Capital gains and capital losses on the sale of pre-CGT [1] shares are generally ignored. However, a capital gain may be made under CGT event K6 on the sale of pre-CGT shares in a company.
For CGT event K6 to apply, the market value of the post-CGT property in the company must equal or exceed 75% of the entity's net assets. CGT event K6 does not apply to the sale of your pre-CGT shares in a company if the company has been listed on a stock exchange at all times in the five years before the shares are sold.
From 1 July 2002 [2] the application of CGT event K6 on the sale of pre-CGT shares [3] in a demerged entity has changed.
This fact sheet explains how to treat the effect of CGT event K6 on the sale of your demerged entity shares when working out your net capital gain or net capital loss carried forward to later income years in your tax return for 2003 and later years.
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Notes:
[1] Pre-CGT shares are those acquired or taken to be acquired before 20 September 1985.
[2] This legislation is contained in Tax Laws Amendment (2004 MeasuresNo.2) Act 2004 and the legislation giving effect to this change is in subsections 104-230(9) and (9A) of the Income Tax Assessment Act 1997.
[3] The changes to CGT event K6 also apply to the sale of certain pre-CGT interests in a unit trust received under a demerger.
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From 1 July 2002, if you sell your pre-CGT shares in a demerged entity, CGT event K6 does not apply to the sale if:
- the demerged entity is listed on a stock exchange at the time of sale
- the period that the demerged entity has been continuously listed, and the period that the head entity was continuously listed before the demerged entity was listed, totals five years or more, and
- the demerger happened not more than five years before the time of the sale.
Therefore, these conditions are met and CGT event K6 does not apply if you sell your pre-CGT shares in:
- BHP Steel Ltd (renamed BlueScope Steel Ltd)
- WMC Resources Ltd, or
- Rinker Group Ltd.
You owned 100 pre-CGT shares in BHP Billiton Ltd and received 20 shares in BHP Steel Ltd (renamed BlueScope Steel Ltd) under the demerger in July 2002. You chose rollover relief under the demergers measure which means your 20 BHP Steel shares are taken to be pre-CGT shares.
If you sell your 20 BHP Steel shares, there is no capital gain from CGT event K6. This is because the period that BHP Steel Ltd has been listed on the stock exchange since the demerger, and the period that BHP Billiton Ltd was listed prior to BHP Steel Ltd being listed, totals more than five years.
If the head entity was not listed on a stock exchange at the time of the demerger, CGT event K6 may apply to the sale of your pre-CGT shares in the demerged entity unless the demerged entity was listed on a stock exchange at all times in the five years before the time of the sale.
CGT event K6 applies to the sale of pre-CGT shares in the demerged entity if the market value of the entity's post-CGT property is equal to or exceeds 75% of the entity's net assets. You may need to contact the entity to obtain information to help you calculate your capital gain.
Go to the 'Demergers' homepage
Last Modified: Thursday, 2 February 2006