Income Tax (Rates) Amendment (Capital Gains) Act 1986

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No. 53 of 1986

An Act to amend the Income Tax (Rates) Act 1982

[Assented to 24 June 1986]

BE IT ENACTED by the Queen, and the Senate and the House of Representatives of the Commonwealth of Australia, as follows:

Short title, &c.

1. (1) This Act may be cited as the Income Tax (Rates) Amendment (Capital Gains) Act 1986.

(2) The Income Tax (Rates) Act 19821 is in this Act referred to as the Principal Act.

Commencement

2. This Act shall come into operation on the day on which it receives the Royal Assent.

Interpretation

3. Section 3 of the Principal Act is amended—

(a) by inserting after the definition of “Assessment Act” in sub-section (1) the following definitions:

“ ‘capital gains component’ means—

(a) in relation to the taxable income of a taxpayer of a year of income—

(i) if the taxable income is equal to or less than the amount (if any) included in the assessable income of the taxpayer of the year of income under section 160zo of the Assessment Act— the whole of the taxable income; or

(ii) in any other case—so much of the taxable income as equals the amount (if any) included in the assessable income of the taxpayer of the year of income under section 160zo of the Assessment Act; and

(b) in relation to the net income, or a share or part of the net income, of a trust estate of a year of income (which net income, share or part, as the case may be, is in this paragraph referred to as the ‘eligible net income’)—

(i) if the eligible net income is equal to or less than so much of the amount (if any) included in the assessable income of the trust estate of the year of income under section 160zo of the Assessment Act as relates to the eligible net income—the whole of the eligible net income; or

(ii) in any other case—so much of the eligible net income as equals so much of the amount (if any) included in the assessable income of the trust estate of the year of income under section 160zo of the Assessment Act as relates to the eligible net income;

‘eligible part’ means—

(a) in relation to the capital gains component of the taxable income of a taxpayer—so much of the capital gains component as is eligible taxable income for the purposes of Division 6aa of Part III of the Assessment Act; and

(b) in relation to the capital gains component of the net income, or of a share or part of the net income, of a trust estate—so much of the capital gains component as is net income to which Division 6aa of Part III of the Assessment Act applies;”;

(b) by inserting after the definition of “prescribed unit trust” in sub-section (1) the following definitions:

“ ‘reduced notional income’, in relation to a taxpayer deriving a notional income in the year of income, as specified in section 59ab, 86 or 158d of the Assessment Act, means the amount that would be that notional income if that notional income had been calculated by reference to the reduced taxable income instead of by reference to the taxable income;

‘reduced share’, in relation to a share of a beneficiary of the net income of a trust estate, means the part (if any) of that share other than the capital gains component;

‘reduced taxable income’ means the part (if any) of the taxable income other than the capital gains component;”; and

“(a) a reference to net income, taxable income, reduced notional income or reduced taxable income shall be read as a reference to net income, taxable income, reduced notional income or reduced taxable income, as the case may be, of the year of income; and”.

Amendments of Schedule 19

4. Schedule 19 to the Principal Act is amended—

(a) by omitting from Part I “The rate of tax” and substituting “1. Subject to clauses 2 and 3, the rate of tax”;

(b) by adding at the end of Part I the following clauses:

“2. Where—

(a) the taxable income of a resident taxpayer consists of or includes a capital gains component; and

(b) Division 16 of Part III of the Assessment Act does not apply to the income of the taxpayer,

the rate of tax for every $1 of the taxable income is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(i) the reduced taxable income; and

(ii) 20% of the capital gains component of the taxable income; and

(d) the amount represented by component A; and

C is the number of whole dollars in the taxable income.

“3. Where—

(a) the taxable income of a resident taxpayer consists of or includes a capital gains component; and

(b) Division 16 of Part III of the Assessment Act applies to the income of the taxpayer,

the rate of tax for every $1 of the taxable income is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(i) the average income; and

(ii) 20% of the capital gains component of the taxable income; and

(d) the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the average income; and

C is the number of whole dollars in the taxable income.”;

(d) by adding at the end of Part II the following clauses:

“2. Where—

(a) the taxable income of a non-resident taxpayer consists of or includes a capital gains component; and

(b) Division 16 of Part III of the Assessment Act does not apply to the income of the taxpayer,

the rate of tax for every $1 of the taxable income is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(i) the reduced taxable income; and

(ii) 20% of the capital gains component of the taxable income; and

(d) the amount represented by component A; and

C is the number of whole dollars in the taxable income.

“3. Where—

(a) the taxable income of a non-resident taxpayer consists of or includes a capital gains component; and

(b) Division 16 of Part III of the Assessment Act applies to the income of the taxpayer,

the rate of tax for every $1 of the taxable income is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(i) the average income; and

(ii) 20% of the capital gains component of the taxable income; and

(d) the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the average income; and

C is the number of whole dollars in the taxable income.”.

Amendments of Schedule 21

5. Schedule 21 to the Principal Act is amended—

(a) by omitting from Part I “For every $1” and substituting “1. Subject to clause 2, for every $1”;

(b) by adding at the end of Part I the following clause:

“2. For every $1 of the taxable income of a resident taxpayer—

(a) who derives a notional income, as specified by section 59ab, 86 or 158d of the Assessment Act; and

(b) whose taxable income consists of or includes a capital gains component,

the rate of tax is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(c) the amount of tax that would be payable by the taxpayer under clause 1 of Part I of Schedule 19 on a taxable income equal to the sum of—

(i) the reduced notional income; and

(ii) 20% of the capital gains component of the taxable income; and

(d) the amount of tax that would be payable by the taxpayer under clause 1 of Part I of Schedule 19 on a taxable income equal to the reduced notional income; and

C is the number of whole dollars in the taxable income.”;

(d) by adding at the end of Part II the following clause:

“2. For every $1 of the taxable income of a non-resident taxpayer—

(a) who derives a notional income, as specified by section 59ab, 86 or 158d of the Assessment Act; and

(b) whose taxable income consists of or includes a capital gains component,

the rate of tax is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clause 1 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(c) the amount of tax that would be payable by the taxpayer under clause 1 of Part II of Schedule 19 on a taxable income equal to the sum of—

(i) the reduced notional income; and

(ii) 20% of the capital gains component of the taxable income; and

(d) the amount of tax that would be payable by the taxpayer under clause 1 of Part II of Schedule 19 on a taxable income equal to the reduced notional income; and

C is the number of whole dollars in the taxable income.”.

Amendments of Schedule 23

6. Schedule 23 to the Principal Act is amended—

(a) by inserting in clauses 1 and 2 of Part I “and whose taxable income does not consist of or include a capital gains component” after “Assessment Act exceeds $416”;

(b) by adding at the end of Part I the following clause:

“3. For every $1 of the taxable income of a resident taxpayer—

(a) whose eligible taxable income for the purposes of Division 6aa of Part III of the Assessment Act exceeds $416; and

(b) whose taxable income consists of or includes a capital gains component,

the rate of tax is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clauses 1 and 2 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(c) the amount of tax that would be payable by the taxpayer under clause 1 of Part I of Schedule 19 on a taxable income equal to the sum of—

(i) whichever of the following amounts is applicable:

(a) where Division 16 of Part III of the Assessment Act applies—the average income;

(b) where any part of the amount represented by component A was calculated by reference to Schedule 21—the reduced notional income;

(ii) 20% of the part of the capital gains component other than the eligible part of the capital gains component; and

(d) the amount of tax that would be payable by the taxpayer under clause 1 of Part I of Schedule 19 on a taxable income equal to the average income, reduced notional income or reduced taxable income, as the case may be;

C is—

(e) 5 times the difference between—

(i) the amount of tax that would be payable by the taxpayer under clause 1 of Part I of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced taxable income; and

(b) 20% of the capital gains component; and

(ii) the amount of tax that would be payable by the taxpayer under clause 1 of Part I of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced taxable income; and

(b) 20% of the part of the capital gains component other than the eligible part of the capital gains component; or

(f) 46% of the eligible part of the capital gains component,

whichever is the greater; and

D is the number of whole dollars in the taxable income.”;

(c) by inserting in clauses 1 and 2 of Part II “and whose taxable income does not consist of or include a capital gains component” after “Assessment Act”; and

(d) by adding at the end of Part II the following clause:

“3. For every $1 of the taxable income of a non-resident taxpayer—

(a) who has an eligible taxable income for the purposes of Division 6aa of Part III of the Assessment Act; and

(b) whose taxable income consists of or includes a capital gains component,

the rate of tax is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the taxpayer under clauses 1 and 2 on a taxable income equal to the reduced taxable income;

B is 5 times the difference between—

(c) the amount of tax that would be payable by the taxpayer under clause 1 of Part II of Schedule 19 on a taxable income equal to the sum of—

(i) whichever of the following amounts is applicable:

(a) where Division 16 of Part III of the Assessment Act applies—the average income;

(b) where any part of the amount represented by component A was caculated by reference to Schedule 21—the reduced notional income;

(ii) 20% of the part of the capital gains component other than the eligible part of the capital gains component; and

(d) the amount of tax that would be payable by the taxpayer under clause 1 of Part II of Schedule 19 on a taxable income equal to the average income, reduced notional income or reduced taxable income, as the case may be;

C is—

(e) 5 times the difference between—

(i) the amount of tax that would be payable by the taxpayer under clause 1 of Part II of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced taxable income; and

(b) 20% of the capital gains component; and

(ii) the amount of tax that would be payable by the taxpayer under clause 1 of Part II of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced taxable income; and

(b) 20% of the part of the capital gains component other than the eligible part of the capital gains component; or

(f) 46% of the eligible part of the capital gains component,

whichever is the greater; and

D is the number of whole dollars in the taxable income.”.

Amendments of Schedule 24

7. Schedule 24 to the Principal Act is amended—

(a) by inserting in clauses 1 and 2 of Part I “and that share does not consist of or include a capital gains component” before “, the rates of tax”;

(b) by adding at the end of Part I the following clause:

“3. In the case of a trustee of a trust estate who is liable to be assessed and to pay tax in pursuance of section 98 of the Assessment Act in respect of a share of a resident beneficiary of the net income of the trust estate where—

(a) Division 6aa of Part III of that Act applies to a part of that share; and

(b) that share consists of or includes a capital gains component,

the rate of tax for every $1 of that share is the amount ascertained in accordance with the formula , where—

A is the amount of tax that would be payable by the trustee under clauses 1 and 2 on the reduced share;

B is 5 times the difference between—

(c) the amount of tax that would be payable under clause 1 of Part I of Schedule 19 on a taxable income equal to the sum of—

(i) whichever of the following amounts is applicable:

(a) where Division 16 of Part III of the Assessment Act applies—the average income;

(b) where any part of the amount represented by component A was calculated by reference to Schedule 21—the reduced notional income;

(ii) 20% of the part of the capital gains component other than the eligible part of the capital gains component,

if one individual were liable to be assessed and to pay tax on that income; and

(d) the amount of tax that would be payable under clause 1 of Part I of Schedule 19 on a taxable income equal to the average income, reduced notional income or reduced share, as the case may be, if one individual were liable to be assessed and to pay tax on that income;

C is—

(e) 5 times the difference between—

(i) the amount of tax that would be payable under clause 1 of Part I of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced share; and

(b) 20% of the capital gains component,

if one individual were liable to be assessed and to pay tax on that income; and

(ii) the amount of tax that would be payable under clause 1 of Part I of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced share; and

(b) 20% of the part of the capital gains component other than the eligible part of the capital gains component,

if one individual were liable to be assessed and to pay tax on that income; or

(f) 46% of the eligible part of the capital gains component,

whichever is the greater; and

D is the number of whole dollars in the share.”;

(c) by inserting in clauses 1 and 2 of Part II “and that share does not consist of or include a capital gains component” before “, the rates of tax”; and

(d) by adding at the end of Part II the following clause:

“3. In the case of a trustee of a trust estate who is liable to be assessed and to pay tax in pursuance of section 98 of the Assessment Act in respect of a share of a non-resident beneficiary of the net income of the trust estate where—

(a) Division 6aa of Part III of that Act applies to a part of that share; and

(b) that share consists of or includes a capital gains component, the rate of tax for every $1 of that share is the amount ascertained

in accordance with the formula , where—

A is the amount of tax that would be payable by the trustee under clauses 1 and 2 on the reduced share;

B is 5 times the difference between—

(c) the amount of tax that would be payable under clause 1 of Part II of Schedule 19 on a taxable income equal to the sum of—

(i) whichever of the following amounts is applicable:

(a) where Division 16 of Part III of the Assessment Act applies—the average income;

(b) where any part of the amount represented by component A was calculated by reference to Schedule 21—the reduced notional income;

(ii) 20% of the part of the capital gains component other than the eligible part of the capital gains component,

if one individual were liable to be assessed and to pay tax on that income; and

C is—

(e) 5 times the difference between—

(i) the amount of tax that would be payable under clause 1 of Part II of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced share; and

(b) 20% of the capital gains component,

if one individual were liable to be assessed and to pay tax on that income; and

(ii) the amount of tax that would be payable under clause 1 of Part II of Schedule 19 on a taxable income equal to the sum of—

(a) the reduced share; and

(b) 20% of the part of the capital gains component other than the eligible part of the capital gains component,

if one individual were liable to be assessed and to pay tax on that income; or

(f) 46% of the eligible part of the capital gains component,

whichever is the greater; and

D is the number of whole dollars in the share.”.

NOTE

1. No. 105, 1982, as amended. For previous amendments, see Nos. 15 and 104, 1983; No. 98, 1984; and No. 173, 1985.

[Minister’s second reading speech made in—

House of Representatives on 22 May 1986

Senate on 4 June 1986]

Overview

The Income Tax (Rates) Amendment (Capital Gains) Act 1986 was enacted to amend the Income Tax (Rates) Act 1982 to introduce new provisions for taxing capital gains. This Act was introduced to address the need for a more equitable taxation system that effectively includes capital gains in the income tax framework. Enacted by the Queen, and the Senate and the House of Representatives of the Commonwealth of Australia, the Act aims to ensure that capital gains are appropriately integrated into the income tax system, providing a clear framework for their taxation alongside other forms of income. The policy objective is to create a fair and transparent tax system that captures capital gains as part of the taxable income, thereby ensuring that all forms of income are taxed consistently.

Scope and Application

The Income Tax (Rates) Amendment (Capital Gains) Act 1986 applies to taxpayers, including individuals and entities, who have income that includes a capital gains component. The Act specifically targets the tax rates on such income by amending the Income Tax (Rates) Act 1982. It applies to both resident and non-resident taxpayers in Australia, thus having a Commonwealth jurisdictional reach. The Act includes provisions for calculating the rate of tax for various scenarios involving capital gains, taking into account whether Division 16 of Part III of the Assessment Act applies to the taxpayer’s income. There are no stated exclusions or exemptions within the text of the Act itself, but the applicability of the tax rates is contingent on the specific conditions outlined in the amended schedules. The application of the Act may be further refined through subordinate instruments, which could provide additional details or specific cases not explicitly covered in the primary text.

Key Provisions

The Income Tax (Rates) Amendment (Capital Gains) Act 1986 amends the Income Tax (Rates) Act 1982 to adjust the taxation of capital gains. The key sections include amendments to Schedules 19, 21, 23, and 24 of the Principal Act, which modify the tax rates for taxpayers with capital gains components in their taxable income. Specifically, sections 4(a), 5(a), 6(a), and 7(a) modify the introductory text of these schedules to subject the tax rates to certain clauses. Sections 4(b), 5(b), 6(b), and 7(b) add new clauses at the end of these schedules to set out the tax rates for taxpayers with capital gains components, using complex formulae that take into account the reduced taxable income and the capital gains component. The Act imposes obligations on taxpayers, trustees, and beneficiaries to accurately calculate their taxable income, including the capital gains component, and to apply the correct tax rates as specified. For instance, taxpayers must determine whether their income includes a capital gains component and whether Division 16 of Part III of the Assessment Act applies to their income. Trustees of trust estates must calculate the tax for shares of beneficiaries that include a capital gains component. The Act also requires these parties to ensure that all relevant components, such as the reduced taxable income and the eligible part of the capital gains component, are correctly identified and used in the tax calculations. Breaching the obligations imposed by the Act can result in civil consequences. While the Act does not explicitly state penalties for non-compliance, incorrect calculation of tax liability can lead to underpayment or overpayment of tax, potentially resulting in interest charges, penalties, or the need to lodge amended returns. The Commissioner of Taxation may take action against taxpayers who fail to comply with their obligations, including issuing notices to pay additional tax, interest, and penalties. In severe cases of deliberate non-compliance or fraud, criminal charges may be pursued, leading to fines or imprisonment. The exact penalties for such offences would be determined under the relevant provisions of the Income Tax Assessment Act 1936 and other applicable laws.

Area of Law: Taxation Law
Instrument: Act
Concepts: Definitions & Interpretation; Commencement Provisions; Repeal & Amendment; Compliance Obligations

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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