TAXATION LAWS AMENDMENT BILL (NO. 11) 1999

1998-99

The Parliament of the
Commonwealth of Australia

HOUSE OF REPRESENTATIVES

Presented and read a first time

Taxation Laws Amendment Bill (No. 11) 1999

No. , 1999

(Treasury)

A Bill for an Act to amend the law relating to taxation, and for related purposes

A Bill for an Act to amend the law relating to taxation, and for related purposes

1 Short title

2 Commencement

(1) Subject to this section, this Act commences on the day on which it receives the Royal Assent.

3 Schedule(s)

Subject to section 2, each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

4 Amendment of income tax assessments

Section 170 of the Income Tax Assessment Act 1936 does not prevent the amendment of an assessment made before the commencement of this section for the purposes of giving effect to this Act.

Schedule 1—Alienation of real property through interposed entities

3A Alienation of real property through interposed entities

(a) an agreement makes provision in relation to income, profits or gains from the alienation or disposition of shares or comparable interests in companies, or of interests in other entities, whose assets consist wholly or principally of real property (within the meaning of the agreement) or other interests in relation to land; and

(2) For the purposes of this Act, that provision is taken to extend to the alienation or disposition of shares or any other interests in companies, and in any other entities, the value of whose assets is wholly or principally attributable, whether directly, or indirectly through one or more interposed companies or other entities, to such real property or interests.

(3) However, subsection (2) applies only if the real property or land concerned is situated in Australia (within the meaning of the relevant agreement).

(4) If, after the commencement of this section, this Act is amended so as to give the force of law to an amendment or substitution of a provision mentioned in subsection (1), this section ceases to apply to that provision from the time that the amendment of the Act takes effect.

entity has the same meaning as in the Income Tax Assessment Act 1997, but does not include an individual in his or her personal capacity.

The amendment made by this Schedule applies to income, profits or gains from the alienation or disposition of shares or interests after 12 noon, by legal time in the Australian Capital Territory, on 27 April 1998.

Schedule 2—Extension of period for certain gifts

Schedule 3—Income of non-resident sports persons, clubs and associations

The amendments made by this Schedule apply to income derived after 30 June 2000.

Schedule 4—Technical amendments

After “each capital gain”, insert “(except a capital gain that is disregarded)”.

Note: The heading to section 222AJB is altered by omitting “Division” (first occurring).

Omit “at the end of the agreement”, substitute “at or before the end of the agreement”.

Omit “when the agreement ends”, substitute “at or before the end of the agreement”.

Note: The capital proceeds referred to in this subsection are reduced if the gain or loss was for shares and an amount was taken into account as a capital gain for the shares under section 160ZL of the Income Tax Assessment Act 1936 for the 1997-98 income year or an earlier income year: see section 104-25 of the Income Tax (Transitional Provisions) Act 1997.

; or (e) a company grants an option to acquire shares or ^*debentures in the company; or

(f) the trustee of a unit trust grants an option to acquire units or debentures in the trust.

Note 2: A capital gain or capital loss you made for the 1997-98 income year or an earlier income year under Part IIIA of the Income Tax Assessment Act 1936 is also disregarded where the option is exercised in the 1998-99 income year or a later one: see section 104-40 of the Income Tax (Transitional Provisions) Act 1997.

(6) You disregard a payment by a liquidator for the purposes of this section if the company is dissolved within 18 months of the payment.

Note: The payment will be part of your capital proceeds for CGT event C2 happening when the share ends.

; or (e) a company grants an option to acquire shares or ^*debentures in the company; or

(f) the trustee of a unit trust grants an option to acquire units or debentures in the trust.

(6) You make a ^*capital gain equal to that part of the ^*capital proceeds from the ^*share or interest that is reasonably attributable to the amount by which the market value of the property referred to in subsection (2) is more than the sum of the ^*cost bases of that property.

Omit “A capital gain or loss from a CGT asset is disregarded”, substitute “An asset is not a CGT asset”.

After “^*CGT event happens”, insert “(except one that happens because of your death)”.

Omit “when the agreement ends”, substitute “at or before the end of the agreement”.

109-15 Exceptions

(b) because of the vesting of the asset in a trustee under the Bankruptcy Act 1966 or under a similar ^*foreign law; or

(c) because of the vesting of the asset in a liquidator of a company, or the holder of a similar office under a foreign law.

Omit “when the liability to pay for the convertible note arose”, substitute “when the conversion of the convertible note happened”.

(1A) This section also applies to expenditure incurred after 30 June 1999 on land or a building if:

(a) the land or building was ^*acquired at or before the time mentioned in subsection (1); and

(b) the expenditure forms part of the fourth element of the ^*cost base of the land or building.

(1B) Expenditure does not form part of the second or third element of the cost base to the extent that you have deducted or can deduct it.

After “Expenditure”, insert “(except expenditure excluded by subsection (1B)”.

(1A) This section also applies to expenditure incurred after 30 June 1999 on land or a building if:

(a) the land or building was ^*acquired at or before the time mentioned in subsection (1); and

(b) the expenditure forms part of the fourth element of the ^*cost base of the land or building.

(1B) Expenditure does not form part of the second or third element of the cost base to the extent that you, or a partnership in which you are or were a partner, have deducted or can deduct it.

After “Expenditure”, insert “(except expenditure excluded by subsection (1B)”.

(a) you did not incur expenditure to acquire it, except where your acquisition of the asset resulted from:

(ii) another entity doing something that did not constitute a CGT event happening; or

(b) your ^*acquisition of the ^*CGT asset resulted from another entity doing something that did not constitute a CGT event happening;

the market value is substituted only if what you paid to acquire the CGT asset was more than its market value (at the time of acquisition).

Omit “The rule in subsection (1) does not apply in the situations set out in this table:”, substitute “There are some situations in which the rule in subsection (1) does not apply. They include the situations set out in this table:”.

After “in a company”, insert “or a right to ^*acquire a share or ^*debenture in a company”.

After “in a unit trust”, insert “or a right to ^*acquire a unit or debenture in a unit trust”.

(4) Despite subsection (2), there are different rules for the exercise of an option or the conversion of a ^*convertible note.

(5) The amount you paid for the option, and the amount you paid to exercise it, are indexed from the quarter in which the liabilities to pay the amounts were incurred.

Example: On 1 April 1997, Robyn grants Andrew an option to buy land she owns. The option fee is $10,000, and the option is to buy the land on 30 June 1998 for $100,000.

Andrew exercises the option and acquires the land on 30 June 1998. To work out whether there is a capital gain when Andrew disposes of the land, indexation is available if the land is disposed of 12 months or more after its acquisition.

The $10,000 option fee can be indexed from 1 April 1997 (when the liability to pay it was incurred). The $100,000 exercise price can be indexed from 30 June 1998 (when the liability to pay the price was incurred).

(6) If you ^*acquire ^*shares in a company or units in a unit trust by converting a ^*convertible note, the amount paid for the convertible note, and the amount paid to convert it, are indexed from the quarter in which the liabilities to pay the amounts were incurred.

Note: If shares or units are acquired as a result of the exercise of the option or the conversion of the note, and an amount is paid to the company or trust on the shares or units after the day of acquisition, that amount is indexed from the time it is paid: see subsection 960-275(3).

After “Program”, insert “or the Rural and Remote General Practice Program”.

(3) A ^*capital gain you make from compensation you receive under the ^*firearms surrender arrangements is disregarded.

(aa) that use occurred for the first time after 7.30 pm, by legal time in the Australian Capital Territory, on 20 August 1996; and

118-197 Special rule for surviving joint tenant

This Subdivision applies to you as if the ^*ownership interest of another individual in a ^*dwelling had ^*passed to you as a beneficiary in a deceased estate if:

(a) you and the other individual owned ownership interests in the dwelling as joint tenants; and

Omit “an election for the goodwill under subsection 160ZZPQ(1) of the Income Tax Assessment Act 1936”, substitute “a choice for the goodwill under Division 123”.

After “^*CGT asset”, insert “(except a ^*car, motor cycle or similar vehicle)”.

Omit “when the agreement ends”, substitute “at or before the end of the agreement”.

Omit “when the liability to pay for the convertible note arose”, substitute “when the conversion of the convertible note happened”.

Omit “the shift losing shares”, substitute “the decreased value shares”.

Note: An asset also has the necessary connection with Australia if it was acquired by a company after 28 January 1988 and before 26 May 1988 from a non-resident as a result of a disposal for which there was a roll-over under section 160ZZN or 160ZZO of the Income Tax Assessment Act 1936: see section 136-25 of the Income Tax (Transitional Provisions) Act 1997.

Omit “when the agreement ends”, substitute “at or before the end of the agreement”.

After “asset)”, insert “and section 149-5 of the Income Tax (Transitional Provisions) Act 1997”.

After “Division 149”, insert “of this Act and section 149-5 of the Income Tax (Transitional Provisions) Act 1997”.

Omit “class A shares just after”, substitute “class A shares just before”.

After “Australian resident”, insert “(but not a ^*prescribed dual resident)”.

Omit “at a time after it was issued or allotted”, substitute “to the company or trust at a time after it was ^*acquired”.

Example: Peter acquires shares in a company. The shares are partly-paid, and the company makes a call on the shares. Peter sells the shares to Narina before he is liable to pay the call.

The amount Narina paid to Peter for the shares is indexed under subsection 960-275(2) from the quarter in which she incurred the expenditure to acquire the shares.

The amount Narina later pays for the call on the shares is indexed in accordance with subsection 960-275(3) from the quarter in which she made that later payment.

68 Subsection 995-1(1) (paragraph (a) of the definition of resident trust for CGT purposes)

The provisions of the Income Tax Assessment Act 1997 listed in the table are amended as set out in the table.

Asterisking amendments
Item	Provision	Omit:	Substitute:
1	Subsection 165-20(2)	tax loss	^*tax loss
2	Section 165-35	tax loss	^*tax loss
3	Paragraph 165-180(2)(b)	^*shares	shares
4	Subsection 165-180(3)	arrangement	^*arrangement
5	Subsection 165-210(4)	tax loss	^*tax loss
6	Paragraph 165-210(4)(b)	^*test time	test time
7	Subsection 166-5(5)	test period	^*test period
8	Subsection 166-40(5)	test period	^*test period
9	Subsection 166-165(2)	^*shares	shares
10	Subsection 166-165(2)	ownership test period	^*ownership test period
11	Subsection 166-165(2)	ownership test time	^*ownership test time
12	Paragraph 166-230(3)(a)	interposed company	^*interposed company
13	Subsection 166-245(2)	part of the substantial shareholding	^*part of the substantial shareholding
14	Subsection 170-15(1)	^*amount	amount
15	Subsection 170-15(2)	^*income year	income year
16	Paragraph 170-25(1)(a)	^*tax loss	tax loss
17	Paragraph 170-25(1)(a)	^*loss company	loss company
18	Paragraph 170-25(1)(b)	capital gain	^*capital gain
19	Paragraph 170-25(1)(b)	^*loss company	loss company
20	Paragraph 170-25(2)(a)	^*income company	income company
21	Paragraph 170-25(2)(b)	^*income company	income company
22	Paragraph 170-25(2)(b)	capital loss	^*capital loss
23	Paragraph 170-125(1)(a)	exempt income	^*exempt income
24	Subsection 170-135(3)	capital gains	^*capital gains
25	Paragraph 175-5(2)(b)	^*business	business
26	Subsection 175-10(1)	capital gain	^*capital gain
27	Subsection 175-10(1)	^*film	film
28	Paragraph 175-15(1)(b)	^*film	film
29	Paragraph 175-20(1)(a)	capital gain	^*capital gain
30	Paragraph 175-30(2)(b)	derived (first occurring)	^*derived
31	Paragraph 175-30(2)(b)	capital gain	^*capital gain
32	Subsection 175-35(1)	tax loss	^*tax loss
33	Subsection 175-35(4)	exempt income (first occurring)	^*exempt income
34	Paragraph 175-40(2)(b)	^*business	business
35	Subsection 175-60(2)	disallow	^*disallow
36	Subsection 175-60(2)	capital losses (first occurring)	^*capital losses
37	Subsection 175-65(2)	disallow	^*disallow
38	Paragraph 175-80(2)(b)	^*business	business

Income Tax (Transitional Provisions) Act 1997

72 Paragraph 102-5(2)(a)

Omit “same asset roll-over or replacement asset roll-over”, substitute “roll-over”.

73 Paragraph 104-15(c)

Omit “when the agreement ends”, substitute “at or before the end of the agreement”.

74 After Subdivision 104-B

Insert:

Subdivision 104-C—End of a CGT asset

104-25 Cancellation, surrender and similar endings

The capital proceeds from an ending referred to in subsection 104-25(3) of the Income Tax Assessment Act 1997 in relation to shares are reduced by any amount that was taken into account as a capital gain for the shares under section 160ZL of the Income Tax Assessment Act 1936 for the 1997-98 income year or an earlier income year.

Subdivision 104-D—Bringing into existence a CGT asset

104-40 Granting an option

A capital gain or capital loss is disregarded if:

(a) you made the capital gain or capital loss for the 1997-98 income year or an earlier income year under Part IIIA of the Income Tax Assessment Act 1936 because you granted an option to an entity, or renewed or extended an option you had granted; and

(b) the other entity exercises the option in the 1998-99 income year or a later income year.

75 Subsection 104-70(1)

Omit “This section”, substitute “Section 104-70 of the Income Tax Assessment Act 1997”.

76 Section 104-72

After “Paragraph 104-70(7)(a)”, insert “of the Income Tax Assessment Act 1997”.

77 Subsection 104-175(1)

Omit “This section applies”, substitute “Unless subsection (2) or (3) of this section applies, sections 104-175 and 104-180 of the Income Tax Assessment Act 1997 apply”.

78 Section 108-5

Omit “any capital gain or capital loss the entity makes from the asset is disregarded”, substitute “the thing is not a CGT asset”.

79 Subsection 130-95(1)

Omit “This Subdivision”, substitute “Subdivision 130-D of the Income Tax Assessment Act 1997”.

80 Subsection 130-95(2)

Omit “this Subdivision”, substitute “Subdivision 130-D of the Income Tax Assessment Act 1997”.

81 Paragraph 140-15(8)(b)

Omit “subsection 12(2)”, substitute “subitem 12(2) of Schedule 1”.

82 Application

(1) The amendments made by this Schedule (other than by item 45) apply to assessments for the 1998-99 income year and later income years.

(2) The amendment made by item 45 of this Schedule applies to CGT events happening on or after the day on which this Act receives the Royal Assent.

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