Foundations of Taxation Law

CGT was introduced by the Hawke Labor Government on 20 September 1985. Before this time, gains that were not of an income nature generally escaped tax unless they fell within a limited number of special statutory income provisions. One of these provisions was former s 26AAA ITAA36, which taxed profits made from selling property within 12 months of its purchase. However, taxpayers could easily avoid this provision by simply selling their property outside that period.

Many considered it unfair that income gains were taxed whereas capital gains generally escaped tax. For example, it was viewed as inequitable that taxpayers who earned salary and wages were taxed, but taxpayers who made capital gains from the realisation of their investments (eg shares and property) were not taxed. The CGT regime was designed to address this bias by bringing capital gains to account under a set of special statutory rules. These rules were originally contained in pt IIIA ITAA36 and were loosely modelled on the United Kingdom’s CGT legislation. In 1998, as part of the TLIP rewrite, pt IIIA was replaced with new provisions contained in pt 3-1 (ss 100-1 to 121-35) and pt 3-3 (ss 122-1 to 152-425) ITAA97.