Chapter 3: Tax expenditures

3.6 Income tax benchmark

Capital gains tax

Tax expenditures for defence

E1 Capital gains tax exemption for valour or brave conduct decorations

Defence ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
..	..	..	..	..	..		..		..
Tax expenditure type:		Exemption				2009 TES code:		E1
Estimate Reliability:		Low
Commencement date:		1985				Expiry date:
Legislative reference:		Paragraph 118-5(b) of the Income Tax Assessment Act 1997

Capital gains or losses arising from the disposal of a decoration awarded for valour or brave conduct are exempt from capital gains tax. This exemption is available unless the owner of the decoration had paid money or given any other property for it.

Tax expenditures for health

E2 Capital gains tax roll-over for membership interests in medical defence organisations

Health ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
-	*	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E2
Estimate Reliability:		Not Applicable				* Category		1+
Commencement date:		2007				Expiry date:
Legislative reference:		Subdivision 124-P of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains arising from the exchange of a membership interest in a medical defence organisation for a similar interest in another medical defence organisation where both organisations are companies limited by guarantee. The roll-over allows a member who exchanges their membership interest for the replacement interest to defer a capital gains tax liability arising from the exchange until the ultimate disposal of the replacement membership interest.

Tax expenditures for housing and community amenities

E3 Capital gains tax concessions for conservation covenants

Housing and community amenities ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
..	..	..	..	..	..		..		..
Tax expenditure type:		Exemption				2009 TES code:		E3
Estimate Reliability:		Low
Commencement date:		2000				Expiry date:
Legislative reference:		Section 104-47 of the Income Tax Assessment Act 1997

For capital gains tax purposes, perpetual conservation covenants are treated as a part disposal of land, rather than the creation of a right. This treatment results in a reduced capital gain because a portion of the cost base of the land is taken into account. Previously the capital gain equalled the amount received for the covenant less incidental costs.

Landowners can also benefit from any capital gains tax concession or exemption that may apply to the capital gain. For example, a capital gain from a covenant granted in respect of land owned before 20 September 1985 is exempt. In addition, the capital gains tax discount may now apply if the land has been owned for at least 12 months.

E4 Capital gains tax main residence exemption

Housing and community amenities ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
17,500	18,000	13,000	17,500	17,500	19,000		19,000		19,000
Tax expenditure type:		Exemption				2009 TES code:		E4
Estimate Reliability:		Medium — Low
Commencement date:		1985				Expiry date:
Legislative reference:		Subdivision 118-B of the Income Tax Assessment Act 1997

Capital gains or losses on the disposal of an individual's main residence and up to two hectares of adjacent land are exempt from capital gains tax, to the extent the dwelling is used as a home.

• A taxpayer is entitled to treat a dwelling as their main residence from the time they acquire it until the time when they first occupy it provided they occupy it as soon as practicable.
• A taxpayer is entitled to acquire a dwelling that is to become their main residence, whilst still owning an existing dwelling and treat both dwellings as their main residence for up to six months or until their ownership of the existing dwelling end
  s, whichever occurs first.
• A taxpayer is entitled to treat a block of land as their main residence, if the land was acquired for the purposes of building a dwelling, the dwelling is completed within four years of acquiring the land, the taxpayer moves into the dwelling as soon as practicable and the dwelling continues to be their main residence for at least three months.

The CGT main residence exemption will also be available where the dwelling is owned by a trustee of a Special Disability Trust and used by the principal beneficiary of the trust as their main residence. This will apply from 1 July 2009 once legislation is enacted.

See tax expenditure E5 for the 50 per cent concession component of the main residence exemption. Appendix C also provides further discussion of various estimates of the main residence exemption.

E5 Capital gains tax main residence exemption — discount component

Housing and community amenities ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
22,000	23,000	16,500	21,500	22,500	23,500		24,000		24,000
Tax expenditure type:		Exemption				2009 TES code:		E5
Estimate Reliability:		Medium — Low
Commencement date:		1999				Expiry date:
Legislative reference:		Division 115 of the Income Tax Assessment Act 1997

Capital gains or losses on the disposal of an individual's main residence and up to two hectares of adjacent land are exempt from capital gains tax, to the extent the dwelling is used as a home. Disposals of other assets by individuals or trusts receive a capital gains tax exemption applying to 50 per cent of any nominal gain where the asset has been owned for at least 12 months.

The capital gains tax treatment of the main residence effectively provides a 100 per cent exemption. Conceptually, this can be split into a component reflecting the discount provided to disposals of non-main residence assets and a 'top up' component that brings the concession up to 100 per cent.

The remainder of the value of the CGT main residence exemption, representing the value of the concession relative to the normal CGT rules, is reported in tax expenditure E4. Appendix C provides further discussion of various estimates of the main residence exemption. Tax expenditure E14 provides further detail on the 50 per cent concession applying to other assets.

E6 Other extensions to the capital gains tax main residence exemption

Housing and community amenities ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Exemption				2009 TES code:		E6
Estimate Reliability:		Not Applicable				* Category		3+
Commencement date:		1985 and 1996				Expiry date:
Legislative reference:		Sections 118-145, 118-190 and 118-200 of the Income Tax Assessment Act 1997

A taxpayer's dwelling may continue to be treated as their main residence even if it ceases to be their main residence for up to six years if the dwelling is used to produce assessable income (the six-year rule); or indefinitely, if the dwelling is not used to produce assessable income. This is provided that no other dwelling is treated as the taxpayer's main residence during the period of absence.

In addition, from 20 August 1996, a taxpayer who receives a dwelling as beneficiary of a deceased estate, or who owns the dwelling as the trustee of a deceased estate, may be able to disregard a capital gain or capital loss if certain conditions are met.

Tax expenditures for recreation and culture

E7 Philanthropy — Capital gains tax exemption for the disposal of assets under the Cultural Gifts Program

Recreation and culture ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Exemption				2009 TES code:		E7
Estimate Reliability:		Not Applicable				* Category		1+
Commencement date:		1999				Expiry date:
Legislative reference:		Subsection 118-60(2) of the Income Tax Assessment Act 1997

Capital gains or capital losses arising from gifts made under the Cultural Gifts program are exempt from capital gains tax. The Cultural Gifts program, which does not apply to testamentary gifts, encourages donations of significant cultural items from private collections to public art galleries, museums and libraries by offering tax benefits to the donor.

Tax expenditures for other economic affairs

E8 Capital gains tax roll-over for worker entitlement funds

Other economic affairs — Total labour and employment affairs ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E8
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:	2003				Expiry date:
Legislative reference:		Subdivision 126-C of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for a fund that amends or replaces its trust deed in order to become an approved worker entitlement fund for fringe benefits tax purposes.

E9 Capital gains tax — demutualisation of mutual entities

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
-	-	-	2	1	1		2		2
Tax expenditure type:		Exemption				2009 TES code:		E9
Estimate Reliability:		Low
Commencement date:		1995				Expiry date:
Legislative reference:		Division 9AA and Schedule 2H of the Income Tax Assessment Act 1936 Division 315 of the Income Tax Assessment Act 1997

Capital gains and capital losses arising under the demutualisation of a mutual entity, including a life insurer, general insurer or health insurer are disregarded for members and/or policyholders that receive shares in the demutualised entity.

In addition:

• members and policyholders of a demutualising life insurer receive a cost base for their shares based on the embedded value of the life insurer;
• members and policyholders of a demutualising general insurer receive a cost base for their shares based on the net tangible assets value of the general insurer;
• policyholders of a demutualising private health insurer receive a cost base for their shares based on the market value of the private health insurer; and
• policy holders and members of a demutualising friendly society that is a life insurer and/or a private health insurer receive a cost base for their shares that is based on the market value of the private health insurance business (if any) and the embedded value of any other businesses of the friendly society.

E10 Capital gains tax — indexation of cost base

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Reduction in taxable value				2009 TES code:		E10
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		1985				Expiry date:
Legislative reference:		Division 114 of the Income Tax Assessment Act 1997 Section 110-36 of the Income Tax Assessment Act 1997

For assets acquired at or before 11:45 am EST on 21 September 1999, taxpayers may choose to calculate the capital gain on the asset by reference to its indexed cost base. Taxpayers that choose to use the indexed cost base cannot access the capital gains tax discount. The indexed cost base for these assets was frozen as at 30 September 1999.

E11 Capital gains tax — limited roll-over for fixed trusts

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
-	-	-	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E11
Estimate Reliability:		Not Applicable				* Category		1+
Commencement date:		2008				Expiry date:
Legislative reference:		Subdivision 126-G of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains arising from the transfer of assets between two trusts with no material discretionary elements (sometimes referred to as fixed trusts) and with the same beneficiaries with the same proportional interests.

E12 Capital gains tax — optional roll-over of capital losses for complying superannuation funds

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
-	-	-	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E12
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		2008				Expiry date:		30 June 2011
Legislative reference:		Division 310 of the Income Tax Assessment Act 1997

A roll-over is available for capital losses and the transfer of revenue losses arising on the merger of a complying superannuation fund with another complying superannuation fund with at least five members. The measure will also allow the transfer of previously realised capital losses and revenue losses from the original fund to the continuing fund.

E13 Capital gains tax deferral of liability when taxpayer dies

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E13
Estimate Reliability:		Not Applicable				* Category		3+
Commencement date:		1985				Expiry date:
Legislative reference:		Division 128 of the Income Tax Assessment Act 1997

Generally, there is no capital gains tax taxing point when a taxpayer dies. Recognition of the gains or losses accruing during the life of the deceased is deferred for post-CGT assets until the person inheriting the asset later disposes of it. An exception applies if the capital gains tax asset passes to an exempt entity, the trustee of a complying superannuation entity, or a non-resident of Australia.

E14 Capital gains tax discount for individuals and trusts

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
6,150	9,740	9,090	4,140	5,490	6,700		8,190		9,980
Tax expenditure type:		Exemption				2009 TES code:		E14
Estimate Reliability:		Medium
Commencement date:		1999				Expiry date:
Legislative reference:		Division 115 of the Income Tax Assessment Act 1997

A capital gains tax exemption applies to 50 per cent of any nominal capital gain made by an individual or trust where the asset has been owned for at least one year. For assets acquired before 21 September 1999 and held for at least one year, an individual or trust may instead choose to be taxed on the difference between the disposal price and the indexed cost base frozen as at 30 September 1999.

This item includes the CGT discount component of the value of all capital gains tax expenditures except the CGT discount associated with the main residence exemption, which is reported separately at E5.

E15 Capital gains tax discount for investors in listed investment companies

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
25	40	35	40	40	40		50		60
Tax expenditure type:		Deduction				2009 TES code:		E15
Estimate Reliability:		Low
Commencement date:		2001				Expiry date:
Legislative reference:		Subdivision 115-D of the Income Tax Assessment Act 1997

The shareholders of a listed investment company (LIC) who receive dividends that represent a distribution of capital gains made by that company are entitled to a deduction in respect of those dividends equivalent to the capital gains tax discount they would have received if they had realised the capital gains themselves. This concession applies in respect of gains realised by a LIC on or after 1 July 2001, provided the assets have been held by the LIC for at least 12 months.

E16 Capital gains tax exemption for assets acquired before 20 September 1985

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Exemption				2009 TES code:		E16
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		1985				Expiry date:
Legislative reference:		Division 104 of the Income Tax Assessment Act 1997

Capital gains or losses on assets acquired before 20 September 1985 (the commencement date of the capital gains tax regime) are generally exempt from capital gains tax.

E17 Capital gains tax exemption of non-portfolio interests in foreign companies with active businesses

Other economic affairs — Other economic affairs, nec ($m)

 

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Exemption				2009 TES code:		E17
Estimate Reliability:		Not Applicable				* Category		3+
Commencement date:		1 April 2004				Expiry date:
Legislative reference:		Subdivision 768-G of the Income Tax Assessment Act 1997

Capital gains and losses by Australian companies and controlled foreign companies arising from certain capital gains tax events related to non-portfolio interests in foreign companies with active business assets are reduced.

E18 Capital gains tax roll-over and exemption and related taxation relief for demergers

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Exemption, Deferral				2009 TES code:		E18
Estimate Reliability:		Not Applicable				* Category		3+
Commencement date:		2002				Expiry date:
Legislative reference:		Division 125 of the Income Tax Assessment Act 1997 Subsection 44(4) of the Income Tax Assessment Act 1936

Capital gains tax (CGT) concessions are available to defer or exempt the CGT payable in respect of the restructuring of a corporate or trust group, where the group is split into two or more entities or groups (that is, by demerging). There are three elements to demerger relief:

• CGT roll-over at the shareholder or trust membership interest level for interests such as shares that are exchanged during the demerger process;
• a CGT exemption for certain capital gains and losses at the entity level; and
• an income tax exemption for certain 'demerger dividends'.

These concessions are available to demergers that occur on or after 1 July 2002.

From 11 May 2010, demerger relief also applies to groups where the head entity is a corporation sole or a complying superannuation entity, subject to enactment of the legislation.

E19 Capital gains tax roll-over for financial service providers on transition to the Financial Services Reform regime

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	-	-		-		-
Tax expenditure type:		Deferral				2009 TES code:		E19
Estimate Reliability:		Not Applicable				* Category		1-
Commencement date:		2002				Expiry date:		2004
Legislative reference:		Subdivision 124-O of the Income Tax Assessment Act 1997

An automatic capital gains tax (CGT) roll-over is available to eligible financial service providers on transition to the Financial Services Reform regime. Financial service providers were provided the roll-over when, during the Financial Services Reform transitional period:

• an existing statutory licence, registration or authority was replaced with an Australian financial services licence;
• a qualified Australian financial services licence was replaced with an Australian financial services licence; or
• an intangible CGT asset was replaced with another intangible CGT asset.

E20 Capital gains tax roll-over for replacement small business active assets

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
170	210	350	200	210	210		220		230
Tax expenditure type:		Deferral				2009 TES code:		E20
Estimate Reliability:		Medium — High
Commencement date:		1997				Expiry date:
Legislative reference:		Subdivision 152-E of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains arising from the disposal of active small business assets if the proceeds of the sale are used to purchase other active small business assets. Active assets include assets used in carrying on a business and intangible assets inherently connected with a business (for example, goodwill). An eligible small business is one where the net value of assets that the taxpayer and connected entities own is no more than $6 million, or where the aggregated annual turnover is less than $2 million.

E21 Capital gains tax roll-over for statutory licenses and water entitlements

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
20	90	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E21
Estimate Reliability:		Not Applicable				* Category		1+
Commencement date:		1985, 2005 and 2006				Expiry date:
Legislative reference:		Subdivisions 124-C (statutory licences) and 124R (water entitlements) of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available where a statutory licence ends and i
s replaced with a new licence that authorises substantially similar activity to the original licence. In addition, a capital gains tax roll-over is available on an optional basis from the 2005-06 income year where a taxpayer's ownership of one or more water entitlements ends and the taxpayer receives one or more replacement water entitlements.

A partial capital gains tax roll-over is available for statutory licences (from the 2006-07 income year) and water entitlements (on an optional basis from the 2005-06 income year) where part of the capital proceeds received does not take the form of a replacement statutory licence or water entitlement, as applicable. The component of any capital gains or losses that is referable to the replacement licence or water entitlement will be rolled over. Any part of the capital gain or loss from proceeds that do not take the form of a replacement licence or water entitlement will not qualify for the roll-over.

E22 Capital gains tax roll-over for transfer of assets on marriage or relationship breakdown

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E23
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		2006 (expanded 2009)				Expiry date:
Legislative reference:		Subdivision 126-A of the Income Tax Assessment Act 1997

An automatic roll-over is available where a capital gains tax asset is transferred to a spouse or former spouse because of a marriage or relationship breakdown.

The roll-over also applies to assets transferred under a binding financial agreement or an arbitral award entered into under the Family Law Act 1975 or similar arrangements under state, territory or foreign legislation.

This also includes roll-over where there is a transfer of a capital gains tax asset from a small superannuation fund to another complying superannuation fund following marriage breakdown but only where such transfers meet specific conditions.

E23 Capital gains tax roll-over for transfer of Public Sector Superannuation Fund assets to pooled superannuation trust

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
50	-15	-15	-15	-15	-		-		-
Tax expenditure type:		Deferral				2009 TES code:		E24
Estimate Reliability:		Medium
Commencement date:		2005				Expiry date:
Legislative reference:		Item 3 of Schedule 7 to the Superannuation (Consequential Amendments) Act 2005

An automatic capital gains tax roll-over will occur for the transfer of capital gains tax assets from the Public Sector Superannuation Board to the trustee of a pooled superannuation trust to establish the Public Sector Superannuation Accumulation Plan.

E24 Capital gains tax roll-over relief for assets compulsorily acquired, lost or destroyed

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E25
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		1985				Expiry date:
Legislative reference:		Subdivision 124-B of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains where an asset is compulsorily acquired, lost or destroyed and the taxpayer purchases a replacement asset. In recognition that the disposal was not initiated by the taxpayer, the capital gains liability is deferred from the time of the compulsory acquisition, loss or destruction until the ultimate disposal of the replacement asset.

This measure has been extended to establish the same treatment for a compulsory acquisition whether by a private or public acquirer and to provide greater flexibility for landowners whose land is compulsorily subject to a mining lease.

E25 Capital gains tax roll-overs for superannuation entities

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		-		-
Tax expenditure type:		Deferral				2009 TES code:		E22
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		1994 (ADFs); 2004 (merging funds)				Expiry date:		2006 (merging funds)
Legislative reference:		Subdivision 126-C and 126-F of the Income Tax Assessment Act 1997

Superannuation entities that merge to meet the requirements of the new superannuation safety requireme
nts (commencing 1 July 2004) will not incur a capital gains tax liability as a result of the merger.

The roll-over will be available for the transfer of an asset of a superannuation entity to another superannuation entity that is made from 1 July 2004 to 30 June 2006.

A roll-over is also available where a complying superannuation fund or a complying Approved Deposit Fund amends or replaces its trust deed, with application from 1994.

E26 Capital gains tax roll-overs not otherwise recognised

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		New
Estimate Reliability:		Not Applicable				* Category		na
Commencement date:		Various				Expiry date:
Legislative reference:		Division 122 and Division 124 of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available where a taxpayer transfers an asset (or assets) to a company the taxpayer wholly owns. A capital gains tax roll-over is also available where all the partners in a partnership dispose of their interests in partnership property to a company they wholly own.

Tax expenditures E2, E19, E21, E24 and E28 provide descriptions of several replacement asset capital gains tax roll-overs, which allow a taxpayer to defer any capital gains tax liability arising from a CGT event happening to an original asset they own where they receive another asset to replace the original asset. There are a number of other replacement asset roll-overs not specifically covered (for example the crown lease roll-over provided in Subdivision 124-J and the roll-over for the disposal of assets by a trust to a company provided in Subdivision 124-N).

E27 Capital gains tax roll-overs to facilitate the consolidation of Commonwealth Superannuation Schemes

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
-	70	-15	-15	-15	5		-5		-5
Tax expenditure type:		Deferral				2009 TES code:		C19
Estimate Reliability:		Medium — High
Commencement date:		2006 (CSS); 2010 (ARIA)				Expiry date:		30 June 2011 (ARIA)
Legislative reference:		Schedule 1, Part 3 of the Superannuation Legislation Amendment (Trustee Board and Other Measures) Act 2006 (CSS); ARIA not yet legislated.

An automatic capital gains tax (CGT) roll-over is available for the transfer of CGT assets from the Commonwealth Superannuation Scheme (CSS) to the Public Sector Superannuation Investments Trust as part of a restructure of the CSS.

A roll-over will also be available for the transfer by the proposed Commonwealth Superannuation Corporation of assets from the Military Superannuation Benefits Scheme to the Australian Reward Investment Alliance.

E28 Capital gains tax scrip-for-scrip roll-over

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
60	125	1,105	-130	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E26
Estimate Reliability:		Medium — Low				* Category		3+
Commencement date:		1999				Expiry date:
Legislative reference:		Subdivision 124-M of the Income Tax Assessment Act 1997

A capital gains tax roll-over is available for capital gains arising from an exchange of interests in companies or fixed trusts. The roll-over ensures that an equity holder who exchanges original shares or other equity for new equity in a takeover or merger can defer a capital gains tax liability arising from the exchange until the ultimate disposal of the replacement asset. The roll-over ensures that capital gains tax does not impede takeovers and similar arrangements. This tax expenditure is likely to vary considerably depending upon actual takeover and merger activity. Estimates of the magnitude of this item for the projection years are based on the average activity in preceding periods.

E29 Exemption from the market value substitution rule in relation to the cancellation or surrender of interests in widely held entities

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Exemption				2009 TES code:		E27
Estimate Reliability:		Not Applicable				* Category		1+
Commencement date:		2006				Expiry date:
Legislative reference:		Section 116-30 of the Income Tax Assessment Act 1997

The capital gains tax market value substitution rule deems assets that are disposed o
f for less than their market value to have been disposed for a consideration equal to their market value. This measure exempts membership interests in widely-held entities that are disposed of by way of a redemption, cancellation or surrender (capital gains tax event C2) of the interest from the market value substitution rule, with effect from the 2006-07 income year.

E30 Philanthropy — Capital gains tax exemption for testamentary gifts to deductible gift recipients

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Exemption				2009 TES code:		E29
Estimate Reliability:		Not Applicable				* Category		1+
Commencement date:		1999 (expanded 2005)				Expiry date:
Legislative reference:		Subsections 118-60(1) and (1A) of the Income Tax Assessment Act 1997

Testamentary gifts (that is, gifts made under a will) of certain property to deductible gift recipients are exempt from capital gains tax. From 2005 the requirement that a gift be valued at greater than $5,000 to access the exemption was removed.

E31 Quarantining of capital losses

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Denial of deduction				2009 TES code:		E28
Estimate Reliability:		Low				* Category		4-
Commencement date:		1985				Expiry date:
Legislative reference:		Section 100-50 of the Income Tax Assessment Act 1997

Capital losses may only be offset against capital gains, which means they are quarantined from ordinary income.

E32 Removal of taxation of certain financial instruments at point of conversion or exchange

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
*	*	*	*	*	*		*		*
Tax expenditure type:		Deferral				2009 TES code:		E30
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		2002				Expiry date:
Legislative reference:		Sections 26BB and 70B of the Income Tax Assessment Act 1936

Gains or losses from conversion or exchange of convertible or exchangeable interests issued after 14 May 2002 are not subject to taxation at the point of conversion or exchange, but, instead, taxation is deferred until the ultimate disposal of the shares.

Convertible interests are financial instruments that may convert into shares in the company that issued the convertible interest. Exchangeable interests are instruments that may convert into shares in a company other than the issuer.

E33 Small business capital gains tax 50 per cent reduction

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
560	790	1,010	590	620	630		660		680
Tax expenditure type:		Exemption				2009 TES code:		E31
Estimate Reliability:		Medium — High
Commencement date:		1999				Expiry date:
Legislative reference:		Subdivision 152-C of the Income Tax Assessment Act 1997

Fifty per cent of the capital gains arising from the sale of active assets in an eligible small business are exempt from capital gains tax. This applies in addition to any capital gains tax discount entitlement of the taxpayer. Active assets include assets used in carrying on a business and intangible assets inherently connected with a business (for example, goodwill). An eligible small business is one where the net value of assets that the taxpayer and connected entities own is no more than $6 million, or where the aggregated annual turnover is less than $2 million.

E34 Tax exemption for certain foreign investment in venture capital

Other economic affairs — Other economic affairs, nec ($m)

2006-07	2007-08	2008-09	2009-10	2010-11	2011-12		2012-13		2013-14
..	..	*	*	*	*		*		*
Tax expenditure type:		Exemption				2009 TES code:		E32
Estimate Reliability:		Not Applicable				* Category		2+
Commencement date:		1999				Expiry date:
Legislative reference:		Sections 51-54 and 51-55 and Subdivisions 118-F and 118-G of the of the Income Tax Assessment Act 1997

Certain non-resident investors are exempt from tax on profits and gains in respect of their eligible venture capital investments.

The concession introduced in 1999 provides an exemption from tax on the disposal of investments in new equity in eligible venture capital investments to non-resident pension funds that are tax exempt in their home jurisdiction (being either Canada, France, Germany, Japan, the United Kingdom, the United States or other approved jurisdictions).

The concession introduced in 2002 provides an exemption from tax on the profits and gains in equity investments made by a venture capital limited partnership to certain non-resident partners in the partnership. The exemption is available to a partner who is a tax exempt resident of Canada, France, Germany, Japan, the United Kingdom, the United States or other approved jurisdictions, a venture capital fund of funds established and maintained in those countries, or a taxable resident of Canada, Finland, France, Germany, Italy, Japan, the Netherlands (excluding the Netherlands Antilles), New Zealand, Norway, Sweden, Taiwan, the United Kingdom, the United States or other approved jurisdictions, that holds less than 10 per cent of the committed capital of a venture capital limited partnership.

As foreshadowed in the 2006-07 Budget, the venture capital limited partnerships regime has been enhanced by:

• removing a range of restrictions including allowing investment in unit trusts and convertible notes as well as shares;
• relaxing the requirement that 50 per cent of assets and employees must be in Australia for 12 months after making the investment; and
• removing restrictions on the country of residence of investors.