Income Tax Assessment Act 1997
Pt 3-1 inserted by No 46 of 1998.
Div 118 inserted by No 46 of 1998.
SECTION 118-20 Reducing capital gains if amount otherwise assessable 118-20(1)
A *capital gain you make from a *CGT event is reduced if, because of the event, a provision of this Act (outside of this Part) includes an amount (for any income year) in: (a) your assessable income or *exempt income; or (b) if you are a partner in a partnership, the assessable income or exempt income of the partnership.
118-20(1A)
Subsection (1) applies to an amount that, under a provision of this Act (outside of this Part), is included in: (a) your assessable income or *exempt income; or (b) if you are a partner in a partnership, the assessable income or exempt income of the partnership;
in relation to a *CGT asset as if it were so included because of the *CGT event referred to in that subsection if the amount would also be taken into account in working out the amount of a *capital gain you make.
Note:
An example is an amount assessable under Division 16E of Part III of the Income Tax Assessment Act 1936 , which deals with accruals taxation of certain securities.
118-20(1B)
The rule in subsection (1) does not apply to: (a) an amount that is taken to be a dividend under section 159GZZZP of the Income Tax Assessment Act 1936 (which relates to buy-backs of *shares); or (b) an amount included in assessable income under subsection 207-20(1) , 207-35(1) or 207-35(3) of this Act (which relate to franked distributions).
S 118-20(1B) amended by No 23 of 2005.
118-20(2)
The gain is reduced to zero if it does not exceed: (a) the amount included; or (b) if you are a partner, your share (the partner ' s share ) of the amount included in the assessable income or *exempt income of the partnership (calculated according to your entitlement to share in the partnership net income or loss).
Example:
Liz bought some land in 1990, as part of a profit-making scheme. In December 1998 she sells it.
Her profit from the sale is $40,000 and is included in her assessable income under section 6-5 (about ordinary income).
Suppose she made a capital gain from the sale of $30,000. It is reduced to zero because it is does not exceed the amount included.
118-20(3)
The gain is reduced by the amount included, or the amount of the partner ' s share, if the gain exceeds that amount.
Note:
These rules are modified for complying superannuation funds that become non-complying and for foreign superannuation funds that become Australian superannuation funds: see Division 295 .
S 118-20(3) amended by No 15 of 2007, s 3 and Sch 1 item 195, by substituting the note, applicable to the 2007-2008 income year and later years. The note formerly read:
Note:
These rules are modified for complying superannuation funds that become non-complying and for non-resident superannuation funds that become resident: see Part IX of the Income Tax Assessment Act 1936 .
118-20(4)
A *capital gain you make from a *CGT event is reduced by the extent that a provision of this Act (except sections 59-40 and 316-255 ) treats: (a) an amount of your *ordinary income or *statutory income from the event as being *non-assessable non-exempt income; or (b) if you are a partner, your share of the ordinary income or *statutory income of the partnership from the event (calculated according to your entitlement to share in the partnership net income or loss) as being non-assessable non-exempt income of the partnership.
S 118-20(4) amended by No 110 of 2021, s 3 and Sch 2 item 11, by repealing the note, effective 1 October 2021 and applicable in relation to assessments for the 2023-24 year of income and later years of income. The note formerly read:
Note:
An example of a provision of this kind is section 121EG (about offshore banking units) of the Income Tax Assessment Act 1936 .
S 118-20(4) amended by No 88 of 2009, s 3 and Sch 3 item 17, by substituting " sections 59-40 and 316-255 " for " section 59-40 " , applicable in relation to demutualisations occurring on or after 1 July 2008.
S 118-20(4) amended by No 91 of 2008 , s 3 and Sch 1 item 8, by inserting " (except section 59-40) " after " a provision of this Act " , effective 20 September 2008 and applicable to rights issued on or after 1 July 2001.
S 118-20(4) amended by No 66 of 2003.
118-20(4A)
A *capital gain the trustee of a *superannuation fund makes from a *CGT event happening in relation to a *CGT asset in an income year is reduced if the asset ' s *market value was taken into account in working out the fund ' s income from previous years under section 295-325 or 295-330 .
S 118-20(4A) amended by No 15 of 2007, s 3 and Sch 1 item 196, by substituting " income from previous years under section 295-325 or 295-330 " for " net previous income for earlier income years under section 288A or 288B of the Income Tax Assessment Act 1936 " , applicable to the 2007-2008 income year and later years.
118-20(4B)
The gain is reduced to zero if it does not exceed the amount that would have been the *capital gain from the *CGT event if the *capital proceeds from the event were the asset ' s *market value that was taken into account in working out that net previous income.
If the gain exceeds that amount, it is reduced by that amount.
Exceptions
118-20(5)
The gain is not reduced if an amount is included in your assessable income, or the assessable income of the partnership, for any income year because of a balancing adjustment.
118-20(6)
The gain is not reduced if an amount is included in your *non-assessable non-exempt income under section 768-5 (about foreign equity distributions on participation interests) because a company makes a *foreign equity distribution that is: (a) debited against a *share capital account of the company; or
(b) (Omitted by No 63 of 1998) (c) debited against an asset revaluation reserve of the company; or (d) directly or indirectly attributable to amounts transferred from such an account or reserve of the company.
S 118-20(6) amended by No 110 of 2014, s 3 and Sch 2 item 18, by substituting " section 768-5 (about foreign equity distributions on participation interests) because a company makes a *foreign equity distribution " for " section 23AJ (about exempting certain non-portfolio dividends paid by non-resident companies) of the Income Tax Assessment Act 1936 because a company pays a *dividend to you " , applicable to distributions and non-share dividends made after 16 October 2014.
S 118-20(6) amended by No 80 of 2006, s 3 and Sch 4 item 23, by substituting " *share capital account " for " share capital account " in para (a), applicable for the purpose of determining whether an account is a share capital account when applying a provision of the Income Tax Assessment Act 1997 or the Income Tax Assessment Act 1936 in relation to a time that is after 30 June 2006, even if the account was in existence before that date.
S 118-20(6) amended by No 66 of 2003 and No 63 of 1998.
S 118-20 inserted by No 46 of 1998.
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