Table of Subdivisions
Guide to Division 118
118-A General exemptions 118-B Main residence 118-C Goodwill 118-D Insurance and superannuation 118-E Units in pooled superannuation trusts118-1 What this Division is about
This Division sets out various exemptions for many capital gains and losses.
There are other provisions that provide exemptions from CGT liability, for example, Division 104 (exceptions from CGT events) and Division 50 (exempt entities).
Table of sections
Exempt assets
Exempt receipts
Anti-overlap provisions
Exempt transactions
[This is the end of the Guide.]
Exempt assets
118-5 Cars, motor cycles, valour decorations and cultural bequests
A
*capital gain or *capital loss you make from any of these *CGT assets (or an interest in one) is disregarded:(a) a
(b) a decoration awarded for valour or brave conduct (unless you paid money or gave any other property for it).
118-10 Collectables and personal use assets
(1) A
*capital gain or *capital loss you make from a *collectable is disregarded if you *acquired it for $500 or less.(2) However, there is a special rule if the
*collectable is an interest in one of these *CGT assets:(a)
(b) a rare folio, manuscript or book;
(c) a postage stamp or first day cover.
A
*capital gain or *capital loss you make from the interest is disregarded only if the market value of the asset (when you *acquired the interest) is $500 or less.(3) A
*capital gain you make from a *personal use asset, or part of the asset, is disregarded if you *acquired the asset for $10,000 or less.Note: A capital loss you make from a personal use asset is disregarded: see subsection 108-20(1).
118-12 Assets used to produce exempt income
(1) A
*capital gain or *capital loss you make from a *CGT asset that you used solely to produce your *exempt income is disregarded.(2) However, the exemption does not apply if the asset was used to gain or produce
*excluded exempt income or *exempt income subject to withholding tax.118-15 Exempt capital receipts
In working out your
*net capital gain or *net capital loss for the income year, disregard:(a) compensation or damages you receive for any wrong or injury you suffer in your occupation; and
(b) compensation or damages you receive for any wrong, injury or illness you or your
(c) compensation you receive under the
*firearms surrender arrangements; and(d) winnings or losses from gambling, a game or a competition with prizes; and
(e) an amount you receive as reimbursement or payment of your expenses under one of these schemes established by an
*Australian government agency:(i) the General Practice Rural Incentives Program;
(ii) the Sydney Aircraft Noise Insulation Project.
118-20 Reducing capital gains if amount otherwise assessable
(1) A
*capital gain you make from a *CGT event is reduced if, because of the event, a provision of this Act (outside of this Part) includes an amount (for any income year) in:(a) your assessable income or
(b) if you are a partner in a partnership, the assessable income or exempt income of the partnership.
This rule does not apply to an amount included in assessable income under section 160AQT of the Income Tax Assessment Act 1936 (which relates to franked dividends).
(2) The gain is reduced to zero if it does not exceed:
(a) the amount included; or
(b) if you are a partner, your share (the partner’s share) of the amount included in the assessable income or
Example: Liz bought some land in 1990, with a view to later selling it for a profit. In December 1998 she sells it.
Her profit from the sale is $40,000 and is included in her assessable income under section 6-5 (about ordinary income).
Suppose she made a capital gain from the sale of $30,000. It is reduced to zero because it is does not exceed the amount included.
(3) The gain is reduced by the amount included, or the amount of the partner’s share, if the gain exceeds that amount.
Note: These rules are modified for complying superannuation funds that become non-complying and for non-resident superannuation funds that become resident: see Part IX of the Income Tax Assessment Act 1936.
(4) A
*capital gain you make from a *CGT event is reduced by the extent that a provision of this Act treats:(a) an amount of your
(b) if you are a partner, your share of the ordinary income or
*statutory income of the partnership from the event (calculated according to your entitlement to share in the partnership net income or loss) as being neither assessable income nor *exempt income of the partnership.Note: An example of a provision of this kind is section 121EG (about offshore banking units) of the Income Tax Assessment Act 1936.
Exceptions
(5) The gain is not reduced if an amount is included in your assessable income, or the assessable income of the partnership, for any income year because of a balancing adjustment.
(6) The gain is not reduced if an amount is included in your *exempt income, or the exempt income of the partnership, under section 23AJ (about exempting certain non-portfolio dividends paid by non-resident companies) of the Income Tax Assessment Act 1936 because a company pays a *dividend to you that is:
(a) debited against a share capital account of the company; or
(b) debited against an account to which the company has credited amounts because of share premiums it received on shares issued by it (even if an amount that is not a share premium, or that cannot be identified as one in the company’s books, has also been credited to the account); or
(c) debited against an asset revaluation reserve of the company; or
(d) directly or indirectly attributable to amounts transferred from such an account or reserve of the company.
118-22 Eligible termination payments
In applying section 118-20, if any part of an
*eligible termination payment is included in your assessable income, the whole of the payment is taken to be included.(1) A
*capital gain or *capital loss you make from a *CGT asset is disregarded if, at the time of the *CGT event, the asset is(a) your
(b) if you are a partner, trading stock of the partnership; or
(c) if you are absolutely entitled to the asset as against the trustee of a trust (disregarding any legal disability), trading stock of the trustee.
(2) A
*capital gain or *capital loss you make in these circumstances is disregarded:(a) you start holding as
(b) you elect under paragraph 70-30(1)(a) to be treated as having sold the asset for its cost (worked out under that section).
Note 1: Paragraph 70-30(1)(a) allows you to elect the cost of the asset, or its market value, just before it became trading stock.
Note 2: You may make a capital gain or loss if you elect its market value: see CGT event K4.
(1) A
*capital gain or *capital loss you make from a *CGT event relating to your interest in the copyright in a film is disregarded if:(a) an amount is included in your assessable income under section 26AG (about film proceeds) of the Income Tax Assessment Act 1936 because of the event; or
(b) an amount would have been included apart from section 23H (about exempting film proceeds) of that Act.
(2) If you are a partner in a partnership, a
*capital gain or *capital loss you make from a *CGT event relating to the partnership’s interest in the copyright in a film is disregarded if:(a) an amount is included in the assessable income of a partner (including you) under section 26AG of that Act because of the event; or
(b) an amount would have been included apart from section 23H of that Act.
(3) If you are absolutely entitled to an interest in the copyright in a film as against the trustee of a trust (disregarding any legal disability), a
*capital gain or *capital loss you make from a *CGT event relating to the interest is disregarded if:(a) an amount is included in your assessable income or the net income of the trust under section 26AG of that Act because of the event; or
(b) an amount would have been included apart from section 23H of that Act.
118-35 Research and development
(1) In working out your
*net capital gain or *net capital loss for the income year, disregard an amount you receive for having incurred expenditure on *research and development activities, or for the results of any of those activities, if it is included in your assessable income under subsection 73B(27A) of the Income Tax Assessment Act 1936.(2) If you are a partner in a partnership, in working out your
*net capital gain or *net capital loss for the income year, disregard an amount you receive for the partnership having incurred expenditure on *research and development activities, or for the results of any of those activities, if it is included in the assessable income of a partner (including you) under subsection 73B(27A) of that Act.(3) If you are absolutely entitled to the net income of a trust (disregarding any legal disability), in working out your
*net capital gain or *net capital loss for the income year, disregard an amount the trustee receives for having incurred expenditure on *research and development activities, or for the results of any of those activities, if it is included in your assessable income or the net income of the trust under subsection 73B(27A) of that Act.A
*capital loss a lessee makes from the expiry, surrender, forfeiture or assignment of a lease (except one granted for 99 years or more) is disregarded if the lessee did not use the lease solely or mainly for the *purpose of producing assessable income.118-42 Transfer of stratum units
If:
(a) you own land on which there is a building; and
(b) you subdivide the building into
(c) you transfer each unit to the entity who had the right to occupy it just before the subdivision;
a
*capital gain or *capital loss you make from transferring the unit is disregarded.A
*capital gain or *capital loss you make from the sale, transfer or assignment of your rights to mine in a particular area in Australia is disregarded if you have *exempt income for the income year (because of section 330-60) from the sale, transfer or assignment.118-50 Issue or allotment of shares or units
A
*capital gain or *capital loss made from:(a) the issue or allotment of shares in a company; or
(b) the issue of units in a unit trust;
is disregarded.
118-55 Foreign currency hedging gains and losses
A
*capital gain or *capital loss you make from a contract you entered into solely to reduce the risk of financial loss you may suffer from currency exchange rate fluctuations is disregarded if the contract relates to:(a) a liability you have to make a payment under another contract; or
(b) a
118-60 Gifts under Cultural Bequests Program
A
*capital gain or *capital loss made from a testamentary gift of property under the Cultural Bequests Program is disregarded.
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