1. STATUTORY INCOME Section 6-10 provides:
Your assessable income also includes some amounts that are not ordinary income.
Amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income
(see section for a list of statutory income)

2. Introduction CGT introduced on 20 September 1985
Originally contained in Part IIIA ITAA36
Now contained in Parts 3-1 and 3-3 ITAA97
[¶24.1]
Foundations of Taxation Law
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Foundations of Taxation Law

3. CAPITAL GAINS The Need For Specific Legislation:
Ordinary Concept of Income narrow
Inequity

4. Current Provisions
Found in Part 3.1 (general provisions) and Part 3.3 (specialised provisions) ITAA ‘97
Section 102-5
Your assessable income includes your net capital gain (if any) for the income year.

5. CGT
Net gain is:
The excess of capital gains over
Capital losses
A net capital loss arises where losses exceed gains for the year.

6. Net capital gain
Net capital gain included in assessable income (s 102-5) and worked out as follows:
Step 1: Capital gains - capital losses
(made during the year)
Step 2: Remaining capital gains – “net capital losses”
(from earlier years)
Step 3: Remaining capital gains which are “discount capital gains” reduced
by “discount percentage”
Step 4: Remaining capital gains that qualify for “small business concessions”
reduced by those concessions
Step 5: Remaining capital gains = taxpayer’s net capital gain for the year
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7. Net capital loss Cannot be claimed as a deduction
Can be carried forward to offset against capital gains in future years
Net capital loss
Capital losses for
the year
Capital gains for
the year = –
[¶24.2](b)
Foundations of Taxation Law
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Foundations of Taxation Law

8. Net capital loss Cannot be claimed as a deduction (s 102-10(2))
Can be carried forward to offset against capital gains in future years (s (3))

9. Capital gains and capital losses
Capital gains and capital losses can only arise as a result of a “CGT event”
Most CGT events happen in relation to “CGT assets”
Over 50 different kinds of CGT events contained in Div 104 ITAA97
Some capital gains and capital losses are disregarded
[¶24.3]
Foundations of Taxation Law
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Foundations of Taxation Law

10. CGT Event Importance of CGT Event
It is only a CGT event that can give rise to a gain or loss
CGT event equates to realization of gain or loss.
Over 50 different kinds of CGT events contained in Div 104 ITAA97 (s104.5 gives a summary)
“CGT event A1” to “CGT event L8”
Exception: capital gains or losses made on CGT assets acquired before 20 September 1985

11. Foundations of Taxation Law
CGT assets (s 108-5(1))
Most CGT events happen in respect of CGT assets
Definition of CGT asset:
Any kind of property, or
A legal or equitable right that is not property
Examples:
Land
Shares
Options
Goodwill
[¶17.5](a)
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12. CGT Assets The asset is acquired on or after 20 September 1985
(each CGT event defines the date - i.e. s104-10(5)(a)
Special Rules apply to non residents
Must be necessary connection with Australia (s )
Necessary connection can be either a direct or indirect interest.

13. AUSTRALIAN CONNECTION
taxable Australian real property
an indirect interest in Australian real property
a business asset of a permanent establishment in Australia
an option or right to acquire any of the CGT assets in assets in above 3 dot points
a CGT asset that is deemed to be Australian taxable property where a taxpayer, on ceasing to be an Australian resident, makes an election under s (i.e. you do not dispose of the asset on leaving Australia)

14. CGT Event CGT events: Many rely on change of ownership of an asset
i.e. Event A1
Others simply rely on a designated type of receipt rather than on the existence of any asset.
i.e. Event D1 (Eg. Restrictive covenant)

15. CGT event A1 Arises where taxpayer “disposes” of a “CGT asset”
Disposal occurs where there is a change of beneficial ownership (eg sale or gift of CGT asset)
Time of CGT event is when:
A contract for disposal is entered into, or
If no contract, when change of ownership occurs
Capital gains and losses made on CGT assets acquired before 20 September 1985 are disregarded
Capital
gain
Capital proceeds
Asset’s cost base – =
Capital
loss
Asset’s reduced cost base
Capital proceeds – =
[¶24.7]
Foundations of Taxation Law
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Foundations of Taxation Law

16. Elements of the cost base
1st element – total of the money paid, or required to be paid, and the market value of any property given, or required to be given, in respect of acquiring the asset
2nd element – “incidental costs” incurred to acquire the asset or that relate to the CGT event
3rd element – costs of owning the asset (only applies to assets acquired after 20 August 1991 but not personal use assets or collectables)
4th element – capital expenditure incurred to increase or preserve the asset’s value (except goodwill)
5th element – capital expenditure incurred to establish, preserve or defend taxpayer’s title to asset
[¶24.8](b)
Foundations of Taxation Law
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Foundations of Taxation Law

17. CGT Assets Asset defined in section 108.5
Variation on Concept of Asset
Additions to Pre CGT assets
s post CGT building on pre CGT land;
s Depreciating assets of building are separate assets;
s adjacent land
S capital improvements

18. Buildings and structures may be treated as separate CGT assets from land in certain cases
Land acquired post-CGT that is adjacent to land acquired pre-CGT is treated as a separate asset if amalgamated
Capital improvement to land may be treated as a separate CGT assets

19. Special rules for specific assets
Collectables
Capital losses from collectables can only be applied against capital gains from collectables
Capital gains and capital losses are disregarded if collectables acquired for under $500
Personal use assets
Capital losses disregarded
Capital gains disregarded if personal use asset acquired for $10,000 or less
[¶24.5](b)
Foundations of Taxation Law
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Foundations of Taxation Law

20. EXEMPTIONS Exemptions are to be found in Division 118. Some are:
Cars & motor cycles
Certain gains/losses on collectibles and personal use assets
Trading Stock
Main residence
Depreciating assets
Small Business gains (Division 152)

21. CALCULATING TAX IMPORTANT TERMS Cost Base Indexed Cost Base
Only relevant for assets acquired before on 21 Sept 1999 Reduced Cost Base
Discounted Gain
Reduced Cost Base

22. Calculating Gain - Indexation
Asset Acquired on 29 September 1985 for $100,000
Asset sold on 29 September 1998 for $500,000
Calculate Indexed Cost Base
$100,000 x
71.3
= $100,000 x 1.701
= $170,100
The Gain is $500,000 LESS $170,100
=$329,900
NOTE: The discount method is not available as the asset was
sold before 21 September 1999.

23. Calculating Gain – two Cost Base
Asset Acquired on 29 September 1985 for $100,000
Renovations costing $60,000 incurred on 20 January 1990
Asset sold on 29 September 1998 for $500,000
Calculate Indexed Cost Base
Of original asset = $170,100
Of renovations
$60,000 x = 60,000 x 1.202
100.9
= $72,120
TOTAL Indexed Cost Base = $170, ,120 = $242,220
GAIN = $500,000 – 242,220 = 257,780

24. Calculating Gain – Discount Method
Asset Acquired on 29 September 1985 for $100,000
Asset sold on 1 March 2000 for $500,000
Calculate Indexed Cost Base
$100,000 x = $100,000 x 1.731
71.3
= $173,100
GAIN = $500,000 - $173,100 = $326,900 OR
$500,000 - $100,000 = $400,000 x 50%
GAIN = $200,000

25. SPECIAL RULES
Vast Array of rules for a variety of Unusual circumstances – Division 124
Sub divisions 124B F
Passing on death
No CGT chargeable to the deceased.
The person who gets assets from the deceased will pay CGT on disposal of the asset. Division 128 has valuation and timing rules for such assets. See s