Income Tax Assessment Act 1997
The consideration the partners receive must be only:
(a) *shares in the company; or
(b) for a *disposal of their interests in a *CGT asset, or in all the assets of a business, to the company (a disposal case ) - shares in the company and the company undertaking to discharge one or more liabilities in respect of their interests.
There are rules for working out what are the liabilities in respect of an interest in an asset: see section 122-145 .122-130(2)
The *shares cannot be *redeemable shares. 122-130(3)
The *market value of the *shares each partner receives for the trigger event happening must be substantially the same as:
(a) for a disposal case - the market value of the interests in the asset or assets the partner disposed of, less any liabilities the company undertakes to discharge in respect of the interests in the asset or assets (as appropriate); or
(b) for another trigger event (a creation case ) - the market value of what would have been the partner's interest in the *CGT asset created in the company (the created asset ) if it were an asset of the partnership. 122-130(4)
In working out if the requirement in paragraph (3)(a) is satisfied, if the *market value of the *shares is different to what it would otherwise be only because of the possibility of liabilities attaching to the asset or assets, disregard the difference.
The company may have to pay income tax if an amount is included in its assessable income because of a CGT event happening to an asset a partner disposed of, or it may have a liability because of accrued leave entitlements of employees. The market value of the shares will reflect these contingent liabilities.