House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer,the Hon Ralph Willis, M.P.)

Chapter 8 Capital Gains Tax (Publishing Indexation Factors)

Clauses: 18 and 50

Overview

Replaces the requirement that the Treasurer publish the indexation factors to be applied in calculating the motor vehicle depreciation limit and the Capital Gains Tax (CGT) cost base limit for major capital improvements with a requirement that the Commissioner of Taxation publish the relevant factors.

Capital Gains Tax (Publishing Indexation Factors)

Summary of the proposed amendments

8.1. The amendments will amend the Income Tax Assessment Act (the Principal Act) to:

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replace the requirement that the Treasurer publish the indexation factors to be applied in calculating the motor vehicle depreciation limit and the Capital Gains Tax (CGT) cost base limit for major capital improvements with a requirement that the Commissioner of Taxation publish the relevant factors.

Background to the legislation

8.2. Section 57AF of the Principal Act requires that, for depreciation purposes, the cost limit applicable to motor vehicles for an income year will be determined by reference to an indexation factor.

8.3. Section 160P deals with the treatment of composite assets for Capital Gains Tax purposes. By subsection 160P(6), where a major capital improvement is made to an asset originally acquired prior to 20 September 1985, it may be deemed to be a separate asset. Whether a capital improvement will be a separate asset is determined by the cost base of the improvement. The amount of the cost base limit for each year of income is indexed by reference to an indexation factor determined under section 160Q.

8.4. By subsections 57AF(10) and 160Q(7) the Treasurer is required to publish the relevant indexation factor in the Gazette prior to the commencement of each income year. It has been the practice in previous years for the Treasurer to also issue a press release containing the relevant information.

8.5. The Gazettal requirement is considered to be administratively cumbersome, and duplicated information that is able to be made available to the public more quickly by other means.

Explanation of the proposed amendments

8.6. The amendment to subsection 57AF(10) removes the requirement that the Treasurer publish the motor vehicle depreciation limit indexation factor in the Gazette, and replaces it with a requirement that the Commissioner of Taxation publish the indexation factor in writing prior to the commencement of an income year. [Clause 18]

8.7. The amendment to the subsection 160Q(7) will also remove the requirement that the Treasurer publish in the Gazette the indexation factor applicable to capital improvements for section 160P purposes, and substitute a requirement that the Commissioner of Taxation publish the indexation factor in writing prior to the commencement of an income year. [Clause 50]

Commencement date

8.8. The amendments will take effect from 1992-93 income year.

Clauses involved in the proposed amendments

Clause 18: removes the requirement that the Treasurer publish the motor vehicle depreciation limit indexation factor in the Gazette.

Clause 50: removes the requirement that the Treasurer publish the indexation factor applicable to capital improvements in the Gazette.