(no subject)
REDUCED COST BASE SUBDIVISION 110-B CONSISTS OF 5 ELEMENTS
Subsection 110-55(1)
Reduced Cost Base
Subsections 110-55
1. Acquisition cost
2. Incidental costs - Refer to previous slide
3. Balancing Adjustment
Note: ownerships costs not mentioned
4. Capital expenditure to increase or preserve the asset’s value
5. Capital expenditure to establish or defend title to or right over an Asset
Reduced Cost Base
Hint:
• Focus on Element 3
• Never Index Reduced Cost Base.
• Never Discount a Capital Loss
Ownership Costs
Subsection 110-25(4)
Special rules regarding Ownerships Costs
• Ownerships Costs only included if Asset acquired after 20.08.91
• Deductible Ownerships Costs never included(Income Producing Assets)
• Never Index Ownership Costs
• Never include Ownership Costs in Reduced Cost Base
• Never include Ownership Costs in the cost base of Collectables and Personal Use Assets
STEP 3
Work out
Net Capital Gain
or
Net Capital loss
for the income year.
Net Capital Gain - Section 102-5
Steps in determining a Net Capital Gain for an income year
1. Reduce Capital Gain by any Capital Loss for the
same year.
2. Reduce remaining Capital gain (if any) by any
Capital Losses from previous years.
3. Reduce Capital Gains that qualify for a discount
percentage (50%).
4. Apply any Small Business Concessions (not covered
in this course).
5. Include Net Capital Gain in Assessable Income.
Net Capital Loss
In working out Net Capital Loss
1. Apply Capital Losses against Capital
Gains that don’t attract the CGT discount
or indexation.
2. Apply Capital Losses against Capital
Gains that attract indexation.
3. Apply Capital Losses against Capital
Gains that attract the CGT discount.
4. Carried forward Net Capital Loss
indefinitely or until death.
Section 102-5
PERSONAL USE ASSETS
Special Rules
• In working out your Net Capital Gain or Net Capital Loss for the income year.
• Disregard any Capital Loss you make from a Personal Use Asset Subsection 108-20(1)
In working out Net Capital Gain or Net Capital Loss for the income year
• Offset Capital Losses from a Collectable ONLY against a Capital Gain from a Collectable
• Unused Collectable losses are carried forward to be offset against Capital Gains from Collectables
Subsection 108-10 (4)
Collectables Special
Hints:
• Remember that you cannot offset Capital
Losses against Assessable Income
Section 102-10(2).
• If you have Capital Losses they can ONLY be offset against Capital Gains.
• If you do not have sufficient Capital Gains arising in the year you made the Capital Loss then the Capital Loss is carried forward until there are Capital Gains.
Concessions
INDEXATION OR 50% DISCOUNT (only individuals)
Must hold the asset for at least 12 months to be eligible for these concessions.
{subsection 115-25(1); subsection 114-10(1)}
Note:
Deceased Estates treated differently.
Concessions
a. Assets acquired before 20 September 1985 (pre CGT)
i. Generally exempt
b. Post CGT Assets sold prior to 11:45 am on 21 September 1999
i. Possibility of Indexation and Averaging (we will not cover)
c. Post CGT Assets acquired before and disposed of after 11:45 am on 21 September 1999
i. Possibility of Frozen Indexation or
ii. Possibility of Discount Method
d. Post CGT Assets purchased after 11:45 am on 21 September 1999
i. Possibility of Discount Method
quarter ending in march, june, september, december
march quarter in 1998 for example
if there is any money over it, it's cpi and you have to pay tax (frozen indexation)
frozen number for September 1999 123.4
Indexation - Section 114-1 - Example
• Peter purchases a building as an investment on 1 January 1994
for $250,000. This amount forms the first element of his cost
base.
• He sold the building on 1 February 1996.
• The index number for the quarter in which he sold the building
(March quarter 1996) is 119.0. The index number for the
quarter in which he purchased the building (March quarter
1994) is 110.4.
• Applying section 960-275, work out the indexation factor
(rounded to three decimal points) as follows:
119.0
110.4 = (1.0778) 1.078
• The indexed first element of Peter's cost base is:
$250,000 × 1.078 = $269,500
Frozen Indexation - Example
• Peter purchases a building as an investment on 1
January 1994 for $250,000. This amount forms the
first element of his cost base.
• He sold the building on 1 February 2010.
• The index number for the quarter in which he
purchased (1.1.1994) the building (March quarter
1994) is 110.4.
• If asset sold after 21 September 1999 the numerator
will always be 123.4 (September quarter 1999)
123.4
110.4 = (1.1177) 1.118
• The indexed first element of Peter's cost base is:
$250,000 × 1.118 = $279,500
Discount Method
(50% reduction of Capital Gain)
• Assets acquired and disposed of after 11:45 am on 21 Sept 1999
• Applies if asset held >= 12 months
• Can only use frozen indexation OR Discount Method (section 115-100)
• 50% Discount applicable only to individuals or trusts. Not to companies.
• One-third discount for complying superannuation funds.
Deceased Estates
Division 128
CGT is not meant to be a death duty but death can impact on its application.
Normally death will not create a CGT liability
sometimes as soon as sometimes dies the property has to be died which is hard, so there is 2 years and remain tax free. After the 2 years, so it will becomes valued so it won't incurr liability until it sells.
Deceased Estates Special Rules
1. Beneficiary's Acquisition Date (deceased date of death)
2. The Beneficiary’s Cost Base, Reduced Cost Base or Indexed Cost Base is
dependent on whether the asset is Pre or Post CGT in the hands of the deceased.
Deceased Estates
Special Rules
3. Two (2) Year Exemption Rule
• Limited to dwellings
• Dependent on whether the asset is Pre or Post CGT in the hands of the deceased.
• Interaction with Main Residence Exemption
• Whether property is income producing Goods and Services Tax (GST)
GST will be included in Capital Proceeds and Cost Bases where the taxpayer is not within the GST system.
Subsection 110-55(1)
Reduced Cost Base
Subsections 110-55
1. Acquisition cost
2. Incidental costs - Refer to previous slide
3. Balancing Adjustment
Note: ownerships costs not mentioned
4. Capital expenditure to increase or preserve the asset’s value
5. Capital expenditure to establish or defend title to or right over an Asset
Reduced Cost Base
Hint:
• Focus on Element 3
• Never Index Reduced Cost Base.
• Never Discount a Capital Loss
Ownership Costs
Subsection 110-25(4)
Special rules regarding Ownerships Costs
• Ownerships Costs only included if Asset acquired after 20.08.91
• Deductible Ownerships Costs never included(Income Producing Assets)
• Never Index Ownership Costs
• Never include Ownership Costs in Reduced Cost Base
• Never include Ownership Costs in the cost base of Collectables and Personal Use Assets
STEP 3
Work out
Net Capital Gain
or
Net Capital loss
for the income year.
Net Capital Gain - Section 102-5
Steps in determining a Net Capital Gain for an income year
1. Reduce Capital Gain by any Capital Loss for the
same year.
2. Reduce remaining Capital gain (if any) by any
Capital Losses from previous years.
3. Reduce Capital Gains that qualify for a discount
percentage (50%).
4. Apply any Small Business Concessions (not covered
in this course).
5. Include Net Capital Gain in Assessable Income.
Net Capital Loss
In working out Net Capital Loss
1. Apply Capital Losses against Capital
Gains that don’t attract the CGT discount
or indexation.
2. Apply Capital Losses against Capital
Gains that attract indexation.
3. Apply Capital Losses against Capital
Gains that attract the CGT discount.
4. Carried forward Net Capital Loss
indefinitely or until death.
Section 102-5
PERSONAL USE ASSETS
Special Rules
• In working out your Net Capital Gain or Net Capital Loss for the income year.
• Disregard any Capital Loss you make from a Personal Use Asset Subsection 108-20(1)
In working out Net Capital Gain or Net Capital Loss for the income year
• Offset Capital Losses from a Collectable ONLY against a Capital Gain from a Collectable
• Unused Collectable losses are carried forward to be offset against Capital Gains from Collectables
Subsection 108-10 (4)
Collectables Special
Hints:
• Remember that you cannot offset Capital
Losses against Assessable Income
Section 102-10(2).
• If you have Capital Losses they can ONLY be offset against Capital Gains.
• If you do not have sufficient Capital Gains arising in the year you made the Capital Loss then the Capital Loss is carried forward until there are Capital Gains.
Concessions
INDEXATION OR 50% DISCOUNT (only individuals)
Must hold the asset for at least 12 months to be eligible for these concessions.
{subsection 115-25(1); subsection 114-10(1)}
Note:
Deceased Estates treated differently.
Concessions
a. Assets acquired before 20 September 1985 (pre CGT)
i. Generally exempt
b. Post CGT Assets sold prior to 11:45 am on 21 September 1999
i. Possibility of Indexation and Averaging (we will not cover)
c. Post CGT Assets acquired before and disposed of after 11:45 am on 21 September 1999
i. Possibility of Frozen Indexation or
ii. Possibility of Discount Method
d. Post CGT Assets purchased after 11:45 am on 21 September 1999
i. Possibility of Discount Method
quarter ending in march, june, september, december
march quarter in 1998 for example
if there is any money over it, it's cpi and you have to pay tax (frozen indexation)
frozen number for September 1999 123.4
Indexation - Section 114-1 - Example
• Peter purchases a building as an investment on 1 January 1994
for $250,000. This amount forms the first element of his cost
base.
• He sold the building on 1 February 1996.
• The index number for the quarter in which he sold the building
(March quarter 1996) is 119.0. The index number for the
quarter in which he purchased the building (March quarter
1994) is 110.4.
• Applying section 960-275, work out the indexation factor
(rounded to three decimal points) as follows:
119.0
110.4 = (1.0778) 1.078
• The indexed first element of Peter's cost base is:
$250,000 × 1.078 = $269,500
Frozen Indexation - Example
• Peter purchases a building as an investment on 1
January 1994 for $250,000. This amount forms the
first element of his cost base.
• He sold the building on 1 February 2010.
• The index number for the quarter in which he
purchased (1.1.1994) the building (March quarter
1994) is 110.4.
• If asset sold after 21 September 1999 the numerator
will always be 123.4 (September quarter 1999)
123.4
110.4 = (1.1177) 1.118
• The indexed first element of Peter's cost base is:
$250,000 × 1.118 = $279,500
Discount Method
(50% reduction of Capital Gain)
• Assets acquired and disposed of after 11:45 am on 21 Sept 1999
• Applies if asset held >= 12 months
• Can only use frozen indexation OR Discount Method (section 115-100)
• 50% Discount applicable only to individuals or trusts. Not to companies.
• One-third discount for complying superannuation funds.
Deceased Estates
Division 128
CGT is not meant to be a death duty but death can impact on its application.
Normally death will not create a CGT liability
sometimes as soon as sometimes dies the property has to be died which is hard, so there is 2 years and remain tax free. After the 2 years, so it will becomes valued so it won't incurr liability until it sells.
Deceased Estates Special Rules
1. Beneficiary's Acquisition Date (deceased date of death)
2. The Beneficiary’s Cost Base, Reduced Cost Base or Indexed Cost Base is
dependent on whether the asset is Pre or Post CGT in the hands of the deceased.
Deceased Estates
Special Rules
3. Two (2) Year Exemption Rule
• Limited to dwellings
• Dependent on whether the asset is Pre or Post CGT in the hands of the deceased.
• Interaction with Main Residence Exemption
• Whether property is income producing Goods and Services Tax (GST)
GST will be included in Capital Proceeds and Cost Bases where the taxpayer is not within the GST system.