The ATO has released details of its administrative treatment regarding the proposed extension of the CGT exemption to certain compensation payments and insurance policies. The proposal was announced in the 2012-13 Budget.
The ATO said it will accept tax returns as lodged during the period up until the enactment of the legislation and past assessments will not be reviewed until the outcome of the proposed amendment is known. After the new law is enacted, the ATO said taxpayers will need to review their positions back to the 2005-06 income year and amend their returns accordingly. It said where a reduction in liability results, interest on overpayments will be paid.
Further, the ATO said any interest in excess of the base rate accruing after the date of enactment will be remitted where taxpayers “actively seek” to amend assessments within a “reasonable timeframe” after enactment.
[LTN 107, 5/6]
Announcements – CGT on compensation and insurance through trusts
The Government will make minor extensions to the capital gains tax (CGT) exemptions for certain compensation payments and insurance policies, with effect from the 2005-06 income year. … This measure will disregard CGT consequences where a taxpayer receives compensation, damages or certain insurance through a trust. This will ensure that the taxpayer has the same CGT outcome as a taxpayer who receives such proceeds directly. It will also ensure that insurance policies owned by superannuation funds that were treated as being CGT exempt prior to the 2011-12 Budget changes to compensation payments and insurance policies continue to be CGT exempt.
Announcements – CGT minor changes for proper functioning
The changes made by these measures include:
- Ensuring that the rollover for the exchange of shares in one company for shares in another company operates properly, so that there is deferral of a profit or loss where the original shares are held on revenue account at the time of the exchange. This change will have effect from 7.30pm (AEST) on 10 May 2011.
- Amending the roll-over for certain disposals of assets by a trust to allow roll-over relief to apply where a transferee company or trust holds right, just before the disposal or transfer time, associated with a deed or similar document that is designed to facilitate the transfer or assets into the company or trust. These changes to the roll-over for the disposal of assets by a trust to a company will have effect for CGT events happening after 7.30pm AEST on 10 May 2011 and the changes to the roll-over for the transfer of assets between certain trusts will have effect for CGT events happening on or after 1 November 2008.
- Ensuring that gains and losses arising from life insurance policies that are generally exempted from CGT are not then taxed under the ordinary income provisions by removing the exception to the ‘CGT primary code’ rule for such gains and losses. This will remove uncertainty in the application of income tax to compensation or damages payments made under life insurance policies. These changes will apply to CGT events happening in the 2005-06 income year and later income years.
- Legislating the current Tax Office practice of allowing a testamentary trust to distribute an asset of the deceased person without a CGT taxing point occurring. The income tax law in relation deceased estates will also be rewritten using a principle based format and minor technical issues relating to deceased estates [will be] fixed. These changes will apply to CGT events happening on or after the day the legislation receives Royal Assent.