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Does the CGT concession amount of a discount capital gain form part of net exempt income under section 36-20 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The CGT concession amount of a discount capital gain does not form part of net exempt income under section 36-20 of the ITAA 1997.

A taxpayer made a discount capital gain from the disposal of a CGT asset.

The discount percentage was applied to the discount capital gain.

'Net exempt income' is defined in section 36-20 of the ITAA 1997 and is dependent on whether a taxpayer has 'exempt income'.

What represents 'exempt income' is set out in section 6-20 of the ITAA 1997. Basically, an amount of ordinary income or statutory income is 'exempt income' if it is made exempt by a provision in the ITAA 1997 or another Commonwealth law.

Capital gains are categorised as statutory income (see subsection 6-10(2) and section 10-5 of the ITAA 1997). For a capital gain to be included in assessable income the capital gain must form part of the net capital gain made by the taxpayer for the income year. A net capital gain is worked out using the five steps in section 102-5 of the ITAA 1997. Step 3 of subsection 102-5(1) of the ITAA 1997 says that a discount capital gain is to be reduced by the discount percentage. The amount of the CGT discount component is commonly referred to as the 'CGT concession amount'.

Consequently, even though a CGT concession amount is not included in assessable income, it is not exempt income as no provision in the ITAA 1997, or another Commonwealth law, specifically exempts this amount.