House of Representatives

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 2 - CGT exemption for certain compensation payments

Outline of chapter

2.1 This chapter explains the CGT exemption for payments received by Australian residents under the GFLCP.

Context of amendments

German Forced Labour Compensation Programme

2.2 The amendment provides a CGT exemption for payments received by Australian residents under the GFLCP. The purpose of the GFLCP is to provide financial compensation to former slave and forced labourers and certain other victims of the National Socialist period. The payments are made under the GFLCP through the Foundation, established under German law, or its partner organisations.

2.3 The GFLCP provides for two types of payments:

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for personal wrong or injury (including slave or forced labour); and

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for property damage or loss, where relief under other funds is not available.

2.4 The payments are made to victims of injustices suffered during the National Socialist period, to a relative of the victim or to the victim's heir.

Current tax law

2.5 GFLCP payments made to victims, their relatives or heirs are not subject to income tax, as they do not constitute income according to ordinary concepts. However, payments are subject to CGT in certain circumstances.

2.6 Personal wrong or injury payments made to the victim or to the victim's relative, and property damage or loss payments made to the former property owner, are exempt from CGT. However, the payments are subject to CGT when paid to the victim's heir who is not a relative (in the case of personal wrong or injury payments) and when paid to the former property owner's heir (in the case of property damage or loss payments), whether or not the heir is a relative (see section 118-37 of the ITAA 1997).

2.7 The amendment extends the current CGT exemption to the victim's heir who is not a relative, in the case of personal wrong or injury payments, and to the former property owner's relative or heir, in the case of property damage or loss payments.

Summary of new law

2.8 The amendment introduces a specific exemption from CGT for GFLCP payments received by Australian residents.

Comparison of key features of new law and current law

Detailed explanation of new law

2.9 A payment received by an Australian resident under the programme known as the GFLCP, from the Foundation or its partner organisations, is exempt from CGT. [Schedule 2, item 1]

'Remembrance, Responsibility and Future' Foundation

2.10 The Foundation was established by the German government and came into force on 12 August 2000. The purpose of the Foundation is to provide financial compensation to former slave and forced labourers and certain other victims of injustices suffered during the National Socialist period.

2.11 The GFLCP payments are made by one of the Foundation's partner organisations. There are seven partner organisations and each is responsible for payments to residents of a particular geographical region. GFLCP payments to Australian residents are made by the IOM.

2.12 Claims for GFLCP payments were required to be lodged by individual applicants with the relevant partner organisation by 31 December 2001. Claims were processed, and eligibility for payments determined, by the relevant partner organisation.

Reasons for payments

2.13 The GFLCP payments are in the nature of financial compensation for personal wrong or injury, or for loss of, or damage to, property.

2.14 Payments for personal wrong or injury include payments to a person relating to:

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slave labour;

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forced labour in industry, for a public authority, or in agriculture;

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the death of, or severe damage to the health of, a child who was lodged in a home for children of slave or forced labourers; and

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other personal injuries suffered as a result of National Socialist injustices, including being subjected to medical experiments.

2.15 Payments for property loss include payments to a person relating to:

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property loss as a result of racial persecution, where relief under other funds is not available; and

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other property loss suffered as a result of National Socialist injustices.

Payment recipients

2.16 GFLCP payments are made to the victims of Nationalist Socialist injustices. Where the victim has died after 15 February 1999, payments may be made to the victim's surviving relatives (including spouse, children and grandchildren and the victim's siblings) or to heirs named in a will.

Application and transitional provisions

2.17 The amendment applies to assessments for the 2001-2002 income year and later income years [Schedule 2, item 2]. No GFLCP payments were made before the closing date for applications, that is, 31 December 2001.