Tax Law Improvement Act (No. 1) 1998 (46 of 1998)

Schedule 1   Amendment of the Income Tax Assessment Act 1997

1   Part 3-3 Division 124

Division 124 - Replacement-asset roll-overs

Table of Subdivisions

Guide to Division 124

124-A General rules

124-B Asset compulsorily acquired, lost or destroyed

124-C Statutory licences

124-D Strata title conversion

124-E Exchange of shares or units

124-F Exchange of rights or options

124-G Exchange of shares in one company for shares in another company

124-H Exchange of units in a unit trust for shares in a company

124-I Conversion of a body to an incorporated company

124-J Crown leases

124-K Plant

124-L Prospecting and mining entitlements

Guide to Division 124

124-1 What this Division is about

A replacement-asset roll-over allows you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens. It involves your ownership of one CGT asset ending and you acquiring another one.

124-5 How to find your way around this Division

(1) First, find out if you can obtain a roll-over when your ownership of one or more CGT assets ends and you acquire one or more CGT assets: see Subdivisions 124-B to 124-L.

(2) Second, find out what the consequences are for being able to obtain a roll-over: see Subdivision 124-A.

(3) Third, find out if there are any special rules relevant to your situation: see the Subdivision under which you can get the roll-over.

Subdivision 124-A - General rules

Table of sections

124-10 Your ownership of one CGT asset ends

124-15 Your ownership of more than one CGT asset ends

124-10 Your ownership of one CGT asset ends

(1) There are these consequences (in most cases) if you can obtain a roll-over when your ownership of a *CGT asset (the original asset ) ends and you *acquire one or more CGT assets (the new assets ) in a situation covered by this Division.

Example: Your commercial fishing licence expires and you get a new one.

(2) A *capital gain or a *capital loss you make from the original asset is disregarded.

(3) If you *acquired the original asset on or after 20 September 1985, the first element of each new asset's *cost base is:

The original asset's cost base (worked out when your ownership of it ended) / Number of new assets

The first element of each new asset's *reduced cost base is worked out similarly.

Example: To continue the example, suppose the cost base of the fishing licence that expires is $5,000. This becomes the first element of the new one's cost base.

Note 1: In some cases the amount you paid to acquire the new asset also forms part of the first element: see Subdivisions 124-C (about statutory licences) and 124-D (about strata title conversion).

Note 2: There are modifications to the consequences in Subdivision 124-B (about compulsory acquisition, loss or destruction), Subdivision 124-J (about Crown leases) and Subdivision 124-L (about prospecting and mining).

Note 3: No other elements of the cost base of the new asset are affected by the roll-over.

Note 4: There are special indexation rules for roll-overs: see Division 114.

(4) If you *acquired the original asset before 20 September 1985, you are taken to have acquired each new asset before that day.

Note: A capital gain or loss you make from a CGT asset you acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149.

124-15 Your ownership of more than one CGT asset ends

(1) There are these consequences (in most cases) if you can obtain a roll-over when your ownership of more than one *CGT asset (the original assets ) ends and you acquire one or more CGT assets (the new assets ) in a situation covered by this Division.

Example: You own 100 shares in a company. The company cancels these shares and issues you with 10 shares in return.

(2) A *capital gain or a *capital loss you make from each original asset is disregarded.

(3) If you *acquired all the original assets on or after 20 September 1985, the first element of each new asset's cost base is:

The total of the cost bases of all the original assets (worked out when your ownership of them ended) / Number of new assets

The first element of each new asset's *reduced cost base is worked out similarly.

Note 1: No other elements of the cost base of the new asset are affected by the roll-over.

Note 2: There are special indexation rules for roll-overs: see Division 114.

(4) If you *acquired all the original assets before 20 September 1985, you are taken to have acquired each new asset before that day.

Note: A capital gain or loss you make from a CGT asset you acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149.

(5) If you *acquired some of the original assets before 20 September 1985, you are taken to have acquired a number of new assets before that day. It is the maximum possible that does not exceed:

The number of new assets * (The number of iriginal assets you acquired before 20 September 1985 / The total number of original assets)

If the result is less than one, none of the new assets are taken to have been *acquired before 20 September 1985.

Example: To continue the example, suppose you acquired 67 of the 100 original shares before 20 September 1985. The number of new shares that you are taken to have acquired before that day cannot exceed:

10 * (67/100) = 6.7

So, you are taken to have acquired 6 of the 10 shares before that day.

(6) These rules are relevant to each remaining new asset. The first element of each one's *cost base is:

The total of the cost bases of all the iriginal assets that you acquired on or after 20 September 1985 (worked out when your ownership of them ended) / Number of remaining new assets

The first element of each one's *reduced cost base is worked out similarly.

Note: There are special indexation rules for roll-overs: see Division 114.

Example: To continue the example, suppose the total of the cost bases of the 33 shares you acquired on or after 20 September 1985 is $400.

The first element of the cost base of each of the remaining 4 shares is:

$400 / 4 = $100

The first element of the reduced cost base of those 4 shares is worked out similarly.

Subdivision 124-B - Asset compulsorily acquired, lost or destroyed

Table of sections

When roll-over is available

124-70 Events giving rise to a roll-over

124-75 Other requirements if you receive money

124-80 Other requirements if you receive an asset

The consequences of a roll-over being available

124-85 Consequences for receiving money

124-90 Consequences for receiving an asset

124-95 You receive both money and an asset

[This is the end of the Guide.]

When a roll-over is available

124-70 Events giving rise to a roll-over

(1) You may be able to choose a roll-over if one of these events happens to a *CGT asset (the original asset ) you own:

(a) it is compulsorily *acquired by an *Australian government agency;

(b) it, or part of it, is lost or destroyed;

(c) you *dispose of it to an *Australian government agency after a notice was served on you by or on behalf of the agency:

(i) inviting you to negotiate with the agency with a view to the agency acquiring it by agreement; and

(ii) informing you that if the negotiations are unsuccessful, it will be compulsorily acquired by the agency;

(d) if it is a lease granted to you by an *Australian government agency under an *Australian law - the lease expires and is not renewed.

Note 1: There are no roll-over consequences if you make a capital loss from the event.

Note 2: Section 103-25 tells you when you have to make the choice.

(2) You must receive money or another *CGT asset, or both:

(a) as compensation for the event happening; or

(b) under an insurance policy against the risk of loss or destruction of the original asset.

Note: There are other requirements that must be satisfied if:

· you receive money: see section 124-75; or

· you receive another CGT asset: see section 124-80.

(3) The requirement in subsection (4) must be satisfied if:

(a) you are not an Australian resident just before the event happens; or

(b) you are the trustee of a trust that is not a *resident trust for CGT purposes for the income year in which the event happens.

(4) The original asset must have the *necessary connection with Australia just before the event happens. The other asset must have the *necessary connection with Australia just after you *acquire it.

124-75 Other requirements if you receive money

(1) If you receive money for the event happening, you can choose to obtain a roll-over only if these other requirements are satisfied.

Note: The roll-over consequences are set out in section 124-85.

(2) You must:

(a) incur expenditure in *acquiring another *CGT asset; or

(b) if part of the original asset is lost or destroyed - incur expenditure of a capital nature in repairing or restoring it.

(3) At least some of the expenditure must be incurred:

(a) no earlier than one year, or within such further time as the Commissioner allows in special circumstances, before the event happens; or

(b) no later than one year, or within such further time as the Commissioner allows in special circumstances, after the end of the income year in which the event happens.

Special rules if you acquire another asset

(4) If just before the event happened the original asset:

(a) was used in your *business; or

(b) was *installed ready for use in your business; or

(c) was in the process of being *installed ready for use in your business;

the other asset must be used in the business, or be installed ready for use in the business, for a reasonable time after you *acquired it.

Otherwise, you must use the other asset (for a reasonable time after you *acquired it) for the same purpose as, or for a similar purpose to, the purpose for which you used the original asset just before the event happened.

(5) The other asset cannot become an item of your *trading stock just after you *acquire it.

124-80 Other requirements if you receive an asset

(1) If you receive another *CGT asset for the event happening, you can choose to obtain a roll-over only if these other requirements are satisfied.

Note: The roll-over consequences are set out in section 124-90.

(2) The other asset cannot become an item of your *trading stock just after you *acquire it.

(3) The market value of the other asset (when you *acquire it) must be more than the *cost base of the original asset just before the event happens.

The consequences of a roll-over being available

124-85 Consequences for receiving money

(1) If you receive money for the event happening, there are these consequences if you choose to obtain a roll-over.

Original asset acquired on or after 20 September 1985

(2) If you make a *capital gain from the event, this table sets out in what situations the gain is reduced, not reduced or disregarded.

It also sets out in what situations the expenditure you incurred to *acquire another *CGT asset or to repair or restore the original asset is reduced.

Example: In 1999 Simon bought a yacht. In 2000 a fire destroys part of it. He receives $100,000 under an insurance policy.

The capital gain is worked out under section 112-30.

Suppose the yacht's cost base at the time of the fire is $75,000 and the market value of the part that is not destroyed is $150,000. The cost base of the part that is destroyed is:

$75,000 * ($100,000 / $100,000 + $150,000) = $30,000

The capital gain is:

$100,000 - $30,000 = $70,000

Case 1

Suppose Simon spent $80,000 on repairing the yacht. The money he received under the insurance policy exceeds the repair cost by $20,000. The gain exceeds that by $50,000.

The result is that the gain is reduced to $20,000 and the $80,000 he spent on repairs is reduced to $30,000.

Case 2

Suppose Simon spent $15,000 on repairs instead. The money he received under the policy exceeds that amount by $85,000. This is more than the gain he made.

The gain is relevant to working out Simon's net capital gain or loss for the income year and the $15,000 he spent on repairs forms part of the yacht's cost base.

Case 3

Suppose Simon spent $120,000 on repairs instead. The gain is disregarded and the $120,000 is reduced to $50,000.

Original asset acquired before 20 September 1985

(3) If you *acquired the original asset before 20 September 1985 and you incurred expenditure in acquiring another *CGT asset, you are taken to have acquired the other asset before that day if:

(a) the expenditure is not more than 120% of the market value of the original asset when the event happened; or

(b) a natural disaster happened so that the original asset, or part of it, is lost or destroyed and it is reasonable to treat the other asset as substantially the same as the original asset.

(4) If you *acquired the original asset before 20 September 1985 and you incurred expenditure of a capital nature in repairing or restoring it, you are taken to have acquired the original asset (as repaired or restored) before that day.

124-90 Consequences for receiving an asset

(1) If you receive another *CGT asset for the event happening, there are these consequences if you choose to obtain a roll-over.

(2) A *capital gain you make from the original asset is disregarded.

(3) If you *acquired the original asset on or after 20 September 1985:

(a) the first element of the other asset's *cost base is the original asset's cost base at the time of the event; and

(b) the first element of the other asset's *reduced cost base is the original asset's reduced cost base at the time of the event.

Note: There are special indexation rules for roll-overs: see Division 114.

Example: Steven bought land in 1999 for $100,000. In 2001 the government compulsorily acquires the land and gives him new land in return.

A capital gain he makes from the original land is disregarded. Suppose the original land's cost base when it is acquired is $120,000. The first element of the new land's cost base becomes $120,000.

(4) If you acquired the original asset before 20 September 1985, you are taken to have *acquired the other asset before that day.

124-95 You receive both money and an asset

(1) If you receive both money and another *CGT asset for the event happening and choose to obtain a roll-over, the requirements and consequences are different for each part of the compensation attributable to the original asset (having regard to the amount of money and the market value of the other asset).

The other asset as a part of compensation

(2) The market value of the other asset (when you *acquire it) must be more than that part of the *cost base of the original asset that is attributable to the new asset.

Note: This requirement is different to that in subsection 124-80(3). It requires a proportional attribution of the cost base of the original asset.

(3) If you *acquired the original asset on or after 20 September 1985:

(a) the first element of the other asset's *cost base is that part of the original asset's cost base at the time of the event that is attributable to the new asset; and

(b) the first element of the other asset's *reduced cost base is worked out similarly.

Note: These consequences are different to those in subsection 124-90(3). They require a proportional attribution of the cost base of the original asset.

(4) If you *acquired the original asset before 20 September 1985, you are taken to have acquired the new asset before that day.

Money as a part of compensation

(5) If you make a *capital gain from the event, this table sets out in what situations that part of the gain on the original asset that is attributable to the amount of money you received is reduced, not reduced or disregarded.

It also sets out in what situations the expenditure you incurred to *acquire another *CGT asset or to repair or restore the original asset is reduced.

Note: These consequences are different to those in subsection 124-85(2). They require a proportional attribution of capital gain on the original asset.

(6) If you *acquired the original asset before 20 September 1985 and you incurred expenditure in acquiring another *CGT asset, you are taken to have acquired the other asset before that day if:

(a) the expenditure you incurred in acquiring the other asset is not more than 120% of the market value of that part of the original asset that is attributable to the other asset when the event happened; or

(b) a natural disaster happened so that the original asset, or part of it, is lost or destroyed and it is reasonable to treat the other asset as substantially the same as that part of the original asset that is attributable to the new asset.

Note 1: The consequences in paragraph (6)(a) are different to those in paragraph 124-85(3)(a). They require a proportional attribution of the market value of the original asset.

Note 2: The consequences in paragraph (6)(b) are different to those in paragraph 124-85(3)(b). They require a proportional attribution of the original asset.

Example: Kris owns land, which he acquired in 1998. It is compulsorily acquired, and Kris receives $80,000 in cash and replacement land with a market value of $80,000.

The cost base of the original land is $150,000.

Kris buys additional land for $80,000.

Subsection (2) is satisfied because the market value of the replacement land ($80,000) is more than the part of the cost base of the original land that is attributable to the replacement land:

50% * $150,000 = $75,000

Applying subsection (5), the other part of the gain is disregarded, and the first element of the cost base of the replacement land is the part of the cost base of the original land that is attributable to the replacement land:

50% * $150,000 = $75,000

Applying subsection (3), the money he received ($80,000) is the same as the expenditure he incurred to buy the additional land. Item 3 in the table applies. The part of the gain that is attributable to that money is disregarded:

50% * $10,000 = $5,000

The expenditure is reduced by $5,000.

Subdivision 124-C - Statutory licences

124-140 Renewal or extension of a statutory licence

(1) There is a roll-over if:

(a) a *statutory licence (the original licence ) you have expires or you surrender it; and

(b) you get a new licence by renewing or extending the original one (which is due mainly to you having the original one).

Note 1: The roll-over consequences are set out in section 124-10. The original asset is the original licence. The new asset is the licence you get by renewing or extending the original licence.

Note 2: If there has been a capital improvement to the statutory licence: see section 108-75.

(2) The first element of the *cost base and *reduced cost base of the new licence includes any amount you paid to get it (which can include giving property: see section 103-5).

Note: The rest of the first element is worked out under Subdivision 124-A.

(3) A statutory licence is an authority, licence, permit or quota (except a lease or a *mining entitlement or *prospecting entitlement) granted by:

(a) an *Australian government agency under an *Australian law; or

(b) a *foreign government agency under a *foreign law.

Subdivision 124-D - Strata title conversion

124-190 Strata title conversion

(1) You can choose to obtain a roll-over if:

(a) you own property that gives you a right to occupy a unit in a building; and

(b) the building's owner subdivides it into *stratum units; and

(c) the owner transfers to you the stratum unit that corresponds to the unit you had the right to occupy just before the subdivision.

Note 1: The roll-over consequences are set out in section 124-10. The original asset is the property that gave you the right to occupy a unit in the building. The new asset is the stratum unit.

Note 2: Section 103-25 tells you when you have to make the choice.

(2) The first element of the *cost base and *reduced cost base of the *stratum unit includes any amount you paid to get it (which can include giving property: see section 103-5).

Note: The rest of the first element is worked out under Subdivision 124-A.

(3) A stratum unit is a lot or unit (however described in an *Australian law or a *foreign law relating to strata title or similar title) and any accompanying common property.

Subdivision 124-E - Exchange of shares or units

Table of sections

124-240 Exchange of shares in the same company

124-245 Exchange of units in the same unit trust

124-240 Exchange of shares in the same company

You can choose to obtain a roll-over if:

(a) you own *shares (the original shares ) of a certain class in a company; and

(b) the company redeems or cancels all shares of that class; and

(c) the company issues you with new shares (and you receive nothing else) in substitution for the original shares; and

(d) the market value of the new shares just after they were issued is at least equal to the market value of the original shares just before they were redeemed or cancelled; and

(e) the total paid up capital of the company just after the new shares were issued is the same as just before the original shares were redeemed or cancelled; and

(f) one of these requirements is satisfied:

(i) you are an Australian resident at the time of the redemption or cancellation; or

(ii) if you are not an Australian resident at that time - the original shares have the *necessary connection with Australia.

Note 1: The roll-over consequences are set out in Subdivision 124-A. The original assets are the original shares. The new assets are the new shares.

Note 2: Section 103-25 tells you when you have to make the choice.

124-245 Exchange of units in the same unit trust

You can choose to obtain a roll-over if:

(a) you own units (the original units ) of a certain class in a unit trust; and

(b) the trustee redeems or cancels all units of that class; and

(c) the trustee issues you with new units (and you receive nothing else) in substitution for the original units; and

(d) the market value of the new units just after they were issued is at least equal to the market value of the original units just before they were redeemed or cancelled; and

(e) one of these requirements is satisfied:

(i) you are an Australian resident at the time of the redemption or cancellation; or

(ii) if you are not an Australian resident at that time - the original units have the *necessary connection with Australia.

Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are the original units. The new assets are the new units.

Subdivision 124-F - Exchange of rights or options

Table of sections

124-295 Exchange of rights or option to acquire shares in a company

124-300 Exchange of rights or option to acquire units in a unit trust

124-295 Exchange of rights or option to acquire shares in a company

(1) You can choose to obtain a roll-over if:

(a) you own rights (the original rights ) to *acquire *shares in a company or to acquire an option to acquire *shares in a company; or

(b) you own an option (the original option ) to acquire *shares in a company;

and these other requirements are satisfied.

Note: Section 103-25 tells you when you have to make the choice.

(2) The *shares must:

(a) be consolidated and divided into new shares of a larger amount; or

(b) be subdivided into new shares of a smaller amount.

(3) The company must cancel the original rights or original option because of the consolidation or subdivision.

(4) The company must:

(a) issue you with new rights (relating to the new *shares) in substitution for the original rights; or

(b) issue you with a new option (relating to the new shares) in substitution for the original option.

(5) You must receive nothing else in substitution for the original rights or original option.

(6) The market value of the new rights or new option just after it was issued must be at least equal to the market value of the original rights or original option just before it was cancelled.

(7) One of these requirements must be satisfied:

(a) you must be an Australian resident at the time of the cancellation; or

(b) if you are not an Australian resident at that time - the original rights or original option have the *necessary connection with Australia.

Note: The roll-over consequences are set out in Subdivision 124-A. The original asset is the original rights or original option. The new asset is the new rights or new option.

124-300 Exchange of rights or option to acquire units in a unit trust

(1) You can choose to obtain a roll-over if:

(a) you own rights (the original rights ) to *acquire units in a unit trust or to acquire an option to acquire units in a unit trust; or

(b) you own an option (the original option ) to acquire units in a unit trust;

and these other requirements are satisfied.

Note: Section 103-25 tells you when you have to make the choice.

(2) The units must:

(a) be consolidated and divided into new units of a larger amount; or

(b) be subdivided into new units of a smaller amount.

(3) The trustee must cancel the original rights or original option because of the consolidation or subdivision.

(4) The trustee must:

(a) issue you with new rights (relating to the new units) in substitution for the original rights; or

(b) issue you with a new option (relating to the new units) in substitution for the original option.

(5) You must receive nothing else in substitution for the original rights or original option.

(6) The market value of the new rights or new option just after it was issued must be at least equal to the market value of the original rights or original option just before it was cancelled.

(7) One of these requirements must be satisfied:

(a) you must be an Australian resident at the time of the cancellation; or

(b) if you are not an Australian resident at that time - the original rights or original option have the *necessary connection with Australia.

Note: The roll-over consequences are set out in Subdivision 124-A. The original asset is the original rights or original option. The new asset is the new rights or new option.

Subdivision 124-G - Exchange of shares in one company for shares in another company

Guide to Subdivision 124-G

124-350 What this Subdivision is about

This Subdivision sets out when you can obtain a roll-over if:

you own shares in a company; and

there is a reorganisation of its affairs so that you become the owner of new shares in another company.

Table of sections

124-355 Summary of rules

Disposal case

124-360 Disposal of shares in one company for shares in another one

124-365 Other requirements to be satisfied

Redemption or cancellation case

124-370 Redemption or cancellation of shares in one company for shares in another one

124-375 Other requirements to be satisfied

Rules applying to both cases

124-380 Requirements to be satisfied in both cases

Consequences for the interposed company

124-385 Consequences for the interposed company

124-355 Summary of rules

(1) This Subdivision deals with 2 cases in which you can choose to obtain a roll-over because of the reorganisation of a company's affairs.

Note: Section 103-25 tells you when you have to make the choice.

(2) The first case is if you dispose of shares in one company to another company and the other company issues you with new shares. You can find the specific rules relevant to this case in sections 124-360 and 124-365.

(3) The second case is if your shares in one company are redeemed or cancelled and another company issues you with new shares in return. You can find the specific rules relevant to this case in sections 124-370 and 124-375.

(4) There are some rules that apply in both cases: see section 124-380.

(5) There are also consequences for the other company if you can choose to obtain the roll-over: see section 124-385.

[This is the end of the Guide.]

Disposal case

124-360 Disposal of shares in one company for shares in another one

You can choose to obtain a roll-over if:

(a) you are a *member of a company (the original company ); and

(b) you and at least one other entity (the exchanging members ) own all the *shares in it; and

(c) under a *scheme for reorganising its affairs, the exchanging members *dispose of all their shares in it to another company (the interposed company ) in exchange for shares in the interposed company (and nothing else);

and the requirements in sections 124-365 and 124-380 are satisfied.

Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are your shares in the original company. The new assets are your new shares in the interposed company.

124-365 Other requirements to be satisfied

(1) The interposed company must own all the *shares in the original company just after all the exchanging members have *disposed of their shares in the original company (the completion time ).

(2) Just after the completion time, each exchanging member must own:

(a) a whole number of *shares in the interposed company; and

(b) a percentage of the *shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares in the original company (that were *disposed of to the interposed company) that the member owned.

(3) The ratio of:

• the market value of each exchanging member's *shares in the interposed company to the market value of the shares in the interposed company issued to all the exchanging members (worked out just after the completion time);

must equal the ratio of:

• the market value of that member's shares in the original company that were *disposed of to the interposed company to the market value of all the shares in the original company that were disposed of to the interposed company (worked out just before the first disposal).

Example: There are 100 shares in A Pty Ltd (the original company), all having the same rights. B Pty Ltd (the interposed company) acquires all the shares in A by issuing each shareholder in A 10 shares in itself for each share they have in A. All shares in B have the same rights. Bill owned 15 shares in A and received 150 shares in B in exchange.

(4) Either:

(a) you are an Australian resident at the time you *disposed of your *shares in the original company; or

(b) if you are not an Australian resident at that time - your *shares in the original company have the *necessary connection with Australia.

Redemption or cancellation case

124-370 Redemption or cancellation of shares in one company for shares in another one

(1) You can choose to obtain a roll-over if you are a *member of a company (the original company ) and under a *scheme for reorganising its affairs:

(a) another company (the interposed company ) *acquires no more than 5 *shares in the original company; and

(b) these are the first shares that the interposed company acquires in the original company; and

(c) you and at least one other entity (the exchanging members ) own all the remaining shares in the original company; and

(d) the original company redeems or cancels those remaining shares; and

(e) each exchanging member receives shares (and nothing else) in the interposed company in return for their shares in the original company being redeemed or cancelled;

and the requirements in sections 124-375 and 124-380 are satisfied.

Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are your shares in the original company. The new assets are your new shares in the interposed company.

(2) The original company can issue other *shares in itself to the interposed company as part of the scheme.

Note: Some of the interposed company's shares in the original company may be taken to be acquired before 20 September 1985: see section 124-385.

124-375 Other requirements to be satisfied

(1) The interposed company must own all the *shares in the original company just after all the exchanging members have had their shares in the original company redeemed or cancelled (the completion time ).

(2) Just after the completion time, each exchanging member must own:

(a) a whole number of *shares in the interposed company; and

(b) a percentage of the *shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares in the original company (that were redeemed or cancelled) that the member owned.

(3) The ratio of:

• the market value of each exchanging member's *shares in the interposed company to the market value of the shares in the interposed company issued to all the exchanging members (worked out just after the completion time);

must equal the ratio of:

• the market value of that member's shares in the original company that were redeemed or cancelled to the market value of all the shares in the original company that were redeemed or cancelled (worked out just before the first redemption or cancellation).

Example: There are 100 shares in X Pty Ltd (the original company), all having the same rights. X issues 2 shares to Y Pty Ltd (the interposed company) and cancels all other shares in itself. Y issues each shareholder in X 10 shares in itself for each share they had in X. All shares in Y have the same rights. Wil owned 10 shares in X and received 100 shares in Y in exchange.

(4) Either:

(a) you are an Australian resident at the time your *shares in the original company are redeemed or cancelled; or

(b) if you are not an Australian resident at that time - your *shares in the original company have the *necessary connection with Australia.

Rules applying to both cases

124-380 Requirements to be satisfied in both cases

(1) The *shares issued in the interposed company must not be *redeemable shares.

(2) Each exchanging member who is issued *shares in the interposed company must own the shares from the time they are issued to the completion time.

(3) Just after the completion time:

(a) the exchanging members must own all the *shares in the interposed company; or

(b) entities other than those members must own no more than 5 *shares in the interposed company and the market value of those shares expressed as a percentage of the market value of all the shares in the interposed company is such that it is reasonable to treat the exchanging members as owning all the shares.

(4) The original company and interposed company must be Australian residents at the completion time.

Choice to be made by interposing company

(5) The interposed company must choose that section 124-385 apply. It must make its choice within 2 months after the completion time, or within such further time as the Commissioner allows.

Note: This is an exception to the general rule about choices in section 103-25.

Consequences for the interposed company

124-385 Consequences for the interposed company

(1) A whole number of the *shares that the interposed company owns in the original company (just after the completion time) are taken to have been *acquired before 20 September 1985 if any of the original company's assets as at the completion time were acquired by it before that day.

Note: Generally, a capital gain or capital loss you make from a CGT asset that you acquired before 20 September 1985 can be disregarded: see Division 104.

(2) The number (worked out as at the completion time) is the greatest possible that (when expressed as a percentage of all the *shares) does not exceed:

• the market value of the original company's assets that it *acquired before 20 September 1985 less its liabilities (if any) in respect of those assets;

expressed as a percentage of:

• the market value of all the original company's assets less all of its liabilities.

(3) The first element of the *cost base of the interposed company's *shares in the original company that are not taken to have been *acquired before 20 September 1985 is:

• the total of the cost bases (as at the completion time) of the original company's assets that it acquired on or after that day;

less:

• its liabilities (if any) in respect of those assets.

(4) The first element of the *reduced cost base of the interposed company's *shares is worked out similarly.

(5) A liability of the original company that is not a liability in respect of a specific asset or assets of the company is taken to be a liability in respect of all the assets of the company.

Note: An example is a bank overdraft.

(6) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to:

The market value of the asset / The toal of the market values of all the assets that the liability is in respect of

Subdivision 124-H - Exchange of units in a unit trust for shares in a company

Guide to Subdivision 124-H

124-435 What this Subdivision is about

This Subdivision sets out when you can obtain a roll-over if:

you own units in a unit trust; and

there is a reorganisation of its affairs so that you become the owner of new shares in a company.

Table of sections

124-440 Summary of rules

Disposal case

124-445 Disposal of units in a unit trust for shares in a company

124-450 Other requirements to be satisfied

Redemption or cancellation case

124-455 Redemption or cancellation of units in a unit trust for shares in a company

124-460 Other requirements to be satisfied

Rules applying to both cases

124-465 Requirements to be satisfied in both cases

Consequences for the company

124-470 Consequences for the company

124-440 Summary of rules

(1) This Subdivision deals with 2 cases in which you can choose to obtain a roll-over because of the reorganisation of a unit trust's affairs.

Note: Section 103-25 tells you when you have to make the choice.

(2) The first case is if you dispose of units in a unit trust to a company and the company issues you with shares. You can find the specific rules about this case in sections 124-445 and 124-450.

(3) The second case is if your units in a unit trust are redeemed or cancelled and a company issues you with shares. You can find the specific rules about this case in sections 124-455 and 124-460.

(4) There are some rules that apply in both cases: see section 124-465.

(5) There are also consequences for the company if you can choose to obtain a roll-over: see section 124-470.

[This is the end of the Guide.]

Disposal case

124-445 Disposal of units in a unit trust for shares in a company

You can choose to obtain a roll-over if:

(a) you are a member of a unit trust; and

(b) you and at least one other entity (the exchanging members ) own all the units in it; and

(c) under a *scheme for reorganising its affairs, the exchanging members *dispose of their units in it to a company in exchange for *shares in the company (and nothing else);

and the requirements in sections 124-450 and 124-465 are satisfied.

Note: The roll-over consequences are out in Subdivision 124-A. The original assets are your units in the unit trust. The new assets are your new shares in the company.

124-450 Other requirements to be satisfied

(1) The company must own all the units in the unit trust just after all the exchanging members have *disposed of their units in the unit trust (the completion time ).

(2) Just after the completion time, each exchanging member must own:

(a) a whole number of *shares in the company; and

(b) a percentage of the *shares in the company that were issued to all the exchanging members that is equal to the percentage of the units in the unit trust (that were *disposed of to the company) that the member owned.

(3) The ratio of:

• the market value of each exchanging member's *shares in the company to the market value of the shares in the company issued to all the exchanging members (worked out just after the completion time);

must equal the ratio of:

• the market value of that member's units in the unit trust that were disposed of to the company to the market value of all the units that were disposed of to the company (worked out just before the first disposal).

Example: There are 1,000 units in the A unit trust, all having the same rights. B Pty Ltd acquires all the units in A by issuing each unitholder in A 10 shares in itself for each 100 units they have in A. All shares in B have the same rights. Brian owned 300 units in A and received 30 shares in B in exchange.

(4) Either:

(a) you are an Australian resident at the time you *disposed of your units in the unit trust; or

(b) if you are not an Australian resident at that time - your units have the *necessary connection with Australia.

Redemption or cancellation case

124-455 Redemption or cancellation of units in a unit trust for shares in a company

(1) You can choose to obtain a roll-over if you are a member of a unit trust and under a *scheme for reorganising its affairs:

(a) a company *acquires no more than 5 units in the trust; and

(b) these are the first units that the company acquires in the trust; and

(c) you and at least one other entity (the exchanging members ) own all the remaining units in the trust; and

(d) the trustee redeems or cancels those remaining units; and

(e) each exchanging member receives *shares (and nothing else) in the company in return for their units being redeemed or cancelled;

and the requirements in sections 124-460 and 124-465 are satisfied.

Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are your units in the unit trust. The new assets are your new shares in the company.

(2) The trustee of the unit trust can issue other units to the company as part of the scheme.

Note: Some of the company's units in the unit trust may be taken to be acquired before 20 September 1985: see section 124-470.

124-460 Other requirements to be satisfied

(1) The company must own all the units in the unit trust just after all the exchanging members have had their units in the unit trust redeemed or cancelled (the completion time ).

(2) Just after the completion time, each exchanging member must own:

(a) a whole number of *shares in the company; and

(b) a percentage of the *shares in the company that were issued to all the exchanging members that is equal to the percentage of the units in the unit trust (that were redeemed or cancelled) that the member owned.

(3) The ratio of:

• the market value of each exchanging member's *shares in the company to the market value of the shares in the company issued to all the exchanging members (worked out just after the completion time);

must equal the ratio of:

• the market value of that member's units in the unit trust that were redeemed or cancelled to the market value of all the units that were redeemed or cancelled (worked out just before the first redemption or cancellation).

Example: There are 1,000 units in the A unit trust, all having the same rights. 2 new units in A are issued to B Pty Ltd, and all other units in A are cancelled. Each unitholder in A is issued 10 shares in B for each 100 units they have in A. All shares in B have the same rights. Alison owned 200 units in A and received 20 shares in B in exchange.

(4) Either:

(a) you are an Australian resident at the time your units in the unit trust are redeemed or cancelled; or

(b) if you are not an Australian resident at that time - your units have the *necessary connection with Australia.

Rules applying to both cases

124-465 Requirements to be satisfied in both cases

(1) The *shares issued in the company must not be *redeemable shares.

(2) Each exchanging member who is issued *shares in the company must own the shares from the time they are issued to the completion time.

(3) Just after the completion time:

(a) the exchanging members must own all the *shares in the company; or

(b) entities other than those members must own no more than 5 *shares in the company and the market value of those shares expressed as a percentage of the market value of all the shares in the company is such that it is reasonable to treat the exchanging members as owning all the shares.

(4) The unit trust must be a *resident trust for CGT purposes for the income year in which the completion time occurs. The company must be an Australian resident at the completion time.

Choice to be made by company

(5) The company must choose that the rules in section 124-470 apply. It must make its choice within 2 months after the completion time, or within such further time as the Commissioner allows.

Note: This is an exception to the general rule about choices in section 103-25.

Consequences for the company

124-470 Consequences for the company

(1) A whole number of the units that the company owns in the unit trust (just after the completion time) are taken to have been *acquired before 20 September 1985 if any of the unit trust's assets as at the completion time were acquired by it before that day.

Note: Generally, a capital gain or capital loss you make from a CGT asset that you acquired before 20 September 1985 can be disregarded: see Division 104.

(2) The number (worked out as at the completion time) is the greatest possible that (when expressed as a percentage of all the units) does not exceed:

• the market value of the unit trust's assets that it *acquired before 20 September 1985 less its liabilities (if any) in respect of those assets;

expressed as a percentage of:

• the market value of all the unit trust's assets less all of its liabilities.

(3) The first element of the *cost base of the company's units in the unit trust that are not taken to have been *acquired before 20 September 1985 is:

• the total of the cost bases (as at the completion time) of the unit trust's assets that it acquired on or after that day;

less:

• its liabilities (if any) in respect of those assets.

(4) The first element of the *reduced cost base of the company's units is worked out similarly.

(5) A liability of the unit trust that is not a liability in respect of a specific asset or assets of the trust is taken to be a liability in respect of all the assets of the trust.

Note: An example is a bank overdraft.

(6) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to:

The market value of the asset / The total of the market values of all the assets that the liability is in respect of

Subdivision 124-I - Conversion of a body to an incorporated company

124-520 Conversion of a body to an incorporated company

(1) You can choose to obtain a roll-over if:

(a) you are a member of a body that is incorporated under a law other than *company law; and

(b) the body is converted into a company incorporated under company law (without creating a new legal entity); and

(c) the company issues you with *shares (and you receive nothing else) in substitution for your interest in the body just before the conversion; and

(d) there is no significant difference in:

(i) the ownership of the body just before the conversion and the ownership of the company just after the conversion; or

(ii) the mix of ownership of the body just before the conversion and the mix of ownership of the company just after the conversion; and

(e) this requirement is satisfied:

(i) you are an Australian resident at the time of the conversion; or

(ii) if you are not an Australian resident at that time - your interest in the body has the *necessary connection with Australia.

Note 1: The roll-over consequences are set out in Subdivision 124-A. The original asset is your interest in the body. The new asset is your shares in the company.

Note 2: Section 103-25 tells you when you have to make the choice.

(2) Company law means the Corporations Law of a State or Territory or a similar *State law, *Territory law or *foreign law relating to companies.

Subdivision 124-J - Crown leases

Guide to Subdivision 124-J

124-570 What this Subdivision is about

This Subdivision sets out the situations in which the holder of a Crown lease over land obtains a replacement asset roll-over when the lease is, among other things, renewed, extended or converted to an estate in fee simple.

Table of sections

Operative provisions

124-575 Extension or renewal of Crown lease

124-580 Meaning of Crown lease

124-585 Original right differs in area from new right

124-590 Part of original right excised

124-595 Treating parts of new right as separate assets

124-600 What is the roll-over?

124-605 Change of lessor

[This is the end of the Guide.]

Operative provisions

124-575 Extension or renewal of Crown lease

(1) There is a roll-over if:

(a) you hold one or more *CGT assets that are *Crown leases over land (the original right ); and

(b) the original right expires or you surrender it; and

(c) you are granted one or more new Crown leases over land or one or more estates in fee simple in land, or both (the new right ); and

(d) the new right relates to the same land as the original right.

Note 1: The roll-over consequences are set out in Subdivision 124-A. They might be modified: see section 124-600.

Note 2: If there has been a capital improvement to the Crown lease: see section 108-75.

(2) The new right must have been granted in one of these ways:

(a) by renewing or extending the term of the original right where the renewal or extension is mainly due to your having held the original right; or

(b) by changing the purpose for which the land to which the original right related can be used; or

(c) by converting the original right to a *Crown lease in perpetuity; or

(d) by converting the original right to an estate in fee simple; or

(e) by consolidating, or consolidating and dividing, the original right; or

(f) by subdividing the original right; or

(g) by excising or relinquishing a part of the land to which the original right related; or

(h) by expanding the area of that land.

124-580 Meaning of Crown lease

A Crown lease is:

(a) a lease of land granted by the Crown under an *Australian law (other than the common law); or

(b) a similar lease granted under a *foreign law.

124-585 Original right differs in area from new right

(1) Even if the new right relates to different land to that to which the original right related, this Subdivision applies as if it relates to the same land in these cases:

(a) the difference in area is not significant;

(b) the difference in market value is not significant;

(c) the new right was granted to correct errors in or omissions from the original right;

(d) the new right relates to a significantly different area of land but you had made reasonable efforts to ensure that the area was the same;

(e) it is otherwise reasonable for this Subdivision to apply in that way.

(2) However, the rule in subsection (1) does not apply if section 124-590 applies.

124-590 Part of original right excised

(1) There is a partial roll-over if you *acquired the original right on or after 20 September 1985 and:

(a) the land to which the new right relates is different in area to the land the subject of the original right because a part (the excised part ) of the land to which the original right related was excised or you relinquished it; and

(b) you received a payment for the expiry or surrender of the original right.

The payment can include giving property: see section 103-5.

Note: Section 124-600 sets out the effect on your cost base.

(2) There is no roll-over for the excised part. The *cost base of the excised part is so much of the *cost base of the relevant *Crown lease as is attributable to the excised part.

Its *reduced cost base is worked out similarly.

Note: You may make a capital gain or loss on the excised part because of CGT event C2.

124-595 Treating parts of new right as separate assets

(1) Each part of a *Crown lease or an estate in fee simple that is part of the new right is taken to be a separate *CGT asset to the extent that it relates to:

(a) land to which a Crown lease (that was part of the original right) related where you *acquired the lease before 20 September 1985; and

(b) land to which a Crown lease (that was part of the original right) related where you acquired the lease on or after 20 September 1985; and

(c) other land.

(2) You are taken to have *acquired each asset that is a separate *CGT asset because of paragraph (1)(a) before 20 September 1985.

124-600 What is the roll-over?

(1) The roll-over is mainly as specified in Subdivision 124-A.

(2) However, you work out the *cost base and *reduced cost base of *CGT assets (that you are not taken to have *acquired before 20 September 1985) and that are part of the new right a bit differently where section 124-590 or 124-595 applies.

(3) The first element of your *cost base for each of those assets is:

CB of post-CGT original right * (Market value of separate asset / Market value of all new assets)

where:

CB of post-CGT original right is the sum of the *cost bases of the *Crown leases (that were part of the original right) and that you *acquired on or after 20 September 1985 (just before the original right expired or was surrendered) reduced, if there is an excised part, by so much of those cost bases as is attributable to the excised part.

market value of all new assets is the market value of all *CGT assets (that you are not taken to have *acquired before 20 September 1985) that are part of the new right just after you acquired them.

market value of separate asset is the market value of the particular asset just after you *acquired it.

(4) The first element of the *reduced cost base of each of those assets is worked out similarly.

124-605 Change of lessor

(1) You treat a lease of land (whether or not it is a *Crown lease) granted to you (the fresh lease ) as being a renewal of your original right if:

(a) after the grant of the original right, the land (the original land ) to which it related became vested in an *Australian government agency (other than the one that granted the original right); and

(b) the second agency granted you the fresh lease over:

(i) the original land; or

(ii) the original land less an excised area; or

(iii) the original land and other land; and

(c) the fresh lease was granted under an *Australian law (other than the common law).

(2) You do this even if there is a period between the end of the original right and the grant of the fresh lease if you continued to occupy the original land during that period under a permission, licence or authority granted by the second agency.

Subdivision 124-K - Plant

Table of sections

124-655 Roll-over for depreciable plant

124-660 Right granted to associate

124-655 Roll-over for depreciable plant

There is a roll-over for a unit of *plant if:

(a) the plant is attached to land you hold under a *quasi-ownership right granted by an *exempt Australian government agency or an *exempt foreign government agency; and

(b) you are the *quasi-owner of the plant because of section 42-310; and

(c) the quasi-ownership right expires or is terminated or you surrender it; and

(d) you are granted a new quasi-ownership right over the land or an estate in fee simple in the land; and

(e) there is no roll-over for you under Subdivision 124-J (about Crown leases) or Subdivision 124-L (about prospecting and mining entitlements).

Note 1: The roll-over consequences are set out in Subdivision 124-A.

Note 2: This section provides a roll-over for plant in the limited circumstances where Subdivision 124-J cannot because a quasi-ownership right over land covers situations that a Crown lease does not (for example, an easement over land).

Note 3: If there has been a capital improvement to the quasi-ownership right: see section 108-75.

124-660 Right granted to associate

If the *quasi-ownership right or estate in fee simple is instead granted to an *associate or an *associated government entity of yours:

(a) your *reduced cost base of the *plant is reduced by the *undeducted cost of the plant just before the original quasi-ownership right expired or was surrendered or terminated; and

(b) there is no roll-over.

Subdivision 124-L - Prospecting and mining entitlements

Guide to Subdivision 124-L

124-700 What this Subdivision is about

This Subdivision sets out the situations in which there is a roll-over if a prospecting or mining entitlement expires or is surrendered and it is replaced by a new one.

Table of sections

Operative provisions

124-705 Extension or renewal of prospecting or mining entitlement

124-710 Meaning of prospecting entitlement and mining entitlement

124-715 Original entitlement differs in area from new entitlement

124-720 Part of original entitlement excised

124-725 Treating parts of new entitlement as separate assets

124-730 What is the roll-over?

[This is the end of the Guide.]

Operative provisions

124-705 Extension or renewal of prospecting or mining entitlement

(1) There is a roll-over if:

(a) you hold one or more *CGT assets that are *prospecting entitlements or *mining entitlements (the original entitlement ); and

(b) the original entitlement expires or you surrender it; and

(c) you are granted one or more new prospecting entitlements or mining entitlements (the new entitlement ); and

(d) the new entitlement relates to the same land as the original entitlement.

Note 1: The roll-over consequences are set out in Subdivision 124-A. They might be modified: see section 124-730.

Note 2: If there has been a capital improvement to the entitlement: see section 108-75.

(2) The new entitlement must have been granted in one of these ways:

(a) by renewing or extending the term of the original entitlement where the renewal or extension is mainly due to your having held the original entitlement; or

(b) by consolidating, or consolidating and dividing, the original entitlement; or

(c) by subdividing the original entitlement; or

(d) by converting a *prospecting entitlement to a *mining entitlement, or a mining entitlement to a prospecting entitlement; or

(e) by excising or relinquishing a part of the land to which the original entitlement related; or

(f) by expanding the area of that land.

124-710 Meaning of prospecting entitlement and mining entitlement

(1) A prospecting entitlement is:

(a) an authority, licence, permit or entitlement under an *Australian law or foreign law to prospect or explore for minerals in an area; or

(b) a lease of land that allows the lessee to prospect or explore for minerals on the land; or

(c) an interest in a thing referred to in paragraph (a) or (b).

(2) A mining entitlement is:

(a) an authority, licence, permit or entitlement under an *Australian law or foreign law to mine for *minerals in an area; or

(b) a lease of land that allows the lessee to mine for minerals on the land; or

(c) an interest in a thing referred to in paragraph (a) or (b).

124-715 Original entitlement differs in area from new entitlement

(1) Even if the new entitlement relates to different land to that to which the original entitlement related, this Subdivision applies as if it relates to the same land in these cases:

(a) the difference in area is not significant;

(b) the difference in market value is not significant;

(c) the new entitlement was granted to correct errors in or omissions from the original entitlement;

(d) it is otherwise reasonable for this Subdivision to apply in that way.

(2) However, the rule in subsection (1) does not apply if section 124-720 applies.

124-720 Part of original entitlement excised

(1) There is partial roll-over if you *acquired the original entitlement on or after 20 September 1985 and:

(a) the land to which the new entitlement relates is different in area to the land the subject of the original entitlement because a part (the excised part ) of the land to which the original entitlement related was excised or you relinquished it; and

(b) you received a payment for the expiry or surrender of the original entitlement.

The payment can include giving property: see section 103-5.

Note: Section 124-730 sets out the effect on your cost base.

(2) There is no roll-over for the excised part. The *cost base of the excised part is so much of the *cost base of the original entitlement as is attributable to the excised part.

Its *reduced cost base is worked out similarly.

Note: You may make a capital gain or loss on the excised part because of CGT event C2.

124-725 Treating parts of new entitlement as separate assets

(1) Each part of a *prospecting entitlement or *mining entitlement that is part of the new entitlement is taken to be a separate *CGT asset to the extent that it relates to:

(a) land to which a prospecting entitlement or mining entitlement (that was part of the original entitlement) related where you *acquired the entitlement before 20 September 1985; and

(b) land to which a prospecting entitlement or mining entitlement (that was part of the original entitlement) related where you acquired the entitlement on or after 20 September 1985; and

(c) other land.

(2) You are taken to have *acquired each asset that is a separate *CGT asset because of paragraph (1)(a) before 20 September 1985.

124-730 What is the roll-over?

(1) The roll-over is mainly as specified in Subdivision 124-A.

(2) However, you work out the *cost base and *reduced cost base of *CGT assets (that you are not taken to have *acquired before 20 September 1985) and that are part of the new entitlement a bit differently where section 124-720 or 124-725 applies.

(3) The first element of your *cost base for each of those assets is:

CB of post-CGT original entitlement * (Market value of separate asset / Market value of all new assets)

where:

CB of post-CGT original entitlement is the sum of the *cost bases of the prospecting entitlements or mining entitlements (that were part of the original entitlement) and that you *acquired on or after 20 September 1985 (just before the original entitlement expired or was surrendered) reduced, if there is an excised part, by so much of those cost bases as is attributable to the excised part.

market value of all new assets is the market value of all *CGT assets (that you are not taken to have *acquired before 20 September 1985) that are part of the new entitlement just after you acquired them.

market value of separate asset is the market value of the particular asset just after you *acquired it.

(4) The first element of the *reduced cost base of each of those assets is worked out similarly.