INCOME TAX ASSESSMENT ACT 1936 (ARCHIVE)

PART IIIA - CAPITAL GAINS AND CAPITAL LOSSES  

Division 19A - Transfers of assets between companies under common ownership  

Subdivision E - Other assets  

SECTION 160ZZRE   SHARES IN, AND LOANS TO, TRANSFEROR - DEEMED DISPOSAL AND RE-ACQUISITION  

160ZZRE(1)   [Application of section]  

This section only applies to a share in, or a loan to, the transferor acquired by a taxpayer if no reduction to the cost base, the indexed cost base or the reduced cost base of the share or the loan to the taxpayer is made under section 160ZZRF .

160ZZRE(1A)   [Disposal of asset acquired on or after 20 September 1985]  

This section only applies in relation to the disposal of the first asset if the first asset was acquired by the transferor on or after 20 September 1985.

160ZZRE(1B)   [Consideration for disposal less than indexed threshold amount]  

This section only applies if the consideration for the disposal of the first asset is less than the indexed threshold amount being the lesser of:


(a) the indexed cost base to the transferor of the first asset, or the amount that would have been the indexed cost base if this Part had applied in respect of the disposal of the first asset; and


(b) the market value of the first asset immediately before the first asset disposal time.

160ZZRE(2)   [Non-arm's length loans]  

This section only applies to a loan to the transferor if:


(a) the parties to the loan were not dealing with each other at arm's length in relation to the loan; or


(b) the value of the loan was reduced as a result of the disposal of the first asset.

160ZZRE(3)   [Consideration re transfer of share]  

If, at the first asset disposal time, a taxpayer (in this subsection called the ``second taxpayer'' ) held a share in the transferor that was acquired by the second taxpayer on or after 20 September 1985, the second taxpayer is taken:


(a) to have disposed of the share at the first asset disposal time for a consideration equal to the indexed cost base to the second taxpayer of the share; and


(b) for the purpose of ascertaining whether a capital gain accrued to the second taxpayer in the event of a subsequent disposal of the share by the second taxpayer - to have immediately re-acquired the share for a consideration equal to the indexed cost base to the second taxpayer of the share, reduced by the amount (in this section called the ``indexed share reduction amount'' ) calculated using the formula:

Graphic


where:
  • `` Share MV '' means the market value of the share immediately before the first asset disposal time;
  • `` Total post-CGT share MV '' means the total market value, immediately before the first asset disposal time, of all of the shares in the transferor that were acquired (by the second taxpayer or otherwise) on or after 20 September 1985;
  • `` Indexed threshold amount '' means the indexed threshold amount;
  • `` First asset consideration '' means the amount of the consideration in respect of the disposal of the first asset; and

  • (c) for the purpose of ascertaining whether the second taxpayer incurred a capital loss in the event of a subsequent disposal of the share by the second taxpayer - to have immediately re-acquired the share for a consideration equal to:


    (i) if the consideration in respect of the disposal of the first asset is less than the lesser of the following amounts:

    (A) the reduced cost base to the transferor of the first asset;

    (B) the amount that would have been the reduced cost base to the transferor of the first asset for the purposes of this Part if this Part had applied in respect of the disposal of the first asset;

    (C) the market value, immediately before the first asset disposal time, of the first asset;
    (which lesser amount is in this paragraph called the ``reduced threshold amount'' ) - the reduced cost base to the second taxpayer of the share, reduced by the amount (in this section called the ``reduced share reduction amount'' ) calculated using the formula:
    Graphic


    where:
  • `` Share MV '' means the market value of the share immediately before the first asset disposal time;
  • `` Total post-CGT share MV '' means the total market value, immediately before the first asset disposal time, of all of the shares in the transferor that were acquired (by the second taxpayer or otherwise) on or after 20 September 1985;
  • `` Reduced threshold amount '' means the reduced threshold amount;
  • `` First asset consideration '' means the amount of the consideration in respect of the disposal of the first asset; or

  • (ii) in any other case - the reduced cost base to the second taxpayer of the share.

    160ZZRE(4)   [Consideration re transfer of loan]  

    If:


    (a) at the first asset disposal time, a taxpayer (in this subsection called the ``second taxpayer'' ) held a loan to the transferor, being a loan that was acquired by the second taxpayer on or after 20 September 1985; and


    (b) either of the following conditions is satisfied:


    (i) one or more shares in the transferor (in this subsection called the ``excess shares'' ) are taken, because of paragraph (3)(b) or (c), to have been re-acquired, by the second taxpayer or by another taxpayer, at the first asset disposal time, for nil consideration;

    (ii) at the first asset disposal time, there were no shares in the transferor that were acquired (by the second taxpayer or otherwise) on or after 20 September 1985;

    the second taxpayer is taken:


    (c) to have disposed of the loan at the first asset disposal time for a consideration equal to the indexed cost base to the second taxpayer of the loan; and


    (d) for the purpose of ascertaining whether a capital gain accrued to the second taxpayer in the event of a subsequent disposal of the loan by the second taxpayer - to have immediately re-acquired the loan for a consideration equal to the indexed cost base to the second taxpayer of the loan, reduced by the amount calculated using the formula:


                                  Loan MV                              
    Total post-CGT loan MV  
    × Total excess share reduction amount


    where:
  • `` Loan MV '' means the market value of the loan immediately before the first asset disposal time;
  • `` Total post-CGT loan MV '' means the total market value, immediately before the first asset disposal time, of all the loans to the transferor that were acquired (by the second taxpayer or otherwise) on or after 20 September 1985;
  • `` Total excess share reduction amount '' means:
  • (i) if subparagraph (b)(i) of this subsection applies - so much of the total indexed share reduction amounts for the excess shares as was not applied in making reductions to the indexed cost bases of the excess shares in accordance with paragraph (3)(b); or
  • (ii) if subparagraph (b)(ii) of this subsection applies - the amount calculated using the formula:


    Indexed threshold amount   -   First asset consideration

     
    where:
  • `` Indexed threshold amount '' means the indexed threshold amount;
  • `` First asset consideration '' means the amount of the consideration in respect of the disposal of the first asset; and

  • (e) for the purpose of ascertaining whether the second taxpayer incurred a capital loss in the event of a subsequent disposal of the loan by the second taxpayer - to have immediately re-acquired the loan for a consideration equal to the reduced cost base to the second taxpayer of the loan, reduced by the amount calculated using the formula:


                                  Loan MV                              
    Total post-CGT loan MV  
    × Total excess share reduction amount


    where:
  • `` Loan MV '' means the market value of the loan immediately before the first asset disposal time;
  • `` Total post-CGT loan MV '' means the total market value, immediately before the first asset disposal time, of all the loans to the transferor that were acquired (by the second taxpayer or otherwise) on or after 20 September 1985;
  • `` Total excess share reduction amount '' means:
  • (i) if subparagraph (b)(i) of this subsection applies - so much of the total reduced share reduction amounts for the excess shares as was not applied in making reductions to the reduced cost bases of the excess shares in accordance with paragraph (3)(c); or
  • (ii) if subparagraph (b)(ii) of this subsection applies:
  • (A) if the reduced cost base to the transferor of the first asset, or the amount that would have been the reduced cost base to the transferor of the first asset for the purposes of this Part if this Part had applied in respect of the disposal of the first asset, as the case may be, exceeds the consideration in respect of the disposal of the first asset - the amount of the excess; or
  • (B) in any other case - 0.
  • 160ZZRE(5)   [Share or loan disposed of within 12 months]  

    If the second taxpayer or another taxpayer disposed of a share or loan (otherwise than because of the application of this section) within 12 months after the taxpayer acquired the share or loan (otherwise than because of the application of this section), subsections (3) and (4) have effect as if the references in the subsection concerned to the indexed cost base to the taxpayer in respect of the share or loan were a reference to the cost base to the taxpayer in respect of the share or loan.

    160ZZRE(6)   [Modified cost base adjustments]  

    If:


    (a) at the first asset disposal time, a taxpayer (in this subsection called the ``second taxpayer'' ) held an asset, being:


    (i) a share in the transferor that was acquired by the second taxpayer on or after 20 September 1985 (in this subsection called a ``post-CGT share'' ); or

    (ii) a loan to the transferor that was acquired by the second taxpayer on or after 20 September 1985 (in this subsection called a ``post-CGT loan'' ); and


    (b) either:


    (i) at the first asset disposal time, the second taxpayer or another taxpayer held a share in the transferor that was acquired by that taxpayer before 20 September 1985; or

    (ii) whichever of the following is applicable:

    (A) in the case of a post-CGT share - at the first asset disposal time, shares in the transferor belonging to 2 or more classes were in existence;

    (B) in the case of a post-CGT loan - at the first asset disposal time, at least one other loan to the transferor was held by the second taxpayer, a company related to the transferor, or a person mentioned in paragraph 160ZZRB(b) in relation to the transferor; and


    (c) the application of subsection (3) to the post-CGT share, or the application of subsection (4) to the post-CGT loan, as the case may be, would be unreasonable;

    then:


    (d) in the case of a post-CGT share - subsection (3) does not apply to the post-CGT share; and


    (e) in the case of a post-CGT loan - subsection (4) does not apply to the post-CGT loan; and


    (f) the cost base, the indexed cost base or the reduced cost base of the post-CGT share or the post-CGT loan to the second taxpayer is reduced by such amount (if any) as is reasonable having regard to:


    (i) the circumstances in which the post-CGT share or the post-CGT loan was acquired by the second taxpayer; and

    (ii) the extent (if any) to which the market value of the post-CGT share or the post-CGT loan was reduced as a result of the disposal of the first asset at the first asset disposal time.


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