Guide to capital gains tax 2012

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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 2011-12, 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, 198KB) for working out your capital gain or capital loss for each CGT event
• a CGT summary worksheet for 2011-12 tax returns (PDF, 309KB) (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 2012 (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.

Some of the following changes and proposed changes to the law may have effect before the actual change is made in the legislation, this is known as a retrospective tax law change. For information to help you decide what you should do if you need to lodge your income tax return and a particular change that might affect you has not become law yet, see The ATO's approach to dealing with retrospective law changes

2012 Budget announcements

In the 2012 Budget, the Government announced that it would amend the law in a range of capital gains tax measures including the following:

• Capital gains tax - amendments to the revenue asset and trading stock rollovers for interposing a company
• Capital gains tax - broadening the exemptions for certain compensation payments and insurance policies
• Capital gains tax - refinements to the income tax law in relation to deceased estates
• Capital gains tax and loss relief to facilitate superannuation reforms
• International tax - removal of the capital gains tax discount for non-residents

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

For more information see Budget 2012 - revenue measures

Amendments to the rollover for the exchange of shares in companies

In the 2011 Budget, the Government announced that it would amend the rollover for the exchange of shares in one company for shares in another company to ensure there is a deferral of a profit or loss where the original shares are held on revenue account at the time of the exchange.

This measure will have effect from 7.30pm AEST on 10   May   2011.

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

For more information see Amendments to revenue asset and trading stock roll-overs

Amendments to rollover for disposal and transfer of assets by a trust

In the 2011 Budget, the Government announced it would amend the rollover for certain disposals of assets by a trust to allow rollover relief to apply where a transferee company or trust holds rights, just before the disposal or transfer time, associated with a deed or similar document that is designed to facilitate the transfer of assets into the company or trust.

This measure will have effect from 7.30pm AEST on 10   May 2011 for disposal of assets from a trust to a company and 1   November 2008 for transfer of assets between trusts.

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

For more information see Amendments to revenue asset and trading stock roll-overs

Capital gains tax - exemption for incentives related to renewable resources

As part of the 2011 Budget, the Government announced it will exempt from capital gains tax (CGT) any gains or losses arising from a right to a financial incentive, granted to taxpayers under an Australian Government (Commonwealth, State or Territory) 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.

This measure will apply to income tax assessments for the 2007-08 income year and later income years.

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

For more information see Capital gains tax - exemption for incentives related to renewable resources

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

The Government has amended 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 ensures that 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.

These changes became law on 29   June 2011 and apply to CGT events that happen on or after that date. Taxpayers will also have the option to apply the changes from the 2004-05 income year up until 28   June 2011.

For more information see Main residence - compulsory acquisition .

Changes to the capital gains tax exemption for a dwelling of a deceased person.

The Government has amended the law to give the Commissioner discretion to extend the two year period where the trustee or beneficiary of a deceased estate's ownership interest ends after two years from the deceased person's death.

The amendments will apply in relation to CGT events that happen in the 2008-09 income year.

For more information see Commissioner may extend the two year time period

No capital gains tax for properties in natural disaster land swap programs

The Assistant Treasurer has announced any property owners with investment properties involved in the Lockyer Valley Regional Council's land swap program will be eligible for CGT relief.

This measure will:

• allow taxpayers to choose a CGT exemption if they are affected by a natural disaster and participate in an Australian Government agency program that provides replacement assets, and
• apply an exemption to rights arising under a cash grant program for taxpayers affected by a natural disaster (whether the program is run by an Australian Government agency or another entity).

Taxpayers will also be able to attain pre-CGT status on their replacement asset.

Taxpayers whose main residence is accidentally destroyed will be able to access the main residence exemption to the extent they would have been able to had their main residence not been destroyed. The exemption will apply where they sell the land or any rebuilt dwelling without establishing the new dwelling (and its adjacent land) as their main residence.

This measure applies generally to CGT events happening on or after 1   July   2011.

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

For more information see No capital gains tax for properties in natural disaster land swap programs .

Changes to taxation of special disability trusts

The Government has passed a law to provide:

• a capital gains tax (CGT) exemption for an asset transferred into a special disability trust (SDT) for no consideration
• a CGT main residence exemption for a trustee of an SDT
• a CGT exemption for a recipient of the principal beneficiary's main residence, if their ownership interest ends within two years of the principal beneficiary's death, and
• equivalent taxation treatment amongst SDTs established under different Acts.

These changes are effective for CGT events that happen on or after 1   July 2006 (the year in which SDTs were first able to be established).

For more information see Changes to taxation of special disability trusts

Capital protected products - change to benchmark interest rate

The Government has passed a law to 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.

Previously, 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 is now the Reserve Bank of Australia's indicator variable rate for standard housing loans plus 100 basis points.

The amendment applies 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 have been extended to 30   June 2013 to reduce compliance costs for affected taxpayers in the 2012-13 income year.

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.

However, in the 2011 Budget, the Government further announced it will extend the look-through treatment beyond single exchange traded securities to include instalment warrants and receipts over:

• direct and indirect interests in listed securities
• unlisted securities in widely held entities
• bundles of these assets.

At the time of publishing these instructions these changes 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 from 12   May 2010 or, in certain limited situations, 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 2010 Budget, 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 rollover. 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.

This proposal became law on 23   March 2012.

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

Amendments to scrip for scrip rollover and the small business concessions

The Government announced in the 2011 Budget that it will ensure the scrip for scrip rollover integrity provisions that apply to individuals and companies also apply to trusts, superannuation funds and life insurance companies. The Government will also amend the small business tax concessions so that trusts will not be able to avoid being treated as connected entities for the purpose of testing eligibility for the concessions on the basis that the trusts do not own assets for their own benefit. These measures will have effect for capital gains tax events happening after 7.30pm (AEST) on 10   May 2011.

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

For more information see Amendments to scrip for scrip roll-over and the small business concessions

Capital gains tax - share sale facility interactions with CGT rollover

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

This proposal became law on 23   March 2012.

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

Extension of the capital gains tax rollover for conversion of a body to an incorporation

In the 2010 Budget , the Government announced it would extend the capital gains tax rollover 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.

This proposal became law on 23   March 2012.

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

Capital gains tax rollover for amalgamations of indigenous corporations

On 10   May 2011, as part of the 2011 Budget, the Government announced it will amend the income tax laws to ensure that there are no immediate taxation consequences for Corporations (Aboriginal and Torres Strait Islander) Act   2006 (CATSI   Act) corporations that amalgamate with one or more CATSI Act corporations.

This measure will apply to income tax assessments for the 2007-08 income year and later income years however at the time of publishing these instructions this change had not become law.

For more information see Capital gains tax roll-over for amalgamations of indigenous corporations

Improving the taxation of trust income

Tax Laws Amendment (2011 Measures No. 5) Act 2011 which received Royal Assent on 29   June 2011 implemented changes that enable the streaming of franked dividends and capital gains for tax purposes, as well as introducing targeted anti-avoidance rules. These changes apply for the 2010-11 and later income years.

Broadly, the legislation ensures that, where permitted by the trust deed, the trust's capital gains and franked distributions can be effectively streamed to beneficiaries for tax purposes by making those beneficiaries 'specifically entitled' to those amounts. Beneficiaries specifically entitled to franked distributions will, subject to existing integrity rules, also enjoy the benefit of any attached franking credits. The legislation also introduced two specific anti-avoidance rules to address the inappropriate use of exempt entities to 'shelter' the taxable income of a trust.

Trust distributions provides further detail of how these changes operate.

For more information see Improving the taxation of trust income .

ATO references:
NO NAT 4151