Guide to capital gains tax 2014

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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 2013-14, 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 2013-14 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 2014 (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?

In 2012, the ATO undertook a review of business income tax returns in an effort to obtain a better balance between the community's cost of compliance and the organisation's information needs. The review explored the company, trust and partnership income tax returns and some associated schedules to identify opportunities to remove or refine the information collected.

The review has resulted in a redesign of the Capital gains tax schedule in 2013.

Changes and proposed changes to the law

In media releases 017-2013 of 6 November 2013 and 008-2013 of 14 December 2013, the government announced it will not be proceeding with a number of previously announced tax and superannuation measures.

The government also announced its intention to provide legislative protection for taxpayers who under assessed their tax position on the basis of announced changes that will no longer proceed. Taxpayers who paid additional tax by following announced changes that will no longer proceed will be entitled to a refund.

For more information about these changes, see New legislation .

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 .

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 .

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 .

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 rollover, the small business concessions and beneficial interests

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 .

Shipping reform

On 9   September 2011, the Minister for Infrastructure and Transport announced the Government's shipping policy reform, Stronger Shipping for a Stronger Economy. The policy has been enacted into law and provides, among other things, that CGT event K7 is disregarded to the extent that you are using, or at any time have used an eligible vessel to produce income that is exempt through the holding of a shipping exempt income certificate issued under the Shipping Reform (Tax Incentives) Act 2012 .

The shipping reform changes commenced on 1   July 2012.

Capital gains tax and loss relief to facilitate superannuation reforms

Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 , which received Royal Assent on 28   November 2012, amended the Income Tax Assessment Act   1997 to provide temporary taxation relief to eligible superannuation funds in the form of loss relief and capital gains tax roll-over relief. It ensures that income tax considerations do not prevent mergers of super funds or transfers of members' benefits and relevant assets, in transitioning to Stronger Super and MySuper.

The tax relief will be available to complying super funds (excluding self-managed super funds) or approved deposits funds that merge with a complying super fund with five or more members. The tax relief is available for mergers that occur on or after 1   October 2011 and before 2   July 2017.

Improving the integrity of the foreign resident capital gains tax regime

As part of the 2013 Budget the Government announced on 14   May 2013 that it would make a number of amendments to improve Australia's foreign resident CGT regime. Two technical amendments to the regime will apply to CGT events with effect from 7.30pm (AEST) 14   May 2013 and a new withholding system to support the regime will apply from 1   July 2016.

Amendments will be made to the principal asset test to ensure that indirect Australian real property interests are taxable if disposed of by a foreign resident, and will:

• remove the ability to use transactions between members of the same consolidated group to create and duplicate assets
• value mining, quarrying or prospecting information and goodwill, together with the mining rights to which they relate.

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

Note also that the proposed removal of the 50% discount on capital gains earned after 8   May 2012 by non-residents on taxable Australian property, which was announced as part of the 2012 Budget, had not yet become law at the time of publishing.

Clarification of the tax treatment of native title benefits

As part of the 2013 Budget the Government announced on 14   May 2013 that it would remove the uncertainty regarding the CGT treatment of native title rights. This measure will apply to CGT events happening on or after 1   July 2008, and will clarify that there are no CGT implications resulting from the transfer of native title rights (or the right to a native title benefit) to an Indigenous holding entity or Indigenous person, or from the creation of a trust that is an Indigenous holding entity over such rights. This measure will also clarify that capital gains or losses made from surrendering or cancelling such rights are disregarded.

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

 

ATO references:
NO NAT 4151