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Capital Gains Tax (Cost base [s110-25(1) ITAA 1997] (Cost base…
Capital Gains Tax
Cost base [s110-25(1) ITAA 1997]
3rd element; costs of owning where asset acquired after 20/08/91
defined under [s110-25(4) ITAA 1997] e.g interest, repairs, land tax
4th element- expenditure to increase/preserve value of asset (not goodwill) and not relating to installing/moving it [s110-25 (5)]
2nd element; incident cost [s110-25(3)]
incidental cost under [s110-35 ITAA 1997] e.g. agent, accountant, legal advise, surveyor, stamp duty, advertising, borrowing, conveying (only if not tax deductible)
5th element; expenditure to establish, preserve or defend title [s110-25(6)]
1st element; money paid/property given in respect of acquiring [s110-25(2) ITAA 1997]
Cost base modifications [subdivision 112-A]
Split, changed or merged assets; [s112-25 ITAA 1997]
Apportionment rules; [s112-30 ITAA 1997]
Market value substitution; for under-value transaction for accurate asset price reflection [s112-20 ITAA 1997]
Assumption of liability rule; [s112-35 ITAA 1997]
Reduced cost base; [subdivision 110-B]
All elements of cost base except 3 (costs of ownership)- [s110-55(2) ITAA 1997]
No indexation of costs in calculating reduced cost base [s110-55(1) ITAA 1997]
Deductible expenses excluded [s110-55(4) ITAA 1997] regardless whether claimed or not [s110-55(5) iTAA 1997]
CGT Events
Event C2 [s104-25 ITAA 1997] cancellation/surrender of intangible of CGT asset
1) Event occurs if redeemed or cancelled
Event timing; enter contract to end asset if none then asset end
CG if CP > CB, CL if CP <RCB
Event D1 [s104-35(1)]; creating contractual rights
Timing; enter into contract/ create right
Occurrence; creating right in another entity
CG if CP> incidental costs, CL if CP < incidental costs
Event C2 follows when rights in D1 are terminated
Event C1 [s104-20] loss/destruction of CGT asset
1) event occurs if CGT asset lost/destroyed
2) Time of event; compensation received if none then discovered
3) CG if CP>CB, CL if CP <RCB
Event H1 [s104-150] forfeiture of deposit
Timing; when deposit is forfeited
CG if deposit> expenditure for transaction, CL if deposit <expenditure for transaction
Occurrence; deposit paid forfeited/transaction failed
CGT Event A1 [s104-10(1) ITAA 1997] disposal of CGT asset to another person (transfer of ownership)
[s104-10(2)] dispose of asset when change legal ownership
[s104-10(3) event timing is entering contract/ if none then change of ownership | [s104-10(4)] CG if CP>CB, CL if CP<RCB
[s104-10(1)] CGT event if CGT asset disposed
CGT process
Exemption availability
Calculate capital capital gain/loss (capital proceeds - cost base - reduced cost base)
CGT event occurrence
Calculate net capital gain or net capital loss
Apply previous NCL from earlier income years
Reduce by discount if applicable
[s115-10 ITAA 1997]; individual 50%, super 1/3, trusts 50%, life insurance 1/3
CG after 21/09/99, not indexed costs base, acquired for 12 months before event (not available for D1)
Reduce current year CG by current year CL
Small business concessions (meh)
Add CG remaining to step 4
Exemptions; [Division 118 ITAA 1997]
[sub division 118-A] General exemptions
[sub division 118-B] main residence, dwelling (building that you live in, if only partial then apportioned)
Exempt assets; Pre CGT assets (20/09/85) [104-10(5) ITAA 1997], [s118-5] cars, motorcycle, decorations | [s118-10] collectables <$500, personal use assets <$10,000| s118-24] depreciating assets| [s118-25] trading stock
Exempt transactions; [s118-37] compensation for wrong/injury, gambling
Method Statements, need to determine capital gain/loss for income collectively to determine NCG or NCL
Net capital gain [s102-5 ITAA 1997]
Net capital loss [s102-10 ITAA 1997]
Special rules
Personal use assets [s108-20(2) ITAA 1997]; personal use/enjoyment NOT collectables, land or buildings [s108-20(3) ITAA 1997]
Capital losses disregarded [s108-20(1) ITAA 1997]
Set rule [s108-25 ITAA 1997] asset in set treated as one if under $10K threshold
Disregard CG if 1st element $10K or less [s118-10(3) ITAA 1997]
Costs of ownership 3rd element not included in CB [s108-30 ITAA 1997]
Collectables; artwork/jewelry, antique, coin/medallion, postage stamp/first-day cover
set rule [s108-15 ITAA 1997]
collectable NCL only offset collectable NCG [s108-10(4) ITAA 1997]
3rd element not included in CB [s108-17 ITAA 1997]
CG and CL disregarded if 1st element <$500 [s118-10 iTAA 1997]
Capital proceeds
General rules [s116-20 ITAA 1997] money received or to be received for event/ MV of property received
Special rules [s103-10 ITAA 1997]; constructive receipts (1), (2a)
subsequent payments (2b)
Defining CGT assets and timing
Definition [s108-5(1) ITAA 1997]; any kind of property or legal/equitable right that is not property (part of asset also CGT asset)
Property; tangible (physical items), intangible (proprietary rights e.g shares/debt/goodwill)
Not property; non-proprietary (right to maintain action for personal injury/right to damages for breach of contract for personal services)