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5.1. Tax Base for Resident Entities

Resident entities are taxed on their worldwide income, including on an accrual basis in some cases for income derived by certain foreign entities. Specific exemptions may be granted for certain types of income. The jurisdiction to tax residents on a worldwide basis may also be affected by the provisions of the tax treaties concluded by Australia.

According to a recent Taxation Determination (TD) 2018/15 on taxation of capital gains (CGT) in case of grant of rights by the taxpayer such as easement, profit à prendre, or licence over an asset, CGT event D1 i.e. on creation of rights happens rather than CGT event A1 i.e. on disposal of an asset. Consequently:

  • No part of the cost base of the asset can be taken into account in working out the amount of any capital gain or capital loss that arises from the grant;
  • Any capital gain or capital loss from the grant cannot be disregarded merely because the asset was acquired prior to 20 September 1985;
  • Any capital gain from the grant is not a discount capital gain; and
  • No exemption is available under Division 118 if the grant relates to the main residence because CGT event D1 is not one of the events listed in subsection 118-110(2) that is relevant to that exemption.

CGT event D1 is one of several CGT events for which a capital gain or loss may be made.

The Australian Tax Office (ATO) has published guidance on trading stock and treatment of proceeds from the sale of software. The guidance provides that the treatment of sale of software depends on whether or not the software is trading stock.