Income Tax Assessment Act (No. 2) 1972

Overview

The Income Tax Assessment (No. 2) Act 1972 was enacted to amend the law relating to income tax with respect to income derived from the sale of shares. The act was introduced to address a specific gap in the taxation system by ensuring that shares held for a minimum period of eighteen months are not considered as acquired for the purpose of profit-making by sale. This act was passed by the Queen's Most Excellent Majesty, the Senate, and the House of Representatives of the Commonwealth of Australia. The policy objective is to prevent the avoidance of capital gains tax by treating long-term holdings of shares differently from short-term speculative investments. The act was designed to clarify the tax treatment of shares held for substantial periods, thereby ensuring a more equitable application of income tax laws.

Scope and Application

The Income Tax Assessment (No. 2) Act 1972 is a Commonwealth Act that amends the law relating to income tax with respect to income derived from the sale of shares. This Act applies to individuals and entities who own shares in a company listed on a stock exchange in Australia or elsewhere, provided that these shares have been held for a continuous period of at least eighteen months. The Act aims to ensure that the income derived from the sale of shares held for this duration is not treated as profit-making income for tax purposes, thereby potentially reducing the tax liability of the taxpayer. The Act applies nationally across Australia and operates under the overarching framework of the Income Tax Assessment Act 1936-1972, which is further amended by this Act. The legislation excludes from its purview any shares acquired for profit-making purposes as notified by the taxpayer to the Commissioner under section fifty-two of the Act. Additionally, changes in ownership due to death or vesting in a trustee under bankruptcy laws are disregarded in determining the eighteen-month holding period.

Key Provisions

The main operative sections of the Income Tax Assessment (No. 2) Act 1972 (C1972A00046) focus on the taxation of income derived from the sale of shares, particularly where those shares have been held for a minimum period of eighteen months. According to section 6d(1), an individual who acquires shares and retains ownership for at least eighteen months is treated as not having acquired the shares for the purpose of profit-making by sale. This means that any subsequent sale of these shares will not be subject to income tax on the profits made, provided certain conditions are met. Section 6d(2) notes an exception where a taxpayer has notified the Commissioner under section fifty-two of the Act that the shares were acquired for a specified purpose. The Act also clarifies that changes in ownership due to death or bankruptcy do not count as a change for the purposes of the eighteen-month period (section 6d(4)). Additionally, section 6d(3) provides that conversions between shares and stock within a company are treated as continuity of ownership, and section 6d(5) considers joint ownership of shares as individual ownership for the purposes of this Act. The obligations imposed by the Act on taxpayers include the requirement to ensure that shares are held for at least eighteen months to qualify for the tax exemption on profits from their sale (section 6d(1)). Taxpayers must also notify the Commissioner if they acquire shares for a specific purpose that might negate the exemption, as stipulated in section 6d(2). Additionally, section 6d(7) mandates that references to shares in the Act also include stock in the capital of a company, unless otherwise specified. Section 6d(8) further clarifies that the term 'person' does not include a company, which is crucial for interpreting the provisions correctly. Breaches of the provisions in the Act can lead to various consequences. While the Act does not explicitly state offences or penalties, non-compliance with tax laws generally can result in civil or criminal penalties under broader tax legislation. For instance, deliberately failing to report income or providing false information to the Commissioner can lead to substantial fines or imprisonment. Under the Income Tax Assessment Act 1936, as amended, such actions could be prosecuted, with potential penalties including fines of up to $18,000 for individuals and double that amount for corporate entities, alongside possible imprisonment terms. These penalties are designed to ensure compliance and maintain the integrity of the tax system.