Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-3 - CAPITAL GAINS AND LOSSES: SPECIAL TOPICS  

Division 125 - Demerger relief  

Subdivision 125-B - Consequences for owners of interests  

Operative provisions

SECTION 125-80   What is the roll-over?  

125-80(1)  
If you choose the roll-over, a *capital gain or *capital loss you make from a *CGT event happening under the *demerger to an original interest you own is disregarded.

125-80(2)  
If you choose the roll-over, the first element of the *cost base and *reduced cost base of:


(a) each new interest that you are not taken to have *acquired before 20 September 1985; and


(b) if not all of your original interests ended under the *demerger - each of your remaining original interests that you acquired on or after 20 September 1985;

is such proportion of the sum of the cost bases of all your original interests that you acquired on or after 20 September 1985 (worked out just before the demerger) as is reasonable having regard to the matters specified in subsection (3).

Note 1:

These rules replace the cost base and reduced cost base adjustments in CGT event E4 and CGT event G1.

Note 2:

The head entity or the demerging entity may advise you of the proportions.

125-80(3)  
The matters are:


(a) the *market values of your remaining original interests just after the *demerger, or an anticipated reasonable approximation of those market values; and


(b) the market values of your new interests just after the demerger, or an anticipated reasonable approximation of those market values.

Example:

To continue the example from subsection 125-70(2) , Company A advises its shareholders that Company B at that time represents 5% of the market value of the group as a whole. Peter ' s cost base for each of his shares in A is $4.60, and Peter recalculates his cost base as follows:


Total cost base   =   $1840 (4.60   ×   400 shares)

to be spread over 400 shares in A and 24 shares in B.


5% of 1840 = 92
92 ÷ 24 shares = $3.83 per B share
1840 - 92 = 1748
1748 ÷ 400 = $4.37 per A share

Pre-CGT interests

125-80(4)  
The following subsections apply if you choose the roll-over and you *acquired some or all of your original interests before 20 September 1985.

125-80(5)  
If you *acquired all of your original interests before 20 September 1985, you are taken to have acquired all of your new interests before that day.

125-80(6)  
If you *acquired some of your original interests before 20 September 1985, you are taken to have acquired a reasonable whole number of your new interests before that day having regard to:


(a) the *market values of your original interests and your remaining original interests just after the *demerger, or an anticipated reasonable approximation of those market values; and


(b) the market values of your new interests just after the demerger, or an anticipated reasonable approximation of those market values.

125-80(7)  


If a proportion, but not all, of your original interests ends under the *demerger and you *acquired some of your original interests before 20 September 1985, that same proportion of those interests you acquired before that day ends.
Note:

CGT event K6 may be relevant if you later dispose of your interests that are treated as being pre-CGT.

Example:

Bert owned 100 shares in a company of which 50 were acquired pre-CGT. Under a demerger 20 of Bert ' s 100 shares were cancelled in exchange for new interests. As 20% of his shares were cancelled, 10 of his pre-CGT shares are taken to have been cancelled.

Partial roll-over

125-80(8)  
If you choose a roll-over for some but not all of your original interests, you apply the rules in this section as if your original interests for which you chose the roll-over were your only original interests.


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