On 11 February 2016, the Government introduced the Tax Laws Amendment (Norfolk Island CGT Exemption) Bill 2016 into the House of Representatives.

[APH website]

1.1 This Bill amends the Income Tax (Transitional Provisions) Act 1997 to exempt assets held by Norfolk Island residents before 24 October 2015 from capital gains tax (CGT).

1.2 However, this change will not apply to assets held by Norfolk Island residents that would not have been exempt from CGT before Norfolk Island was fully brought within Australia’s income tax system (for example, an asset held on mainland Australia).

1.3 Assets acquired by Norfolk Island residents on or after 24 October 2015 will be subject to the normal operation of the CGT rules from 1 July 2016.

[EM to the Bill]  [LTN 27, 11/2/16]

Context of these amendments

1.4 Australia’s income tax system, including CGT, will begin to fully apply to Norfolk Island from 1 July 2016. These changes were made by the Tax and Superannuation Laws Amendment (Norfolk Island Reforms) Act 2015 which removed the existing income tax exemptions applying to Norfolk Island residents.

1.5 As a result of that Act, the income tax system would have applied to capital gains or losses that accrued on CGT assets held by Norfolk Island residents from 1 July 2016. This was to be achieved by providing that all CGT assets held by Norfolk Island residents at the end of 30 June 2016 were to be taken on 1 July 2016 to have been acquired for their market value on that day. However, this rule would not have applied to a pre-CGT asset (an asset acquired before 20 September 1985) or another CGT asset if the Norfolk Island resident would not have been entitled to disregard any gain or loss from a CGT event that happened in relation to that asset under the law as it applied prior to the Norfolk Island reform amendments (for example, an asset held on mainland Australia).

1.6 In response to concerns in the Norfolk Island community, the Government announced that it would exempt assets held by Norfolk Island resident taxpayers from CGT if they were acquired before 24 October 2015. Similarly to the previous transitional rule, this change would not apply to CGT assets held by Norfolk Island residents which Tax Laws Amendment (Norfolk Island CGT Exemption) Bill 2016 would not have been exempt from CGT before Norfolk Island was brought fully within Australia’s income tax system (ie, if this existing exemption was retained).

[EM to Bill]