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other events - such as the issue of shares by a company or the making of capital improvements to a CGT asset in circumstances where the improvements are treated as separate assets; or

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the application of specific rules such as where an individual dies and a CGT asset passes to the beneficiary.

The time of acquisition

Generally, you acquire a CGT asset at the time of the CGT event or when the other relevant event happens. The time of acquisition of a newly created CGT asset is generally when the asset is created. For example, the time of acquisition of an option is when the option is granted.

The time of acquisition is relevant for a number of reasons, the main ones being:

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CGT generally does not apply to assets acquired before 20 September 1985;

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indexation is only available for assets held more than 12 months; and

•

market value calculations are frequently based on the market value of an asset when it is acquired.

B. Provisions that have not been rewritten

Redundant provision

Subsection 160M(6D) of the 1936 Act containing the definition of the term vest has not been redrafted. The new CGT event approach made the definition redundant.