Guide to capital gains tax 2011

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Introduction

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

New terms We may use some terms that are new to you. These words are explained in Definitions . Generally they are also explained in more detail in the section where they first appear. While we have sometimes used the word 'bought' rather than 'acquired', you may have acquired an asset subject to CGT (a CGT asset) without paying for it (for example, as a gift or through an inheritance). Similarly, we refer to 'selling' such 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). Whether by sale or by any other means, all of these disposals are CGT events.

Your tax return

Whether you are an individual or an entity (company, trust or fund), if you have a capital gain or capital loss for 2010-11, this guide will help you to complete the capital gains item on your tax return.

Worksheets

You may wish to use the two CGT worksheets provided 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 (PDF, 79KB) for working out your capital gain or capital loss for each CGT event
• a CGT summary worksheet for 2010-11 tax returns (PDF, 205KB) (CGT summary worksheet) to help you summarise your capital gains and capital losses and produce the final net amount you need to include on your tax return.

You can print out these forms and complete them as you work through the guide.

CGT 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 2011 (CGT schedule). Partnerships and individuals who lodge a paper tax return are not required to lodge a schedule.

The CGT schedule is explained in detail in part   C .

What's new?

Changes and proposed changes to the law

Capital gains tax relief for transformation of water rights

The Government has now passed a law to expand relief measures previously detailed on 27   February   2009. This provides certainty for operators who are making changes to their arrangements with their member irrigators to ensure compliance with the Water Market Rules   2009.

The changes provide a roll-over for irrigators who transformed their water entitlements from an irrigation right into an individually held water entitlement. The roll-over applies to capital gains tax (CGT) events that happen after 7   December   2010. Taxpayers may choose to lodge an amended tax return for the 2005-06, 2006-07, 2007-08, 2008-09 or 2009-10 income years to obtain the benefit of the CGT relief for any pre-transformation transactions which happened in those years.

Capital gains tax - recognition of termination and exit fees in capital gain and capital loss calculations

The Government has now passed a law to allow termination and exit fees to be recognised when calculating a capital gain or capital loss on an asset by including these costs in the asset's cost base. This change applies to CGT events that happen on or after 1   July   2008.

Aligning capital gains tax scrip for scrip roll-over requirements with Corporations Act

The Government has now passed a law to better align the capital gains tax scrip for scrip roll-over requirements in the Income Tax Assessment Act   1997 with the Corporations Act   2001 , with effect from 6   January 2010.

For more information see the publication Aligning the CGT scrip for scrip roll over .

Capital gains tax relief for compulsory acquisitions of part of a main residence

On 19   March   2009, the Government announced it would amend the tax law to extend the capital gains tax main residence exemption for compulsory acquisitions (and certain other involuntary events) relating to part of a taxpayer's main residence.

The change will ensure taxpayers do not pay CGT on compulsory acquisitions of part of their main residence and that taxpayers are neither better nor worse off as a result of a compulsory acquisition compared to if the event had not occurred.

The change will apply to CGT events that happen after the date of Royal Assent. Taxpayers will also have the option to apply the changes from the 2004-05 income year to the date of Royal Assent.

At the time of publishing these instructions this change had not become law.

For more information see Capital gains tax relief for compulsory acquisitions of part of a main residence .

Changes to taxation of special disability trusts

The Government has now passed a law that the unexpended income of a special disability trust is taxed at the beneficiary's personal income tax rates rather than at the top personal tax rate plus Medicare levy. This will take effect from the 2008-09 income year.

In the Budget 2009-10, the Government announced that it will extend the capital gains tax main residence exemption to include a residence that is owned by the trustee of a special disability trust and used by the beneficiary as their main residence. This will take effect from the 2009-10 income year.

At the time of publishing these instructions this change had not become law.

For more information see Changes to taxation of special disability trusts .

Capital protected products - change to benchmark interest rate

The Government will adjust the benchmark interest rate to better reflect the additional credit risk borne by lenders for the cost of capital protection that is paid on a deferred basis.

Currently, only interest exceeding the Reserve Bank of Australia's indicator personal unsecured loan rate is attributable to the cost of capital protection. The adjusted benchmark interest rate will be the Reserve Bank of Australia's indicator variable rate for standard housing loans plus 100 basis points.

The amendment will apply to capital protected borrowing arrangements entered into after 7.30pm (AEST) on 13   May   2008.

The transitional arrangements for capital protected borrowings entered into at or before 7.30pm (AEST) on 13   May   2008 will be extended to 30   June   2013 to reduce compliance costs for affected taxpayers in the 2012-13 income year.

At the time of publishing these instructions this change had not become law.

For more information see Capital protected products - change to benchmark interest rate .

Tax relief for investors in instalment warrants

On 10   March   2010, the Government announced it would amend the tax law to treat the beneficiary of an instalment warrant trust as the taxpayer for income tax purposes for the underlying asset in the trust. The changes will apply to treat:

• the investor in an instalment warrant over an exchange traded security in a company, trust or stapled security as the owner of the listed security for income tax purposes; and
  
   
• a superannuation trustee who enters into a limited recourse borrowing arrangement for the purpose of purchasing an asset, as permitted under former subsection 67(4A) of the Superannuation Industry (Supervision) Act 1993 (the SISA), now sections 67A and 67B SISA, as the owner of the asset for income tax purposes.

At the time of publishing these instructions this change had not become law.

For more information see Tax relief for investors in instalment warrants .

Look-through treatment for earnout arrangements

On 12   May 2010, the Government announced it would amend the tax law to treat additional payments made under a 'standard' earnout arrangement as related to the original asset for the seller and adding to the cost base for the buyer. It will treat payments made under a 'reverse' earnout arrangement as effectively a repayment of part of the capital proceeds.

This change will apply to earnout arrangements entered into on or after royal assent of the amending legislation. Optional transitional relief will be provided, in certain cases, back to 17   October 2007, which was the date of release of a relevant ATO draft ruling.

At the time of publishing these instructions this change had not become law.

For more information see Look-through treatment for earnout arrangements .

Capital gains tax demerger relief for certain demerger groups

In the Budget 2010-11, the Government announced it would amend the capital gains tax demerger provisions so that demerger groups which currently include corporations sole or a complying super entity as the head entity can benefit from the capital gains tax demerger roll-over. This will be done by allowing another entity in the demerger group to be the head entity of such demerger groups, with effect from 7.30pm   (AEST) on 11   May   2010.

At the time of publishing these instructions this change had not become law.

For more information see Capital gains tax - demerger relief for certain demerger groups .

Capital gains tax - share sale facility interactions with CGT roll-over

In the Budget 2010-11, the Government announced it would allow Australian resident interest holders access to a broader range of capital gains tax roll-overs where an entity restructures using a share or interest sale facility for foreign interest holders, with effect from 7.30pm (AEST) 11   May   2010.

At the time of publishing these instructions this change had not become law.

For more information see Capital gains tax - share sale facility interactions with CGT roll-over .

Extension of the capital gains tax roll-over for conversion of a body to an incorporation

In the Budget 2010-2011, the Government announced it would extend the capital gains tax roll-over for the conversion of an incorporated body to an incorporated company to include transfers of incorporations by Indigenous incorporated bodies to the Corporations (Aboriginal and Torres Strait Islander) Act   2006 and transfers of incorporation from the Corporations Act   2001 to the Corporations (Aboriginal and Torres Strait Islander) Act 2006 without immediate capital gains tax consequences with effect from 7.30pm (AEST) on 11   May 2010.

At the time of publishing these instructions this change had not become law.

For more information see Extension of the capital gains tax roll-over for conversion of a body to an incorporation .

Improving the taxation of trust income

The Assistant Treasurer has announced plans to update the trust taxation provisions in Division 6 of the Income Tax Assessment Act 1936 to address the uncertainties in the law following the Bamford High Court decision.

The interim amendments will include new anti-avoidance rules and measures to allow tax-effective streaming of franked distributions and capital gains to beneficiaries. The amendments will apply from the 2010-11 income year.

At the time of publishing these instructions this change had not become law.

For more information see Improving the taxation of trust income .

Exemption for incentives related to renewable resources or for preserving environmental benefits

In the 2011 Budget, the Government announced it will exempt from CGT any gain or loss arising from a right to a financial incentive granted to taxpayers under a Commonwealth, state or territory government scheme that encourages them to:

• acquire renewable resource assets (for instance, photovoltaic solar cells or solar hot water systems), or
• agree to preserve a part of Australia's environmental amenity (for instance, for refraining from removing remnant vegetation).

This measure will turn off the income tax recoupment rules and also provide appropriate depreciation consequences for taxpayers that realise such rights.

At the time of publishing these instructions the changes had not become law. Once the changes become law, they will apply to income tax assessments for the 2007-08 and later income years. Taxpayers who are affected will be able to request an amended assessment.

ATO references:
NO NAT 4151