INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)
View history note
Hide history noteSubsections (1) and (2) do not apply for the purposes of assessments for the 1998-99 year of income or any later year of income.
See instead Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 .
This section has effect subject to Divisions 3A to 3C .
This subsection sets out how to work out, for the purposes of this Part, if a net capital gain accrues to a taxpayer in respect of a year of income and, if so, the amount of that net capital gain.
Calculating net capital gains
Step 1.
Add up all of the capital gains that accrued to the taxpayer during the year of income. The result is called the total capital gains .
Step 2.
Add up all of the capital losses incurred by the taxpayer during the year of income. The result is called the total capital losses .
Step 3.
Subtract the total capital losses from the total capital gains. (If the total capital losses exceed the total capital gains, no net capital gain accrues to the taxpayer in respect of the year of income.)
Step 4.
If there is a balance remaining after step 3, reduce it by applying net capital losses from previous years of income. (If this reduces the balance to nil, no net capital gain accrues to the taxpayer in respect of the year of income.)
Step 5.
If the balance is not reduced to nil in step 4, a net capital gain is taken to have accrued to the taxpayer in respect of the year of income. The balance after step 4 is the amount of the net capital gain.
For the purposes of this Part, a net capital loss is taken to have been incurred by a taxpayer in respect of a year of income if:
(a) the sum of any capital losses incurred by the taxpayer during the year of income;
exceeds:
(b) the sum of any capital gains that accrued to the taxpayer during the year of income.
The net capital loss is the excess.
Note:
The amount of a net capital loss may be reduced under subsection 160ZZPR(2) or 160ZZPS (2).
In working out if a net capital gain accrues where there are 2 or more net capital losses, those losses are to be applied in the order in which the taxpayer incurred them.
A net capital loss can be applied only to the extent that it has not already been applied.
If all or part of a net capital loss cannot be applied in a year of income, the unapplied amount can be carried forward to be applied in the next year of income. This section sets out whether the unapplied amount of the net capital loss can be applied in the next year of income.
Example: At the start of a year of income, Patricia has net capital losses from previous years. From the year immediately before the year of income she has an available net capital loss of $300 and from the year prior to that she has an available net capital loss of $200. During the year of income, she accrues capital gains totalling $1,000 and incurs capital losses totalling $700.
The capital losses are deducted from the capital gains leaving a balance of $300.
This balance is reduced to nil by applying the available net capital losses in the order in which they were incurred. This leaves $200 of the loss from the previous year to be carried forward and extinguishes the net capital loss from the year before that.
There is no net capital gain or net capital loss for the year of income.
In spite of any other provision of this section, if, during a year of income, a taxpayer:
(a) has become a bankrupt; or
(b) not having become a bankrupt, has been released from any debts by the operation of an Act relating to bankruptcy;
then any net capital loss from an earlier year of income cannot be applied in determining whether a net capital gain accrued to the taxpayer in respect of the year of income or a later year of income.
(a) a taxpayer becomes a bankrupt, but the bankruptcy is later annulled; and
(b) disregarding the annulment, subsection (4A) applies to the bankruptcy; and
(c) the annulment occurred under section 74 of the Bankruptcy Act 1966 ; and
(d) under the composition or scheme of arrangement concerned, the taxpayer has been, will be or may be, released from any debts, from which he or she would have been released if he or she had been instead discharged from the bankruptcy;
then, for the purposes of subsection (4A), the annulment is disregarded.
(a) in a year of income (the loss year ), a taxpayer incurs a net capital loss that, because of subsection (4A), cannot be applied as mentioned in that subsection; and
(b) the Commissioner is satisfied that a debt incurred by the taxpayer was taken into account in working out the amount of the net capital loss; and
(c) in a year of income (the payment year ) after the loss year, the taxpayer pays an amount in respect of the debt; and
(d) apart from the operation of subsection (4A), an amount of the net capital loss (the denied amount ) would have been applied (if sufficient capital gains had accrued) in determining whether a net capital gain accrued to the taxpayer in the payment year;
then the taxpayer is taken to have incurred in the payment year a capital loss of the amount worked out under subsection (4D).
The amount of the capital loss is the smallest of the following:
(a) the amount paid in respect of the debt;
(b) so much of the debt as the Commissioner is satisfied was taken into account in working out the denied amount;
(c) the denied amount, reduced by the sum of any capital losses taken by subsection (4C) to have been incurred as a result of previous payments in respect of debts that the Commissioner was satisfied were taken into account in working out the denied amount.
If, apart from sections 245-125 to 245-135 in Schedule 2C, a taxpayer would be taken to have incurred a net capital loss in an earlier year of income, then, for the purposes of this section:
(a) if the effect of those sections is to reduce the amount of the loss to nil - the taxpayer is taken not to have incurred a net capital loss in that year of income; or
(b) if the effect of those sections is to reduce the amount of the loss to an amount greater than nil - the amount of the net capital loss incurred by the taxpayer in that year of income is taken to be the reduced amount.
A net capital loss that is to be taken to have been incurred by a taxpayer being a company in respect of a year of income cannot be applied in determining whether a net capital gain accrued to the taxpayer in a later year of income if, had the net capital loss been a tax loss, Subdivision 165-A or 175-A of the Income Tax Assessment Act 1997 would have prevented the taxpayer from deducting it in that later income year.
(a) at some time during the last day of a year of income, a company is not a PDF; and
(b) the company was a PDF throughout the last day of the previous year of income ( ``the final PDF year'' );
a net capital loss that the company is taken to have incurred in respect of the final PDF year is to be disregarded in ascertaining whether a net capital gain accrued to the company, or the company incurred a net capital loss, in the first-mentioned year.
However, subsection (6) does not apply to so much of the net capital loss as does not exceed the amount (if any) by which the total of:
(a) if the company is taken to have incurred a net capital loss in respect of the last year of income before the year of income at the start of which, or during which, it became a PDF - that net capital loss; and
(b) if the company incurred a capital loss or capital losses after that last year of income and before it became a PDF - that capital loss or those capital losses;
exceeds:
(c) if a capital gain or capital gains accrued to the company after that last year of income and before the year of income referred to in paragraph (6)(a) - that capital gain or the total of those capital gains; or
(d) otherwise - a nil amount.
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