Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-95 - VALUE SHIFTING  

Division 723 - Direct value shifting by creating right over non-depreciating asset  

Subdivision 723-A - Reduction in loss from realising non-depreciating asset  

SECTION 723-10   Reduction in loss from realising non-depreciating asset over which right has been created  

723-10(1)  
A loss that would, apart from this Division, be * realised for income tax purposes by a * realisation event is reduced by the amount worked out under subsections (3) and (4) if:


(a) the event happens to a * CGT asset (the underlying asset ) you own that, at the time of the event (the realisation time ):


(i) is not a * depreciating asset; or

(ii) is an item of your * trading stock; or

(iii) is a * revenue asset of yours; and


(b) before the realisation time:


(i) you created in an * associate of yours; or

(ii) an entity covered by subsection (2) (about previous owners of the underlying asset) created in an associate of the entity;
a right in respect of the underlying asset; and


(c) immediately before the realisation time, the right is still in existence and is owned by an associate of yours; and


(d) a decrease in the underlying asset ' s *market value is reasonably attributable to the creating of the right; and


(e) creating the right involved a * CGT event:


(i) whose * capital proceeds are less than the market value of the right when created (the difference between those capital proceeds and that market value is called the shortfall on creating the right ); and

(ii) that is not a CGT event that happens to some part of the underlying asset but not to the remainder of it; and


(f) the shortfall on creating the right is more than $50,000; and


(g) the market value of the underlying asset at the realisation time is less than it would have been if the right no longer existed at that time (the difference is called the deficit on realisation ).

Note:

If subparagraph (1)(e)(ii) applies, the cost base and reduced cost base of the underlying asset is apportioned under section 112-30 , so there is no need for this section to apply to the right.

723-10(2)  
This subsection covers an entity if:


(a) the entity * acquired the underlying asset before you did; and


(b) there has been a roll-over for each * CGT event (if any) as a result of which an entity (including you) acquired the asset after the first entity acquired it, and before the realisation time; and


(c) for each such CGT event (if any), the entity (including you) that acquired the underlying asset as a result of the event was, immediately after the event, an * associate of the entity that last acquired the asset before the event.

723-10(3)  
The amount by which this section reduces the loss is the lesser of:


(a) the shortfall on creating the right; and


(b) the deficit on realisation.

However, that amount is reduced by each gain that:


(c) is * realised for income tax purposes by a * realisation event that happens to the right:


(i) before or at the realisation time for the underlying asset; and

(ii) at a time when the right is owned by an entity that is your * associate immediately before the realisation time for the underlying asset; and


(d) is not disregarded.

Note:

To work out a gain realised for income tax purposes by a realisation event that happens to the right, see sections 977-15 , 977-35 , 977-40 and 977-55 . If more than one of those sections applies to the right, see section 723-50 .

723-10(4)  
For each gain that:


(a) is * realised for income tax purposes by a * realisation event that happens to the right:


(i) within 4 years after the realisation time for the underlying asset; and

(ii) at a time when the right is owned by an entity that is your * associate immediately before the realisation time for the underlying asset; and


(b) is not disregarded;

the amount worked out under subsection (3) is taken to have been reduced by the amount of that gain.

Note:

This subsection may result in amendment of an assessment for the income year in which the realisation time happens.


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