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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 104 - CGT events  

Subdivision 104-E - Trusts  

SECTION 104-71  Adjustment of non-assessable part  

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104-71(1)  

In working out the non-assessable part referred to in section 104-70 , disregard any part of the payment that is:


(a) *non-assessable non-exempt income; or
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(b) (Omitted by No 66 of 2003)
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(c) paid from an amount that has been assessed to the trustee; or


(d) paid from an amount that is *personal services income included in your assessable income, or another entity ' s assessable income, under section 86-15 ; or


(da) a payment to which paragraph 118-37(1)(ba) applies (about compensation paid through a trust); or
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(db) a payment to which subsection 118-300(1A) applies (about insurance and annuity payments paid through a trust); or
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(e) repaid by you; or


(f) compensation you paid that can reasonably be regarded as a repayment of all or part of the payment; or


(g) an amount referred to in section 152-125 (which exempts a payment of a small business 15-year exemption amount) as an exempt amount.

The payment can include giving property (see section 103-5 ).

104-71(2)  

However, the non-assessable part is not reduced by any part of the payment that you can deduct.

104-71(3)  

The amount of the non-assessable part referred to in section 104-70 is adjusted to exclude any part of it that is attributable to:


(a) an amount that is not included in the assessable income of an entity because of section 124ZM or 124ZN (which exempt income arising from *shares in a *PDF) of the Income Tax Assessment Act 1936 ; or
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(aa) an amount that is not included in the assessable income of an entity because of section 51-52 or subsection 51-54(1) or (1A) of this Act; or
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(b) *capital proceeds from a *CGT event that happens in relation to *shares in a company that was a *PDF when that event happened; or
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(c) capital proceeds from a CGT event if:

(i) the CGT event relates to an *eligible venture capital investment; and

(ii) the share of a partner in an ESVCLP in a *capital gain or *capital loss from the CGT event is disregarded under section 118-407 ; or
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(d) that part of the capital proceeds from a CGT event, relating to an eligible venture capital investment, for which there is a partial exemption under section 118-408 ; or
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(e) capital proceeds from a CGT event if a capital gain made from the event may be disregarded under subsection 360-50(4) .
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104-71(4)  

The amount of the non-assessable part referred to in section 104-70 for an entity shown in the table is adjusted to exclude the amount or amounts applicable to the entity under the table.
Adjustment of non-assessable part
Item Entity Amount excluded
1 Any entity So much of the amount of a *discount capital gain excluded from the *net capital gain of the trust making the payment because of step 3 of the method statement in subsection 102-5(1) and that is reflected in the payment to the entity
2 Individual, company or trust that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(b) where the trust gain referred to in subsection 115-215(3) is reduced under Subdivision 152-C ½ of the amount of the capital loss or net capital loss
3 Individual or trust that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) ¼ of the amount of the capital loss or net capital loss
4 Company that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) where: The excess of the reduction amount over the Subdivision 152-C reduction to the paragraph 115-215(3)(c) amount
 (a) that capital loss or net capital loss is more than ½ of the trust gain referred to in subsection 115-215(3); and  
 (b) that trust gain is reduced by an amount (the reduction amount) under Subdivision 152-C  
5 *Complying superannuation entity that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(b) where: ½ of the amount of the capital loss or net capital loss
 (a) that capital loss or net capital loss is more than ½ of the trust gain referred to in subsection 115-215(3); and  
 (b) that trust gain is reduced under Subdivision 152-C  
6 *Complying superannuation entity that has a *capital loss or *net capital loss to reduce its *capital gain described in paragraph 115-215(3)(c) where: The excess of the reduction amount over the Subdivision 152-C reduction to the paragraph 115-215(3)(c) amount
 (a) that capital loss or net capital loss is more than ¼ of the trust gain referred to in subsection 115-215(3); and  
 (b) that trust gain is reduced by an amount (also the reduction amount) under Subdivision 152-C  
7 Any entity receiving the payment where the trust making the payment, or another trust that is part of the same *chain of trusts, has a *capital loss or *net capital loss to reduce its *capital gain described in subsection 115-215(3) The proportion of the capital loss or net capital loss reflected in the payment

Example:

Claude is paid $100 by the trustee of a unit trust. The trustee advises that the amount comprises $50 CGT discount, $25 small business 50% reduction and $25 net income from a capital gain made by the trust.

In applying the rules in Subdivision 115-C of the Income Tax Assessment Act 1997 , Claude reduces his capital gain of $100 by a $20 net capital loss from an earlier year. He then reduces the remaining $80 gain by $40 (CGT discount) and $20 (small business 50% reduction) leaving a net capital gain of $20.

In applying the rules in CGT event E4, the $100 payment is reduced by $25 (being the amount assessed under section 97 of the Income Tax Assessment Act 1936 ). It is further reduced by $50 under item 1 of the table and $5 under item 3. Claude ' s non-assessable part is $20.

Effectively, CGT event E4 applies to the $20 small business 50% reduction allowed to Claude in applying Subdivision 115-C of the Income Tax Assessment Act 1997 .

Note 1:

Step 3 of the method statement in subsection 102-5(1) (see table item 1) reduces by 50% the trust ' s discount capital gains remaining after applying capital losses and earlier net capital losses. That 50% is excluded from the trust ' s net capital gain.

Note 2:

Subdivision 152-C (small business 50% reduction - see table items 2, 3, 4, 5, 6 and 7) reduces by 50% the trust ' s capital gains or discount capital gains remaining after applying step 3 of the method statement in subsection 102-5(1) . That 50% is also excluded from the trust ' s net capital gain.

Note 3:

Paragraph 115-215(3)(b) or (c) (see table items 2, 3, 4, 5 and 6) treats a beneficiary as having an extra capital gain if an amount of the trust ' s net income that is included in the beneficiary ' s assessable income is attributable to trust gains that were reduced by step 3 of the method statement in subsection 102-5(1) and/or the small business 50% reduction.

104-71(5)  

A chain of trusts consists of 2 or more trusts where at least one of these conditions is satisfied for each of the trusts:


(a) the trustee of the trust owns units or interests in another of the trusts; or


(b) the trustee of another of the trusts owns units or interests in the trust.


 



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