Taxation Laws Amendment Act (No. 7) 2000 (173 of 2000)

Schedule 6   Discount capital gains: integrity measures

Income Tax Assessment Act 1997

1   Section 115-20

Repeal the section, substitute:

115-20 Discount capital gain must not have indexed cost base

(1) To be a *discount capital gain, the *capital gain must have been worked out using a *cost base that has been calculated without reference to indexation at any time.

(2) For the purposes of working out whether the *capital gain is a *discount capital gain and the amount of that gain, the *cost base taken into account in working out the capital gain may be recalculated without reference to indexation if the cost base had an element including indexation because of another provision of this Act. This subsection has effect despite that other provision.

Note: This lets a capital gain of an entity (the gain entity ) on a CGT asset be a discount capital gain even if:

(a) another provision of this Act (such as a provision for a same-asset roll-over or Division 128) set the gain entity's cost base for the asset by reference to the cost base for the asset when it was owned by another entity (the earlier owner ), and the earlier owner's cost base for the asset included indexation; or

(b) another provision of this Act (such as a provision for a replacement-asset roll-over) set the cost base of the asset by reference to the cost base of the original asset involved in the roll-over, and the original asset's cost base included indexation.

Example: In 1995 Elizabeth acquired land from her ex-husband under an order made by a court under the Family Law Act 1975. Section 160ZZM of the Income Tax Assessment Act 1936 treated her as having paid $56,000 for the land, equal to her ex-husband's indexed cost base for it. His cost base for the land then was $40,000.

In 2000, she sold the land for capital proceeds of $150,000.

Her discount capital gain on the land is $110,000 (equal to the capital proceeds less the cost base for the land without indexation).