ATO Interpretative Decision
ATO ID 2004/456 (Withdrawn)
Income Tax
Capital gains tax: Demerger - cost base of new interest in demerged entity - no CGT event happened to pre-CGT original interestFOI status: may be released
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This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Do the cost base adjustments rules in subsection 125-90(2) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to a new interest, received in respect of an original interest that was acquired before 20 September 1985, if no CGT event happens to that original interest under a demerger?
Decision
No. The cost base adjustments rules in subsection 125-90(2) of the ITAA 1997 do not apply to a new interest, received in respect of an original interest that was acquired before 20 September 1985, if no CGT event happens to that original interest under a demerger.
Facts
The taxpayer acquired shares in the head entity of a demerger group before 20 September 1985 (pre-CGT).
The taxpayer acquired new shares in a demerged entity under a demerger which satisfied the conditions of the definition of a demerger in section 125-70 of the ITAA 1997.
The circumstances of the demerger were such that no CGT event happened to the taxpayer's original interests under the demerger.
Reasons for Decision
Section 125-90 of the ITAA 1997 applies where the original interest in the head entity was acquired on or after 20 September 1985 (post-CGT), and overrides the general cost base rules in Subdivision 110-A of the ITAA 1997 and the cost base general modification rules in Subdivision 112-A of the ITAA 1997.
Subsection 125-90(2) of the ITAA 1997 provides specific rules for the calculation of the cost base of a new interest in the demerged entity and a remaining original interest in the head entity, where no CGT event happened to the original interest.
The cost base spreading rule under subsection 125-80(2) of the ITAA 1997 applies to a new interest and remaining original interest, if the original interest was acquired post-CGT. However, section 125-90(2) of the ITAA 1997 does not apply to a pre-CGT original interest in the head entity.
Consequently, the cost base of a new interest in a demerged entity is calculated under the general cost base rules in Subdivision 110-A of the ITAA 1997 and the cost base general modification rules in Subdivision 112-A of the ITAA 1997,where no CGT event happens to a pre-CGT original interest under the demerger.
Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
Subdivision 110-A
Subdivision 112-A
section 125-70
subsection 125-80(2)
section 125-90
subsection 125-90(2)
ATO ID 2003/1050
ATO ID 2004/457
Keywords
Capital gains tax
CGT assets
CGT cost base
CGT cost base modification-split, changed or merged asset rule
CGT reduced cost base
Cost base adjustments
Demerged entity
Demerger group
Demerger
Demerging entity
Head entity
Pre-CGT assets
Pre-CGT shares
ISSN: 1445-2782
| Date: | Version: | |
| 6 May 2004 | Original statement | |
| You are here | 15 January 2010 | Archived |