ATO Interpretative Decision
ATO ID 2003/640
Income Tax
Capital gains tax: demerger relief - more than two original interests - different acquisition timesFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
In applying subsection 115-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997), when is a taxpayer treated as having acquired a new interest in a demerged entity as a replacement for more than two original interests which were acquired at different times?
Decision
The new interest will be treated, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired at the time that a majority of the original interests were acquired.
Facts
The taxpayer acquired five shares in the head entity of a demerger group in August 2000.
An additional fifteen shares were acquired in September 2002.
In November 2002 the group undertook a demerger. Under the demerger a CGT event happened to each of the twenty shares and the taxpayer received one new share in the demerged entity for the twenty shares held in the head entity.
The demerger qualified for roll-over relief in terms of Division 125 of the ITAA 1997.
In January 2003 the taxpayer sold the share in the demerged entity and made a capital gain.
Reasons for Decision
Subsection 115-25(1) of the ITAA 1997 states that a capital gain can only be a discount capital gain where the asset which gave rise to the capital gain was acquired at least twelve months before the relevant CGT event. The replacement asset, acquired in a replacement-asset rollover, will be treated for the purposes of subsection 115-30(1) of the ITAA 1997 as having been acquired at the time the original asset involved in the rollover was acquired. The definition of replacement-asset roll-over in section 112-115 of the ITAA 1997 includes demerger rollovers.
As the taxpayer's original shares have two different acquisition dates, it is reasonable to treat the new share, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired in September 2002 (the acquisition time of the majority of the original shares).
Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 112-115
subsection 115-25(1)
subsection 115-30(1)
Division 125
ATO ID 2003/639
ATO ID 2003/641
Keywords
Acquisition of CGT assets
Capital gains
Capital gains tax
CGT original assets
CGT replacement asset roll-over
CGT replacement assets
Demerger roll-over
Demerging entity
Date reviewed: 15 February 2016
ISSN: 1445-2782