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 126

Division 126 - Same-asset roll-overs

Table of Subdivisions

Guide to Division 126

126-A Marriage breakdown

126-B Companies in the same wholly-owned group

126-C Changes to trust deeds

Guide to Division 126

126-1 What this Division is about

A same-asset roll-over allows a capital gain or loss an entity makes from disposing of a CGT asset to, or creating a CGT asset in, another entity to be disregarded. For a disposal, certain attributes of the asset are transferred to the receiving entity.

Subdivision 126-A - Marriage breakdown

Table of sections

126-5 CGT event involving spouses

126-15 CGT event involving company or trustee

126-20 Subsequent CGT event happening to roll-over asset where transferor was a CFC or a non-resident trust

126-5 CGT event involving spouses

(1) There is a roll-over if a *CGT event (the trigger event ) happens involving an individual (the transferor ) and his or her *spouse (the transferee ), or a former *spouse (also the transferee ), because of:

(a) a court order under the Family Law Act 1975 or a corresponding *foreign law; or

(b) a maintenance agreement approved by a court under section 87 of that Act or a corresponding agreement approved by a court under a corresponding *foreign law; or

(c) a court order under a *State law, *Territory law or *foreign law relating to de facto marriage breakdowns.

(2) Only these *CGT events are relevant:

(a) CGT events A1 and B1 (a disposal case ); and

(b) CGT events D1, D2, D3 and F1 (a creation case ).

Note: The full list of CGT events is in section 104-5.

(3) However, there is no roll-over if:

(a) the *CGT asset involved is *trading stock of the transferor; or

(b) for *CGT event B1 - title in the CGT asset does not pass to the transferee when the agreement ends.

(4) A *capital gain or a *capital loss the transferor makes from the *CGT event is disregarded.

Consequences for the transferee (disposal case)

(5) For a disposal case where the transferor *acquired the asset on or after 20 September 1985:

(a) the first element of the asset's *cost base (in the hands of the transferee) is the asset's cost base (in the hands of the transferor) at the time the transferee acquired it; and

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

Example: Your spouse transfers land to you because of a court order under the Family Law Act 1975. Any capital gain or loss your spouse makes is disregarded.

If the land's cost base at the time you acquired it is $10,000, the first element of the land's cost base in your hands becomes $10,000.

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

(6) For a disposal case where the transferor *acquired the asset before 20 September 1985, the transferee is taken to have acquired it 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.

(7) For a disposal case where the transferor *disposed of a *collectable or *personal use asset, the transferee is taken to have *acquired one.

Note 1: Capital losses from collectables can be subtracted only from capital gains from collectables: see section 108-10.

Note 2: Capital losses from personal use assets are disregarded: see section 108-20.

Consequences for the transferee (creation case)

(8) For a creation case, the first element of the asset's *cost base (in the hands of the transferee) is the amount applicable under this table. The first element of its *reduced cost base is worked out similarly.

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

126-15 CGT event involving company or trustee

(1) There are the roll-over consequences in section 126-5 if the trigger event involves a company (the transferor ) or a trustee (also the transferor ) and a *spouse or former spouse (the transferee ) of another individual because of:

(a) a court order under the Family Law Act 1975 or a corresponding *foreign law; or

(b) a maintenance agreement approved by a court under section 87 of that Act or a corresponding agreement approved by a court under a corresponding *foreign law; or

(c) a court order under a *State law, *Territory law or *foreign law relating to de facto marriage breakdowns.

(2) There are other consequences if:

(a) just before the time of the trigger event, an entity (including the transferee) owned another *CGT asset of a kind covered by this table; and

(b) the entity *acquired it on or after 20 September 1985; and

(c) a *CGT event happens in relation to it.

Example: An individual owns all the shares in a company. The company owns land. The individual's marriage breaks down. The Family Court orders that the company transfer the land it owns to the individual's spouse. The individual later sells the shares.

(3) The *cost base and *reduced cost base of the other asset are reduced by an amount that reasonably reflects the fall in its market value because of the trigger event. The reduction occurs at the time of the trigger event.

(4) If the entity owning the other asset is also the transferee, the *cost base and *reduced cost base of the other asset are then increased by any amount that is included in the entity's assessable income for any income year because of the trigger event.

126-20 Subsequent CGT event happening to roll-over asset where transferor was a CFC or a non-resident trust

(1) This section applies if:

(a) there is a roll-over for the trigger event under section 126-15; and

(b) the transferor was:

(i) a *CFC; or

(ii) a trustee of a trust that is a non-resident trust estate within the meaning of section 102AAB of the Income Tax Assessment Act 1936 for the income year of the trigger event; and

(c) section 126-15 is relevant to:

(i) the calculation of the *attributable income of the CFC under Division 7 of Part X of the Income Tax Assessment Act 1936; or

(ii) the calculation of the attributable income of the trust under Subdivision D of Division 6AAA of Part III of that Act;

because (ignoring the residency assumptions in that Division or Subdivision) the roll-over asset did not have the *necessary connection with Australia; and

(d) a subsequent *CGT event happens in relation to the roll-over asset.

(2) In working out the amount of any *capital gain or *capital loss the transferee (or a subsequent owner of the roll-over asset if there is a series of roll-overs until there is no roll-over) makes when a subsequent *CGT event happens in relation to the asset, the modifications specified in Division 7 of Part X, or Subdivision D of Division 6AAA of Part III, of the Income Tax Assessment Act 1936 apply.

Subdivision 126-B - Companies in the same wholly-owned group

Guide to Subdivision 126-B

126-40 What this Subdivision is about

This Subdivision sets out when a company can obtain a roll-over if it transfers a CGT asset to, or creates a CGT asset in, another company that is a member of the same wholly-owned group.

Table of sections

Operative provisions

126-45 Roll-over for members of wholly-owned group

126-50 Requirements for roll-over

126-55 When there is a roll-over

126-60 Consequences of roll-over

126-65 Choosing for no roll-over in loss situation

126-70 Loss disregarded if intention not realised

126-75 Originating company is a CFC

126-80 Roll-over asset is an interest in a CFC or FIF

126-85 Effect of roll-over on certain liquidations

[This is the end of the Guide.]

Operative provisions

126-45 Roll-over for members of wholly-owned group

(1) There may be a roll-over if a *CGT event (the trigger event ) happens involving a company (the originating company ) and another company (the recipient company ) in the circumstances set out in section 126-50.

(2) Only these *CGT events are relevant:

(a) CGT events A1 and B1 (a disposal case ); and

(b) CGT events D1, D2, D3 and F1 (a creation case ).

Note: The full list of CGT events is in section 104-5.

(3) However, there is no roll-over for *CGT event B1 if title in the *CGT asset does not pass to the transferee when the agreement ends.

Note: CGT event J1 can happen if the recipient company stops being a 100% subsidiary of a company in the relevant group: see section 104-175.

126-50 Requirements for roll-over

(1) The originating company and recipient company must be members of the same *wholly-owned group at the time of the trigger event.

Note: This requirement is taken to be satisfied in the case of the transfer of the life insurance business of a life insurance company: see section 121AS of the Income Tax Assessment Act 1936.

(2) The *CGT asset involved (the roll-over asset ) must not be *trading stock of the recipient company just after the time of the trigger event.

(3) If:

(a) the roll-over asset is a right, option or *convertible note; and

(b) the recipient company *acquires another *CGT asset by exercising the right or option or by converting the convertible note;

the other asset cannot become *trading stock of the recipient company just after the recipient company acquired it.

(4) The *ordinary income and *statutory income of the recipient company must not be exempt from income tax because of Division 50 for the income year of the trigger event.

(5) The requirements in one of the items in this table must be satisfied.

126-55 When there is a roll-over

Capital gain or no loss

(1) There is a roll-over if:

(a) the trigger event would have resulted in the originating company making a *capital gain or no *capital loss; and

(b) the originating company and recipient company both choose to obtain it.

Note: Section 103-25 sets out when the choice must be made.

Capital loss

(2) There is also a roll-over if the trigger event would have resulted in the originating company making a *capital loss, unless the originating company and recipient company make a choice under section 126-65.

126-60 Consequences of roll-over

Consequences for the originating company in all cases

(1) A *capital gain or *capital loss the originating company makes from the trigger event is disregarded.

Consequences for the recipient company (disposal case)

(2) For a disposal case, if the originating company *acquired the roll-over asset on or after 20 September 1985:

(a) the first element of the asset's *cost base (in the hands of the recipient company) is the asset's cost base (in the hands of the originating company) when the recipient company acquired it; and

(b) the first element of the asset's *reduced cost base (in the hands of the recipient company) is worked out similarly.

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

(3) If the originating company *acquired the roll-over asset before 20 September 1985, the recipient company is taken to have acquired it 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.

(4) If the trigger event involved a *personal use asset of the originating company, the recipient company is taken to have *acquired one.

Note: Capital losses from personal use assets are disregarded: see section 108-20.

Consequences for the recipient company (creation case)

(5) For a creation case, the first element of the asset's *cost base (in the hands of the recipient company) is the amount applicable under this table. The first element of its *reduced cost base is worked out similarly.

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

Note: CGT event J1 may occur if the recipient company stops being a member of the wholly-owned group while still owning the roll-over asset: see section 104-175.

126-65 Choosing for no roll-over in loss situation

(1) The originating company and recipient company can choose not to obtain a roll-over in the circumstances set out in this section.

Note: Section 103-25 sets out when the choice must be made.

(2) The trigger event must have resulted (apart from the roll-over) in the originating company making a *capital loss.

(3) The originating company and recipient company must intend that, before the end of the income year of the originating company after the one in which the trigger event happened:

(a) they will no longer be members of the same *wholly-owned group; and

(b) the originating company and companies that are members of its wholly-owned group at that time will own less than 50% of the *shares in the recipient company.

126-70 Loss disregarded if intention not realised

(1) The originating company's *capital loss is disregarded if the condition in subsection (2) or (3) is met despite a choice being made under section 126-65.

(2) The intention of the originating company and recipient company set out in subsection 126-65(3) must not be realised.

(3) After that intention is realised but, at a time (the disqualifying time ) within 4 years after the time of the trigger event, the roll-over asset must be owned by:

(a) the originating company; or

(b) a company that is a member of the originating company's *wholly-owned group at the disqualifying time; or

(c) a company at least 50% of whose *shares are owned by the originating company and companies that are members of the originating company's wholly-owned group at the disqualifying time.

126-75 Originating company is a CFC

(1) This section applies if:

(a) there is a roll-over for the trigger event under this Subdivision; and

(b) the originating company was a *CFC at the time of the trigger event; and

(c) this Subdivision is relevant to the calculation of the *attributable income of the originating company under Division 7 of Part X of the Income Tax Assessment Act 1936 because (ignoring the residency assumptions in that Division) the roll-over asset did not have the *necessary connection with Australia; and

(d) a subsequent *CGT event happens in relation to the roll-over asset.

(2) In working out the amount of any *capital gain or *capital loss the recipient company (or a subsequent owner of the roll-over asset if there is a series of roll-overs until there is no roll-over) makes when a subsequent *CGT event happens in relation to the asset, the modifications specified in Division 7 of Part X of the Income Tax Assessment Act 1936 apply.

126-80 Roll-over asset is an interest in a CFC or FIF

(1) This section is relevant only if:

(a) there is a roll-over under this Subdivision because of subsection 126-55(2) (where there is a *capital loss); and

(b) the roll-over asset is an interest in a *CFC or *FIF; and

(c) the *capital proceeds from the trigger event are reduced under section 461 or 613 of the Income Tax Assessment Act 1936.

Note: Sections 461 and 613 of the Income Tax Assessment Act 1936 reduce capital proceeds where the attributed income of a CFC or FIF is not distributed.

(2) The *cost base and *reduced cost base of the roll-over asset (in the hands of the recipient company) are increased by that part of the attribution surplus (for the purposes of Part X or Part XI of the Income Tax Assessment Act 1936) as was taken into account for the trigger event under paragraph 461(1)(c) or 613(1)(c) of that Act.

126-85 Effect of roll-over on certain liquidations

(1) A *capital gain or *capital loss a company (the holding company ) makes because *shares in its *100% subsidiary are cancelled (an example of *CGT event C2: see section 104-25) on the liquidation of the subsidiary is reduced if the conditions in subsection (2) are satisfied. The reduction is worked out under subsection (3).

(2) These conditions must be satisfied:

(a) there must be a roll-over under this Subdivision for at least one *CGT asset (the CGT roll-over asset ) being *disposed of by the subsidiary to the holding company in the course of the liquidation of the subsidiary;

(b) the subsidiary must have acquired each CGT roll-over asset on or after 20 September 1985;

(c) the disposals must either:

(i) be part of the liquidator's final distribution in the course of the liquidation; or

(ii) have occurred within 18 months of the dissolution of the subsidiary if they are part of an interim distribution in the course of the liquidation;

(d) the holding company must have beneficially owned all of the shares in the subsidiary for the whole period from the time of the disposal, or the first disposal, of a CGT roll-over asset until the cancellation of the shares;

(e) the market value of the CGT roll-over asset or assets must comprise at least part of the *capital proceeds for the cancellation of the shares in the subsidiary that are beneficially owned by the holding company;

(f) one or more of the shares that were cancelled (the post-CGT shares ) must have been acquired by the holding company on or after 20 September 1985.

(3) The reduction of the *capital gain or *capital loss is worked out in this way.

Method statement

Step 1. Work out (disregarding this section) the sum of the *capital gains and the sum of the *capital losses the holding company would make on the cancellation of its shares in the subsidiary.

Step 2. Work out (disregarding this Subdivision) the sum of the *capital gains and the sum of the *capital losses the subsidiary would make on the *disposal of its CGT roll-over assets to the holding company in the course of the liquidation assuming the *capital proceeds were the assets' market values at the time of the disposal.

Step 3. If, after subtracting the sum of the *capital losses from the sum of the *capital gains, there is:

(a) an overall capital gain from Step 1 and an overall capital gain from Step 2; or

(b) an overall capital loss from Step 1 and an overall capital loss from Step 2;

then continue. Otherwise there is no adjustment.

Step 4. Express the number of post-CGT shares as a fraction of the total number of shares the holding company owned in the subsidiary.

Step 5. Multiply the overall *capital gain or *capital loss from Step 2 by the fraction from Step 4.

Step 6. Reduce the overall *capital gain or *capital loss from Step 1 by the amount from Step 5. The result is the *capital gain or *capital loss the holding company makes from the cancellation of its shares in the subsidiary.

Note: This Subdivision is modified in calculating the attributable income of a CFC: see section 419 of the Income Tax Assessment Act 1936.

Subdivision 126-C - Changes to trust deeds

Guide to Subdivision 126-C

126-125 What this Subdivision is about

This Subdivision sets out when there is a roll-over for a CGT event that happens because of an amendment to or replacement of the trust deed of a complying approved deposit fund or complying superannuation fund.

Table of sections

126-130 Changes to trust deeds

126-135 Consequences of roll-over

[This is the end of the Guide.]

126-130 Changes to trust deeds

There is a roll-over if:

(a) *CGT event E1 or E2 happens in relation to a *CGT asset because the trust deed of a *complying approved deposit fund or *complying superannuation fund is amended or replaced; and

(b) the amendment or replacement is done for the purpose of:

(i) complying with the Superannuation Industry (Supervision) Act 1993; or

(ii) enabling a *complying approved deposit fund to become a *complying superannuation fund; and

(c) the assets and members of the fund do not change as a consequence of the amendment or replacement.

Note: The full list of CGT events is in section 104-5.

126-135 Consequences of roll-over

(1) A *capital gain or *capital loss made from the *CGT event is disregarded.

(2) If the fund that owned the *CGT asset just before the time of the *CGT event *acquired it before 20 September 1985, the asset retains its status as a *pre-CGT asset in the hands of the fund that owned it after the time of the event.

(3) If the fund that owned the *CGT asset just before the time of the *CGT event *acquired it on or after 20 September 1985:

(a) the first element of the asset's *cost base (in the hands of the fund that owned the asset after the time of the event) is its cost base just before that time; and

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

(c) the fund that owned the asset after the time of the event is taken to have acquired the asset at that time.