Issue 2 : CGT 30 June planning

Issue 2

2008-09 Budget and CGT CGT 30 June planning Consolidation regime 2008-09 improvement threshold What is income? Amendment of assessments for CGT Trust cloning CGT market value substitution rule Amounts misappropriated by employee or agent Default by borrower on unsecured note – no CGT event McNeil’s case amendments Wash sales Deferred purchase agreement warrants CGT STATUS REPORT

Practitioners need to be aware of the possibility that there may be CGT issues to be addressed when considering the 30 June position of their clients.  There are a number of situations in which CGT 30 June issues may arise and some illustrations are noted below.

Timing

It needs to be kept in mind that a capital gain or capital loss arises in the income year in which the particular CGT event happens.  For instance, where there is a disposal of a CGT asset, CGT event A1 will happen (broadly) when the contract for the disposal is entered into or, in the absence of a contract, when the disposal actually takes place.

Attempts to exploit the timing rules in an artificial way are likely to carry with them the prospect of an application by the Commissioner of the general anti-avoidance provisions of Part IVA ITAA 1936.  For the Commissioner’s attitude to wash sales, see TR 2008/1 and TA 2008/7.

CGT small business reliefs

When applying the CGT small business reliefs, distributions of income or capital by a trust are relevant when determining:

1. whether an individual is a significant individual or a CGT concession stakeholder in relation to a non-fixed trust;  and
2. whether an entity controls a discretionary trust (in any of the later four income years).

For the purposes of (1) above, distributions of income and capital made during the income year are relevant and, for the purposes of (2) above, distributions of income and capital made for the income year are relevant.

It is vital to note that, when applying the CGT small business relief provisions for these purposes, the distinction between income and capital assumes considerable importance.  If, for example, the trustee of a non-fixed trust makes distributions of both income and capital during an income year, a beneficiary may only have a direct small business participation percentage if the beneficiary is presently entitled to an amount of the income distributed and to an amount of the capital distributed. If that is the case, the beneficiary’s direct participation percentage is the lesser of the percentage of the income distributed to the beneficiary and the percentage of the capital distributed to the beneficiary.

Disclaimer
The material contained in this publication is of a general nature and is not advice. No representation or warranty is made as to its correctness. Readers must obtain their own professional advice before making any decisions as to their own or their clients’ affairs.

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