Tax Law Improvement Act (No. 1) 1998 (46 of 1998)
Schedule 1 Amendment of the Income Tax Assessment Act 1997
1 Part 3-1 Division 112
Division 112 - Modifications to cost base and reduced cost base
Table of Subdivisions
Guide to Division 112
112-A General modifications
112-B Finding tables for special rules
112-C Replacement-asset roll-overs
112-D Same-asset roll-overs
Guide to Division 112
112-1 What this Division is about
This Division tells you the situations that may modify the general rules about the cost base and reduced cost base of a CGT asset.
112-5 Discussion of modifications
(1) Modifications can occur from the time you acquired the CGT asset to when a CGT event happens in relation to it.
Note: You should keep records of the modifications: see Division 121.
(2) Most modifications replace the first element (what you paid for a CGT asset) of the cost base and reduced cost base of the asset.
(3) Subdivision 112-A contains operative provisions setting out the general situations that may result in a modification to the general rules.
(4) Subdivision 112-B (which is a guide) has a number of tables (each one covering a specialist topic) that tell you each situation that may result in a modification to the general rules.
(5) Subdivision 112-C (which is a guide) explains what a replacement-asset roll-over is and how it can modify the cost base or reduced cost base.
(6) Subdivision 112-D (which is a guide) explains what a same-asset roll-over is and how it can modify the cost base or reduced cost base.
Subdivision 112-A - General modifications
Table of sections
112-15 General rule for replacement modifications
112-20 Market value substitution rule
112-25 Split, changed or merged assets
112-30 Apportionment rules on acquisition or disposal of part
112-35 Assumption of liability rule
112-15 General rule for replacement modifications
If a cost base modification replaces an element of the *cost base of a *CGT asset with an amount, this Part and Part 3-3 apply to you as if you had paid that amount.
Example: An individual pays $10,000 to acquire an option. The individual dies and the option devolves to his legal personal representative, who exercises the option.
Section 134-1 applies to the legal personal representative as if the representative had paid $10,000 for the option.
112-20 Market value substitution rule
(1) The first element of your *cost base and *reduced cost base of a *CGT asset you *acquire from another entity is its market value (at the time of acquisition) if:
(a) you did not incur expenditure to acquire it; or
(b) some or all of the expenditure you incurred to acquire it cannot be valued; or
(c) you did not deal at arm's length with the other entity in connection with the acquisition.
The expenditure can include giving property: see section 103-5.
(2) Despite paragraph (1)(c), if you did not deal at arm's length with the other entity and:
(a) your *acquisition of the *CGT asset resulted from *CGT event D1 happening; or
(b) the *CGT asset is a *share in a company that was issued or allotted to you by the company; or
(c) the *CGT asset is a unit in a unit trust issued to you by the trustee of the unit trust;
the market value is substituted only if what you paid to acquire the CGT asset was more than its market value (at the time of acquisition).
The payment can include giving property: see section 103-5.
(3) The rule in subsection (1) does not apply in the situations set out in this table:
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Exceptions to the market value substitution rule |
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Item |
You * acquired this CGT asset: |
...in this situation: |
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1 |
A right to receive *ordinary income or *statutory income from a trust (except a unit trust or a trust that arises because of someone's death) |
(a) you did not pay or give anything for the right; and (b) you did not acquire the right by way of an assignment from another entity |
|
2 |
A decoration awarded for valour or brave conduct |
you did not pay or give anything for it |
|
3 |
A contractual or other legal or equitable right |
you did not pay or give anything for it |
|
4 |
Rights to *acquire: (a) *shares, or options to acquire *shares, in a company; or (b) units, or options to acquire units, in a unit trust; in a situation covered by Subdivision 130-B |
you did not pay or give anything for the rights |
|
5 |
A *share in a company |
it was issued or allotted to you by the company and you did not pay or give anything for it |
|
6 |
A unit in a unit trust |
it was issued to you by the trustee of the unit trust and you did not pay or give anything for it |
Note: Disregard subsections (2) and (3) for shares or units that you acquired before 16 August 1989: see section 112-20 of the Income Tax (Transitional Provisions) Act 1997.
112-25 Split, changed or merged assets
Split or changed assets
(1) This section sets out what happens if:
(a) a *CGT asset (the original asset ) is split into 2 or more assets (the new assets ); or
(b) a *CGT asset (also the original asset ) changes in whole or in part into an asset (also the new asset ) of a different nature;
and you are the beneficial owner of the original asset and each new asset.
Example: You subdivide a block of land into 3 separate blocks. Each of those blocks is a new asset.
(2) The splitting or change is not a *CGT event.
(3) You work out the *cost base and *reduced cost base of each new asset as follows:
Method statement
Step 1. Work out each element of the *cost base and *reduced cost base of the original asset at the time of the event referred to in subsection (1).
Step 2. Apportion in a reasonable way each element to each new asset. The result is each corresponding element of the new asset's *cost base and *reduced cost base.
Merged assets
(4) If 2 or more *CGT assets (the original assets ) are merged into a single asset (the new asset ) and you are the beneficial owner of the original assets and the new asset:
(a) the merger is not a *CGT event; and
(b) each element of the *cost base and *reduced cost base of the new asset (at the time of the merging) is the sum of the corresponding elements of each original asset.
112-30 Apportionment rules on acquisition or disposal of part
Apportionment on acquisition of an asset
(1) If you *acquire a *CGT asset because of a transaction and only part of the expenditure you incurred under the transaction relates to the acquisition of the asset, the first element of your *cost base and *reduced cost base of the asset is that part of the expenditure that is reasonably attributable to the acquisition of the asset.
The expenditure can include giving property: see section 103-5.
Apportionment of expenditure in other elements
(1A) If you incur expenditure and only part of it relates to another element of the *cost base or *reduced cost base of a *CGT asset, that element includes that part of the expenditure that is reasonably attributable to that element.
Apportionment for CGT asset that was part of another asset
(2) The *cost base and *reduced cost base of a *CGT asset is apportioned if a *CGT event happens to some part of the asset, but not to the remainder of it.
Note: The full list of CGT events is in section 104-5.
(3) The *cost base for the *CGT asset representing the part to which the *CGT event happened is worked out using the formula:
Cost base of the asset * (Capital proceeds for the CGT event happening to the part / Those capital proceeds plus the market value of the remainder of the asset)
The *reduced cost base is worked out similarly.
(4) The remainder of the *cost base and *reduced cost base of the asset is attributed to the part that remains.
Example: You acquire a truck for $24,000 and sell its motor for $9,000. Suppose the market value of the remainder of the truck is $16,000.
Under subsection (4), the cost base of the motor is:
$24,000 * ($9,000 / ($9,000 + $16,000)) = $8,640
Under subsection (5), the cost base of the remainder of the truck is:
$24,000 - $8,640 = $15,360
(5) However, an amount forming part of the *cost base or *reduced cost base of the asset is not apportioned if, on the facts, that amount is wholly attributable to the part to which the *CGT event happened or to the remaining part.
112-35 Assumption of liability rule
If you *acquire a *CGT asset from another entity that is subject to a liability, the first element of your *cost base and *reduced cost base of the asset includes the amount of the liability you assume.
Example: You acquire a block of land for $150,000. You pay $50,000 and assume a liability for an outstanding mortgage of $100,000.
Note: The first element of cost base is dealt with in subsection 110-30(2). The first element of reduced cost base is the same: see subsection 110-55(2).
Subdivision 112-B - Finding tables for special rules
Table of sections
112-40 Effect of this Subdivision
112-45 CGT events
112-50 Main residence
112-55 Effect of you dying
112-60 Bonus shares or units
112-65 Rights
112-70 Convertible notes
112-75 Employee share schemes
112-80 Leases
112-85 Options
112-87 Residency
112-90 An asset stops being a pre-CGT asset
112-95 Transfer of net capital losses within wholly-owned groups of companies
112-97 Modifications outside this Part and Part 3-3
112-40 Effect of this Subdivision
(1) This Subdivision is a *Guide.
Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150.
(2) It sets out which element of the cost base or reduced cost base of a CGT asset is affected by various situations.
112-45 CGT events
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CGT events |
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Event number |
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E1 |
A trust is created over a CGT asset |
First element of cost base and reduced cost base |
104-55 |
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E4 |
A trustee makes a capital payment to you in relation to units or an interest in the trust |
The total cost base and reduced cost base |
104-70 |
|
F4 |
A lessee receives payment for changing lease |
The total cost base |
104-125 |
|
G1 |
A company makes a capital payment to you in relation to your shares |
The total cost base and reduced cost base |
104-135 |
|
G2 |
There is a shift in share values |
The total cost base and reduced cost base |
140-60
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|
G2 |
There is a shift in share values |
Fourth element of cost base and reduced cost base |
140-65 |
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G3 |
A liquidator declares shares to be worthless |
The total cost base and reduced cost base |
104-145 |
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K1 |
There is a partial realisation of an item of intellectual property |
The total cost base |
104-205 |
112-50 Main residence
|
Main residence |
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Item |
In this situation: |
Element affected: |
See section: |
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1 |
A dwelling that is your main residence begins to be used for the first time for the purpose of producing assessable income |
The total cost base and reduced cost base |
118-192 |
112-55 Effect of you dying
|
Effect of an individual dying |
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Item |
In this situation: |
Element affected: |
See section: |
|
1 |
CGT asset devolves to the legal personal representative |
First element of cost base and reduced cost base |
128-15 |
|
2 |
CGT asset passes to a beneficiary |
First element of cost base and reduced cost base |
128-15 |
|
3 |
CGT asset passes to a trustee of: (a) a complying superannuation fund; or (b) a complying approved deposit fund; or (c) a pooled superannuation trust |
First element of cost base and reduced cost base |
128-25 |
|
4 |
Surviving joint tenant acquires deceased joint tenant's interest in CGT asset |
First element of cost base and reduced cost base |
128-50 |
112-60 Bonus shares or units
|
Bonus shares or units |
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Item |
In this situation: |
Element affected: |
See section: |
|
1 |
A company issues you with bonus shares because of a dividend or other amount it owes you |
First element of cost base and reduced cost base |
130-20 |
|
2 |
A unit trust issues you with bonus units because of a dividend or other amount it owes you |
First element of cost base and reduced cost base |
130-20 |
112-65 Rights
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Exercise of rights |
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Item |
In this situation: |
Element affected: |
See section: |
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1 |
You exercise rights to acquire shares, or options to acquire shares, in a company |
First element of cost base and reduced cost base |
130-40 |
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2 |
You exercise rights to acquire units, or options to acquire units, in a unit trust |
First element of cost base and reduced cost base |
130-40 |
112-70 Convertible notes
|
Convertible notes |
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Item |
In this situation: |
Element affected: |
See section: |
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1 |
You acquire shares, or units in a unit trust, by converting a convertible note |
First element of cost base and reduced cost base |
130-60 |
112-75 Employee share schemes
|
Employee share schemes |
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Item |
In this situation: |
Element affected: |
See section: |
|
1 |
You acquire a share or right at a discount under an employee share scheme |
First element of cost base and reduced cost base |
130-80
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112-80 Leases
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Leases |
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Item |
In this situation: |
Element affected: |
See section: |
|
1 |
A lessee incurs expenditure in obtaining the lessor's agreement to vary or waive a term of the lease |
Fourth element of cost base and reduced cost base |
132-1 |
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2 |
A lessor pays an amount to the lessee for improvements made by the lessee to the property |
Fourth element of cost base and reduced cost base |
132-5 |
|
3 |
A lessor of a long-term lease incurs expenditure in obtaining the lessee's agreement to vary or waive a term of the lease or to forfeit or surrender the lease |
Fourth element of cost base and reduced cost base |
132-10 |
|
4 |
A lessee of land acquires the reversionary interest of the lessor |
First element of cost base and reduced cost base |
132-15 |
112-85 Options
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Exercise of options |
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Item |
In this situation: |
Element affected: |
See section: |
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1 |
Grantee of option acquires the CGT asset the subject of the option |
First element of cost base and reduced cost base |
134-1 |
|
2 |
Grantor of option acquires the CGT asset the subject of the option |
For the grantor - the first element of cost base and reduced cost base; For the grantee - the second element of cost base and reduced cost base |
134-1 |
112-87 Residency
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Residency |
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Item |
In this situation: |
Element affected: |
See section: |
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1 |
An individual or company becomes an Australian resident |
First element of cost base and reduced cost base |
136-40 |
|
2 |
A trust becomes a resident trust for CGT purposes |
First element of cost base and reduced cost base |
136-45 |
112-90 An asset stops being a pre-CGT asset
|
An asset stops being a pre-CGT asset |
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Item |
In this situation: |
Element affected: |
See section: |
|
1 |
An asset of a non-public entity stops being a pre-CGT asset |
The total cost base and reduced cost base |
149-35 |
|
2 |
An asset of a public entity stops being a pre-CGT asset |
The total cost base and reduced cost base |
149-75 |
112-95 Transfer of net capital losses within wholly-owned groups of companies
|
Transfer of net capital losses within wholly-owned groups of companies |
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|
Item |
In this situation: |
Element affected: |
See section: |
|
1 |
An amount of a net capital loss is transferred and a company owns a share in the loss company or is owed a debt by it |
The total cost base and reduced cost base |
170-175 |
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2 |
An amount of a net capital loss is transferred and a company owns a share in the gain company or is owed a debt by it |
The total cost base and reduced cost base |
170-180 |
112-97 Modifications outside this Part and Part 3-3
This table sets out other cost base modifications outside this Part and Part 3-3.
Provisions of the Income Tax Assessment Act 1936 are in bold .
|
Modifications outside this Part and Part 3-3 |
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Item |
In this situation |
Element affected: |
See: |
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1 |
You stop holding an item as trading stock |
First element of cost base and reduced cost base |
Paragraph 70-110(b) |
|
2 |
CGT event happens to Cocos (Keeling) Islands asset |
First element of cost base and reduced cost base |
section 24P |
|
3 |
CGT event happens by the borrower disposing of the borrowed security to a third party |
First element of cost base and reduced cost base |
paragraph 26BC(9)(a) |
|
4 |
CGT event happens to replacement security and compensatory payment was incurred by the borrower |
Second element of cost base and reduced cost base |
subsection 26BC(9A) |
|
5 |
CGT event happens to CGT asset in connection with the demutualisation of an insurance company |
First element of cost base and reduced cost base |
section 121AS |
|
6 |
CGT event happens to assets of NSW State Bank |
First element of cost base and reduced cost base |
section 121EN |
|
7 |
Trust ceases to be a resident trust for CGT purposes and there is an attributable taxpayer |
The total cost base and reduced cost base |
section 102AAZBA |
|
8 |
You own shares in a company that stops being a PDF |
First element of cost base and reduced cost base |
section 124ZR |
|
9 |
You acquire a number of shares that results in you obtaining a 10% (threshold) interest in a SME |
First element of cost base and reduced cost base |
section 128TI |
|
10 |
CGT event happens to CGT asset used in gold mining |
The total cost base |
section 159GZZZBC |
|
11 |
CGT event happens to CGT asset used in gold mining |
The total reduced cost base |
section 159GZZZBD |
|
12 |
Shares in a holding company are cancelled |
The total cost base and reduced cost base |
section 159GZZZH |
|
13 |
CGT event happens to 30 June 1988 asset of complying superannuation funds, complying ADF or PST |
First element of cost base and reduced cost base |
section 308 |
|
14 |
CGT event happens to CGT asset of complying superannuation fund, ADF or PST |
First element of cost base and reduced cost base |
section 311 |
|
15 |
A CGT asset of a CFC is taken into account in calculating its attributable income |
First element of cost base and reduced cost base |
section 412 |
|
16 |
A CGT asset of a CFC is taken into account in calculating its attributable income |
First element of cost base and reduced cost base |
subsection 413(2) |
|
17 |
A CGT asset of a CFC is taken into account in calculating its attributable income |
First element of cost base and reduced cost base |
subsection 413(3) |
|
18 |
A CGT asset of a CFC is taken into account in calculating its attributable income |
First element of cost base and reduced cost base |
section 414 |
|
19 |
A commercial debt is forgiven |
The total cost base and reduced cost base of CGT assets of the debtor (except assets that are excluded assets under Schedule 2C) |
sections 245-175 to 245-190 of Schedule 2C |
|
20 |
A tax exempt entity becomes taxable |
First element of cost base and reduced cost base |
section 57-25 of Schedule 2D |
Subdivision 112-C - Replacement-asset roll-overs
Table of sections
112-100 Effect of this Subdivision
112-105 What is a replacement-asset roll-over?
112-110 How is the cost base of the replacement asset modified?
112-115 Table of replacement-asset roll-overs
112-100 Effect of this Subdivision
This Subdivision is a *Guide.
Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150.
112-105 What is a replacement-asset roll-over?
(1) A replacement-asset roll-over allows you to defer the making of a capital gain or a capital loss from one CGT event until a later CGT event happens.
(2) It involves your ownership of one CGT asset (the original asset ) ending and you acquiring another one (the replacement asset ).
(3) All replacement-asset roll-overs are set out in Divisions 122 and 124 of this Act and Division 17A of Part IIIA of the Income Tax Assessment Act 1936.
112-110 How is the cost base of the replacement asset modified?
If you acquired the original asset on or after 20 September 1985:
(a) the first element of the replacement asset's cost base is replaced by the original asset's cost base at the time you acquired the replacement asset; and
(b) the first element of the replacement asset's reduced cost base is replaced by the original asset's reduced cost base at the time you acquired the replacement asset.
Note 1: Some replacement-asset roll-overs involve other rules that affect the cost base or reduced cost base of the replacement asset.
Note 2: If you acquired the original asset before 20 September 1985, you are taken to have acquired the replacement asset before that day: see Subdivision 124-A.
112-115 Table of replacement-asset roll-overs
This table sets out all the replacement-asset roll-overs and tells you where you can find more detail about each one.
Provisions of this Act are in normal text. The other provisions, in bold , are provisions of the Income Tax Assessment Act 1936.
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Replacement-asset roll-overs |
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|
Item |
For the rules about this roll-over: |
See: |
|
1 |
Disposal or creation of assets by individual to a wholly-owned company |
sections 122-40 to 122-65 |
|
2 |
Disposal or creation of assets by partners to a wholly-owned company |
sections 122-150 to 122-195 |
|
3 |
CGT event happens to small business assets and you acquire replacement assets |
Division 17A of Part IIIA |
|
4 |
Asset compulsorily acquired, lost or destroyed |
Subdivision 124-B |
|
5 |
Renewal or extension of a statutory licence |
Subdivision 124-C |
|
6 |
Strata title conversion |
Subdivision 124-CD |
|
7 |
Exchange of shares in the same company or units in the same unit trust |
Subdivision 124-E |
|
8 |
Exchange of rights or options to acquire shares in a company or units in a unit trust |
Subdivision 124-F |
|
9 |
Exchange of shares in one company for shares in an interposed company |
Subdivision 124-G |
|
10 |
Exchange of units in a unit trust for shares in a company |
Subdivision 124-H |
|
11 |
Body is converted to an incorporated company |
Subdivision 124-I |
|
12 |
Crown leases |
Subdivision 124-J |
|
13 |
Plant |
Subdivision 124-K |
|
14 |
Prospecting and mining entitlements |
Subdivision 124-L |
|
15 |
Disposal of a security under a securities lending arrangement |
section 26BC |
Subdivision 112-D - Same-asset roll-overs
Table of sections
112-135 Effect of this Subdivision
112-140 What is a same-asset roll-over?
112-145 How is the cost base of the asset modified?
112-150 Table of same-asset roll-overs
112-135 Effect of this Subdivision
This Subdivision is a *Guide.
Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150.
112-140 What is a same-asset roll-over?
A same-asset roll-over allows one entity (the transferor ) to disregard a capital gain or loss it makes from disposing of a CGT asset to, or creating a CGT asset in, another entity (the transferee ). Any gain or loss is deferred until another CGT event happens in relation to the asset (in the hands of the transferee).
All same-asset roll-overs are set out in Divisions 122 and 126.
112-145 How is the cost base of the asset modified?
If 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 replaced by the asset's cost base 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 replaced by the asset's reduced cost base at the time the transferee acquired it.
Note: If the transferor acquired the asset before 20 September 1985, the transferee is taken to have acquired it before that day: see Subdivision 126-A.
112-150 Table of same-asset roll-overs
This table sets out all the same-asset roll-overs and tells you where you can find more detail about each one.
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Same-asset roll-overs |
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|
Item |
For the rules about this roll-over: |
See: |
|
1 |
Transfer of a CGT asset from one spouse to the other because of a marriage breakdown |
Subdivision 126-A |
|
2 |
Transfer of a CGT asset from a company or trust to a spouse because of a marriage breakdown |
Subdivision 126-A |
|
3 |
Transfer of a CGT asset to a wholly-owned company |
sections 122-70 and 122-75 |
|
4 |
Transfer of a CGT asset of a partnership to a wholly-owned company |
Sections 122-200 and 122-205 |
|
5 |
Transfer of a CGT asset between related companies |
Subdivision 126-B |
|
6 |
CGT event happens because a trust deed of a complying approved deposit fund or complying superannuation fund is changed |
Subdivision 126-C |