Guide to capital gains tax 2003

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Introduction

This guide is designed to help you work out whether any of the assets you own (or may own in the future), and whether other events that happen to you will be subject to capital gains tax (CGT). It tells you how to work out your capital gain or capital loss. It also covers what records you need to keep.

Note - New terms

• We may have used some terms that are not familiar to you. These words are explained in Explanation of terms .
• While we have sometimes used the word 'bought' rather than 'acquired', you may have acquired an asset without paying for it (for example, as a gift or through an inheritance). Similarly, we refer to 'selling' an asset when you may have 'disposed' of it in some other way (for example, by giving it away or transferring it to someone else). For the purposes of this guide, all of these 'acquisitions' and 'disposals' are CGT events.

Your tax return

If you have a capital gain or capital loss for 2002-03, this guide will help you (as an individual) or an entity (company, trust or fund) complete the capital gains item on a paper-based tax return.

Worksheets

You may wish to use the CGT worksheets to help you keep track of your records and make sure you pay no more CGT than necessary.

There is a Capital gain or capital loss worksheet provided that you may wish to use to work out your capital gain or capital loss for each CGT 'event'. There is also a CGT summary worksheet that helps you summarise your capital gains and capital losses to produce the final net amount you need to include on your tax return.

Capital gains tax schedule

If you are a company, trust or fund with total capital gains or capital losses of more than $10,000 this income year , you must complete a Capital gains tax (CGT) schedule 2003 (CGT schedule). Partnerships and individual paper tax preparers are not required to lodge a schedule.

The CGT schedule is explained in detail in Part C .

Consolidated income taxation of corporate groups

The Consolidation reference manual provides detailed information on the operation of consolidation. To get this manual and other consolidation products or if you have tax technical enquiries, phone the business tax reform infoline on 13 24 78 or visit the business tax reform section of < www.ato.gov.au >

What's new

The following is a summary of recent CGT changes and proposed changes to remember when calculating your capital gain or capital loss:

• New demerger rules apply to owners of interests in a company or trust which are affected by a demerger of interests owned by that company or trust on or after 1 July 2002. Generally a CGT event will occur in respect of those interests.

CGT relief is provided to:

• the owners of the head entity of a demerger group, and
• entities in the demerger group.

Refer to Demergers for further details.

• Land owners who enter into a conservation covenant after 1 July 2002 and do not receive any capital proceeds for entering into it are taken to have disposed of part of their land if they are entitled to a deduction under Division 31 of the Income Tax Assessment Act 1997 . The capital proceeds that the land owner is taken to have received is the amount they can deduct under Division 31.

  Also, the Government has announced that it will extend the tax concession for conservation covenants to include those entered into with government agencies on or after 1 July 2002 (Source: Joint media release of the Minister for the Environment and the Assistant Treasurer C008/ 03, 20 February 2003).

• The Government has introduced legislation into Parliament to change the tax treatment of convertible notes issued by a company after 14 May 2002 if the notes are traditional securities. Under the proposal:
  • gains made when these convertible notes are converted or exchanged for ordinary shares in a company will not be ordinary income at the time of conversion and losses made will not be deductible. Instead gains will only be taxed when the shares are sold or disposed of
  • for ordinary investors, any gains or losses on the sale or disposal of the shares will be subject to CGT.
• As part of the Ralph review of business taxation, the Government announced measures to provide exemptions from Australian tax for individuals who are first time temporary residents of Australia. Under the proposed amendments any capital gains or capital losses made by such persons on the disposal of assets that do not have the necessary connection with Australia (except for the disposal of portfolio interests in publicly listed companies and resident unit trusts ) will be disregarded if the CGT event happens on or after 1 July 2002. As at June 2003 the legislation for this measure has not been passed by parliament.
• The general value shifting regime (GVSR) replaces the value shifting rules in Divisions 138, 139 and 140 of the Income Tax Assessment Act 1997 . Subject to transitional rules, the GVSR applies from 1 July 2002.

Broadly, value shifting describes transactions and other arrangements that reduce the value of an asset and (usually) increase the value of another asset.

The GVSR consists of direct value shifting (DVS) and indirect value shifting (IVS) rules that impact primarily on equity and loan interests in companies and trusts. There is also a DVS rule dealing with non-depreciating assets over which a right has been created.

Where the rules apply to a value shift there may be a deemed gain (but not a loss), adjustments to adjustable values (for example, cost bases), or adjustments to losses or gains on realisation of assets.

There are thresholds and exclusions that will minimise the cost of complying with the GVSR, particularly for small business. Entities dealing at arm's length or on market value terms are generally excluded from the GVSR.

For more information, refer to the Guide to the general value shifting regime on our website at www.ato.gov.au

ATO references:
NO NAT 4151