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  • Demergers: Sale of pre-CGT shares in a demerged entity

    While capital gains and capital losses on the sale of pre-CGT shares or units are generally ignored, a capital gain may be made under CGT event K6 on the sale of pre-CGT shares or units if the market value of the post-CGT property in the company equals or exceeds 75% of the entity's net assets.

    This information 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.

    Head entity was listed on a stock exchange at time of demerger

    From 1 July 2002, if you sell your pre-CGT shares in a demerged entity, CGT event K6 doesn't apply to the sale if:

    • the demerged entity is listed on a stock exchange at the time of sale
    • the period in which the demerged entity has been continuously listed, and the period in which 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 doesn't apply if you sell your pre-CGT shares in:

    • BHP Steel Ltd (renamed BlueScope Steel Ltd)
    • WMC Resources Ltd, or
    • Rinker Group Ltd.

    Example

    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.

    End of example

    Head entity was not listed on a stock exchange at time of demerger

    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.

    See also:

    • Income Tax Assessment Act 1997, subsections 104-230(9) and (9A)
    Last modified: 15 Feb 2018QC 17556