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Tax Laws Amendment (2009 Measures No. 2) Bill 2009

Schedule 2 CGT concessions for small business

Part 1 Main amendments

Income Tax Assessment Act 1997

1  Subparagraph 152-10(1)(c)(iii)

After “asset is an”, insert “interest in an”.

2  At the end of paragraph 152-10(1)(c) (before the note)

Add:

                            (iv)  the conditions mentioned in subsection (1A) or (1B) are satisfied in relation to the CGT asset in the income year;

3  Paragraph 152-10(1)(c) (note)

Repeal the note, substitute:

Note:          For determining whether an entity is a small business entity , see Subdivision 328-C (as affected by section 152-48).

4  After subsection 152-10(1)

Insert:

Passively held assets—affiliates and entities connected with you

          (1A)  The conditions in this subsection are satisfied in relation to the * CGT asset in the income year if:

                     (a)  your * affiliate, or an entity that is * connected with you, is a * small business entity for the income year; and

                     (b)  you do not carry on a * business in the income year (other than in partnership); and

                     (c)  if you carry on a business in partnership—the CGT asset is not an interest in an asset of the partnership; and

                     (d)  in any case—the small business entity referred to in paragraph (a) is the entity that, at a time in the income year, carries on the business (as referred to in subparagraph 152-40(1)(a)(ii) or (iii) or paragraph 152-40(1)(b)) in relation to the CGT asset.

Note 1:       For determining whether an entity is a small business entity , see Subdivision 328-C (as affected by section 152-48).

Note 2:       For businesses that are winding up, see section 152-49 and subsection 328-110(5).

Passively held assets—partnerships

          (1B)  The conditions in this subsection are satisfied in relation to the * CGT asset in the income year if:

                     (a)  you are a partner in a partnership in the income year; and

                     (b)  the partnership is a * small business entity for the income year; and

                     (c)  you do not carry on a * business in the income year (other than in partnership); and

                     (d)  the CGT asset is not an interest in an asset of the partnership; and

                     (e)  the business you carry on as a partner in the partnership referred to in paragraph (a) is the business that you, at a time in the income year, carry on (as referred to in subparagraph 152-40(1)(a)(i) or paragraph 152-40(1)(b)) in relation to the CGT asset.

Note 1:       For determining whether an entity is a small business entity , see Subdivision 328-C (as affected by section 152-48).

Note 2:       For businesses that are winding up, see section 152-49 and subsection 328-110(5).

5  Before subsection 152-10(2)

Insert:

Additional basic conditions for shares in a company or interests in a trust

6  Before subsection 152-10(3)

Insert:

Extra conditions for some concessions

7  Before subsection 152-10(4)

Insert:

Special rules for certain CGT events

8  Paragraphs 152-40(1)(a) and (b)

Repeal the paragraphs, substitute:

                     (a)  you own the asset (whether the asset is tangible or intangible) and it is used, or held ready for use, in the course of carrying on a * business that is carried on (whether alone or in partnership) by:

                              (i)  you; or

                             (ii)  your * affiliate; or

                            (iii)  another entity that is * connected with you; or

                     (b)  if the asset is an intangible asset—you own it and it is inherently connected with a business that is carried on (whether alone or in partnership) by you, your affiliate, or another entity that is connected with you.

9  Subsection 152-40(1) (note 2)

Omit “subparagraph (1)(a)(ii)”, substitute “subparagraph (1)(a)(iii)”.

10  At the end of subsection 152-40(1)

Add:

Note 3:       An example of an asset that is inherently connected with a business is goodwill or the benefit of a restrictive covenant.

Note 4:       For businesses that are winding up, see section 152-49 and subsection 328-110(5).

11  Subsection 152-40(1A)

Repeal the subsection.

12  Subsection 152-40(2)

Omit “or (1A)”.

13  Subsection 152-42(1)

Omit “subparagraph 152-40(1)(a)(ii)”, substitute “subparagraph 152-40(1)(a)(iii)”.

14  After section 152-45

Insert:

Treatment of passively held CGT assets

152-47   Spouses or children taken to be affiliates for certain passively held CGT assets

             (1)  This section applies if:

                     (a)  one entity (the asset owner ) owns a * CGT asset (whether the asset is tangible or intangible); and

                     (b)  either:

                              (i)  the asset is used, or held ready for use, in the course of carrying on a * business in an income year by another entity (the business entity ); or

                             (ii)  the asset is inherently connected with a business that is carried on in an income year by another entity (the business entity ); and

                     (c)  the business entity is not (apart from this section) an * affiliate of, or * connected with, the asset owner.

             (2)  For the purposes of this Subdivision, in determining whether the business entity is an * affiliate of, or is * connected with, the asset owner, take the following to be affiliates of an individual:

                     (a)  a * spouse of the individual;

                     (b)  a * child of the individual, being a child who is under 18 years.

             (3)  If an entity is an * affiliate of, or * connected with, another entity as a result of subsection (2), then the * spouse or * child mentioned in that subsection is, in addition, taken to be an affiliate of the individual for the purposes of this Subdivision, and for the purposes of sections 328-110 to 328-125 to the extent that they relate to this Subdivision.

Example:    The spouse or child mentioned in subsection (2) is taken to be an affiliate of the individual for the purposes of working out which entities are affiliates of or connected with entities under section 152-48.

             (4)  To avoid doubt, subsection (2) applies:

                     (a)  for the purposes of reducing or disregarding, under this Division, any * capital gain from any * CGT asset; but

                     (b)  only while:

                              (i)  a * spouse remains a spouse; or

                             (ii)  a * child remains a child who is under 18 years.

152-48   Working out an entity’s aggregated turnover for passively held CGT assets

             (1)  This section applies for the purposes of section 328-115 to determine whether an entity (the test entity ) is a * small business entity for the purposes of subsection 152-10(1A) or (1B).

             (2)  An entity (the deemed entity ) is taken to be an * affiliate of, or * connected with, the test entity (as the case requires) if:

                     (a)  the deemed entity is an affiliate of, or connected with, the entity that owns the * CGT asset referred to in subsection 152-10(1A) or (1B); and

                     (b)  the deemed entity is not (apart from this section) an affiliate of, or connected with, the test entity.

             (3)  If:

                     (a)  the entity that owns the * CGT asset referred to in subsection 152-10(1B) is a partner in 2 or more partnerships; and

                     (b)  the asset is:

                              (i)  used, or held ready for use, in the course of carrying on a * business that is carried on by at least 2 of those partnerships; or

                             (ii)  inherently connected with businesses that are carried on by at least 2 of those partnerships;

then, each partnership referred to in paragraph (b) that is not (apart from this section) * connected with the test entity is taken to be connected with the test entity.

152-49   Businesses that are winding up

             (1)  This section applies to an entity in an income year (the CGT event year ) if:

                     (a)  a * business that the entity previously carried on (including in partnership) is being wound up in that year; and

                     (b)  either:

                              (i)  the asset was used, or held ready for use, in the course of carrying on the business at a time in the income year in which the business stopped being carried on; or

                             (ii)  if the asset is an intangible asset—the asset was inherently connected with the business that was carried on at a time in the income year in which the business stopped being carried on.

             (2)  For the purposes of paragraphs 152-40(1)(a) and (b) as they apply for the purposes of paragraphs 152-10(1A)(d) and (1B)(e):

                     (a)  the entity is taken to carry on the * business at a time in the CGT event year; and

                     (b)  either:

                              (i)  the * CGT asset is taken to be used, or held ready for use, in the course of carrying on the business at that time; or

                             (ii)  if the asset is an intangible asset—the CGT asset is taken to be inherently connected with the business at that time.

Note:          The entity might also be taken to be a small business entity in the CGT event year (see subsection 328-110(5)).

15  At the end of subsection 328-115(1)

Add:

Note:          For small business relief purposes, additional entities may be treated as being connected with you or your affiliate under section 152-48.

16  At the end of section 328-130 (before the example)

Add:

Note:          For small business relief purposes, a spouse or a child under 18 years may also be an affiliate under section 152-47.



 

Part 2 Other amendments

Income Tax Assessment Act 1936

17  At the end of subsection 109(1)

Add:

Note:          This section does not apply to an amount if the amount is paid to a CGT concession stakeholder under subsection 152-325(1) of the Income Tax Assessment Act 1997 (see subsection 152-325(11)).

18  Subsection 109C(1) (note 1)

Repeal the note, substitute:

Note 1:       Some payments do not give rise to dividends under Subdivision D. This section also does not give rise to a dividend if the amount is paid to a CGT concession stakeholder under subsection 152-325(1) of the Income Tax Assessment Act 1997 (see subsection 152-325(11)).

Income Tax Assessment Act 1997

19  Section 11-55 (after table item headed “bonds”)

Insert:

 

capital gains tax

 

payments made by an interposed entity in relation to the small business retirement exemption...............................



152-310(3)

20  At the end of subsection 104-197(1)

Add:

Note:          You do not have to satisfy the basic conditions in Subdivision 152-A for the gain in relation to CGT event J5 (see subsection 152-305(4)).

21  At the end of subsection 104-198(1)

Add:

Note:          You do not have to satisfy the basic conditions in Subdivision 152-A for the gain in relation to CGT event J6 (see subsection 152-305(4)).

22  Section 152-5

Omit:

There are limitations on the availability of the small business concessions for CGT events J2, J5 and J6.

Substitute:

There are limitations on the availability of the small business concessions for CGT events J2, J5 and J6.

You do not need to satisfy the basic conditions for the retirement exemption in relation to CGT events J5 and J6.

23  Subsection 152-10(4) (note)

Omit “Note”, substitute “Note 1”.

24  At the end of subsection 152-10(4)

Add:

Note 2:       This Subdivision does not apply to CGT events J5 and J6 in relation to the retirement exemption (see subsection 152-305(4)).

25  Paragraph 152-20(2)(a)

After “first-mentioned entity” (second occurring), insert “, but include any liabilities related to any such shares, units or interests”.

26  Paragraph 152-40(4)(e)

Omit “in the course of carrying on the * business mentioned in subsection (1)”, substitute “by you”.

27  After subsection 152-40(4)

Insert:

          (4A)  For the purposes of paragraph (4)(e), in determining the main use of an asset:

                     (a)  disregard any personal use or enjoyment of the asset by you; and

                     (b)  treat any use by your * affiliate, or an entity that is * connected with you, as your use.

28  Group heading before section 152-80

Repeal the heading, substitute:

CGT event happens to asset or interest within 2 years of an individual’s death

29  Section 152-80 (heading)

Repeal the heading, substitute:

152-80   CGT event happens to an asset or interest within 2 years of individual’s death

30  Paragraphs 152-80(1)(a) and (b)

Repeal the paragraphs, substitute:

                     (a)  a * CGT asset:

                              (i)  forms part of the estate of a deceased individual; or

                             (ii)  was owned by joint tenants and one of them dies; and

                     (b)  any of the following applies:

                              (i)  the asset devolves to the individual’s * legal personal representative;

                             (ii)  the asset * passes to a beneficiary of the individual;

                            (iii)  an interest in the asset is * acquired by the surviving joint tenant or tenants (as the case may be) as mentioned in section 128-50;

                            (iv)  the asset devolves to a trustee of a trust established by the will of the individual; and

31  Paragraph 152-80(1)(c)

Omit “the individual”, substitute “the deceased individual referred to in subparagraph (a)(i) or (ii)”.

32  Subsection 152-80(2)

Repeal the subsection, substitute:

             (2)  A person mentioned in subsection (2A) is entitled to reduce or disregard a * capital gain under this Division in the same way as the deceased individual would have been entitled to as if:

                     (a)  paragraph 152-105(d) only required the deceased individual to have been 55 or over, or permanently incapacitated, at the time of the * CGT event referred to in paragraph (1)(c) of this section; and

                     (b)  paragraph 152-305(1)(b) did not apply.

          (2A)  The following persons (as the case requires) are entitled to reduce or disregard a * capital gain under this Division in accordance with subsection (2):

                     (a)  the * legal personal representative of the individual;

                     (b)  the beneficiary of the individual;

                     (c)  the surviving joint tenant or tenants;

                     (d)  the trustee or a beneficiary of the trust.

33  Section 152-300

Omit:

You may choose not to apply the concession in section 152-205 (small business 50% reduction) before this one. For an additional concession, see also Subdivision 152-E (small business roll-over).

Substitute:

You may choose not to apply the concession in section 152-205 (small business 50% reduction) before this one. For an additional concession, see also Subdivision 152-E (small business roll-over).

You do not need to satisfy the basic conditions for this exemption in relation to CGT events J5 and J6.

34  After subsection 152-305(1)

Insert:

          (1A)  If you receive the * capital proceeds from the * CGT event in instalments, paragraphs (1)(b) and (c) apply to each instalment in succession (up to the asset’s * CGT exempt amount).

35  At the end of section 152-305

Add:

             (4)  Paragraphs (1)(a) and (2)(a) do not apply if the * capital gain arose from * CGT event J5 or J6.

36  Subsection 152-310(3)

Repeal the subsection, substitute:

Additional consequences in relation to interposed entities

             (3)  If:

                     (a)  an entity (the paying entity ) receives a payment (whether directly or indirectly through one or more interposed entities) that a company or trust makes to comply with section 152-325; and

                     (b)  the paying entity passes on the payment to the * CGT concession stakeholder or another interposed entity;

then:

                     (c)  the payment cannot be deducted from the paying entity’s assessable income; and

                     (d)  the payment received by the paying entity is not assessable income and is not * exempt income.

37  Subsection 152-325(1)

After “payment”, insert “(whether directly or indirectly through one or more interposed entities)”.

38  Subsection 152-325(9)

Repeal the subsection, substitute:

Payments are not dividends or frankable distributions

             (9)  Subsection (10) applies if:

                     (a)  a company makes a payment to comply with subsection (1) to:

                              (i)  a * CGT concession stakeholder; or

                             (ii)  an interposed entity, in relation to a CGT concession stakeholder; or

                     (b)  both of the following apply:

                              (i)  an interposed entity receives a payment (whether directly or indirectly through one or more interposed entities) that a company or trust makes to comply with subsection (1), in relation to a CGT concession stakeholder;

                             (ii)  the interposed entity passes on the payment to the CGT concession stakeholder or another interposed entity.

           (10)  This Act applies to the payment, to the extent that it is less than or equal to the amount mentioned in subsection (3) for the stakeholder, as if:

                     (a)  it were not a * dividend; and

                     (b)  it were not a * frankable distribution.

           (11)  Subsection (10) applies in relation to the payment despite section 109 and Division 7A of Part III of the Income Tax Assessment Act 1936 .

39  At the end of section 328-110

Add:

Partners in a partnership

             (6)  A person who is a partner in a partnership in an income year is not, in his or her capacity as a partner, a small business entity for the income year.

Tax Laws Amendment (2008 Measures No. 6) Act 2009

40  Item 52 of Schedule 4 (table item 8)

Repeal the table item.



 

Part 3 Application provisions

41  Application of amendments made by Part 1

(1)       The amendments made by Part 1 of this Schedule apply to CGT events (other than CGT events to which subitem (2) applies) happening in the 2007-08 income year and later income years.

(2)       Subitem (1) does not apply in relation to a CGT event (the excluded event ) if:

                     (a)  the excluded event happens in relation to a CGT asset before the day on which the Bill for this Act is introduced into the Parliament; and

                     (b)  an entity makes a capital gain from the excluded event; and

                     (c)  the basic conditions in Subdivision 152-A of the Income Tax Assessment Act 1997 (as in force immediately before Part 1 of this Schedule commences) are satisfied for the gain; and

                     (d)  the basic conditions would not be satisfied for the gain if:

                              (i)  subsection 152-40(1A) of that Act (as in force immediately before Part 1 of this Schedule commences) did not apply to the entity; or

                             (ii)  section 152-47 of that Act (as in force immediately after Part 1 of this Schedule commences) applied to the entity.

(3)       The amendments made by Part 1 of this Schedule apply to excluded events happening on or after the day on which the Bill for this Act is introduced into the Parliament.

42  Application of amendments made by items 25 to 27

The amendments made by items 25 to 27 of this Schedule apply to CGT events that happen on or after the day on which this Act receives the Royal Assent.

43  Application of amendments made by items 30 to 32

The amendments made by items 30 to 32 of this Schedule apply to CGT events happening in the 2006-07 income year and later income years.

44  Application of amendment made by item 34

The amendment made by item 34 applies to proceeds receivedin the 2007-08 income year and later income years.

45  Application of amendment made by item 35

The amendment made by item 35 of this Schedule applies to CGT events happening in the 2006-07 income year and later income years.

46  Application of amendments made by items 36 to 38

The amendments made by items 36 to 38 of this Schedule apply to payments that are made (whether by a company or trust to comply with section 152-325 of the Income Tax Assessment Act 1997 or by an interposed entity) on or after the day on which this Act receives the Royal Assent.

47  Application of amendment made by item 39

The amendment made by item 39 of this Schedule applies to assessments for the 2007-08 income year and later income years.

48  Transitional: choice

(1)       Subitem (2) applies in relation to:

                     (a)  a CGT event that happened before the day on which this Act receives the Royal Assent; and

                     (b)  an entity who becomes eligible to make a choice under Division 152 of the Income Tax Assessment Act 1997 in relation to that event because of this Schedule.

(2)       Despite subsection 103-25(1) of the Income Tax Assessment Act 1997 , any such choice must be made by the entity by the latest of:

                     (a)  the day the entity lodges its income tax return for the income year in which the relevant CGT event happened; and

                     (b)  12 months after the day on which this Act receives the Royal Assent; and

                     (c)  a later day allowed by the Commissioner of Taxation.