Income Tax Assessment Act 1997



Division 124 - Replacement-asset roll-overs  

Subdivision 124-M - Scrip for scrip roll-over  

Operative provisions

SECTION 124-782   Transfer or allocation of cost base of shares acquired by acquiring entity etc.  

Transfer of cost base

The *cost base of an original interest *acquired by an acquiring entity under the *arrangement from an original interest holder becomes the first element of the cost base and *reduced cost base of the acquiring entity for the interest if:

(a) the original interest holder obtains a roll-over; and

(b) the holder is a *significant stakeholder or a *common stakeholder for the arrangement.

Note 1:

For other interests, for example, interests for which the roll-over is not chosen, the cost base will be worked out under the ordinary cost base rules in Divisions 110 and 112 .

Note 2:

There is a special rule to determine the cost base of equity or debt given to a member of an acquiring wholly-owned group by another member of the group under an arrangement: see section 124-784 .

Allocation of cost base in cancellation case

The *cost base and *reduced cost base of any interests (the new interests ) issued by the original entity to an acquiring entity under the *arrangement is worked out under subsection (3) if:

(a) original interests of an original interest holder are cancelled under the arrangement; and

(b) the holder obtains a roll-over for the cancellation; and

(c) the holder is a *significant stakeholder or a *common stakeholder for the arrangement.

The first element of the *cost base and *reduced cost base of the new interests of an acquiring entity is that part of the cost base of the cancelled interests as can be reasonably allocated to the new interests, having regard to:

(a) the nature of the *arrangement; and

(b) the number, type and relative *market values of the cancelled interests and the new interests; and

(c) any other relevant matters.


Robert Co has 3 shareholders: Antill Co with 300 shares, Rachael Co 400 shares and Margaret Co 300 shares. The cost base of each share is $1 and market value is $2. Margaret Co is owned by two shareholders, John and Paul, who each have 50 shares. The market value of each share is $20.

Under an arrangement, Robert Co cancels the shares of Antill Co and Rachael Co. They receive 30 and 40 shares respectively in Margaret Co, which becomes the sole shareholder in Robert Co. The market value of Antill Co ' s and Rachael Co ' s shares in Margaret Co is equivalent to the market value of their cancelled shares in Robert Co.

Robert Co also issues 700 shares to Margaret Co, reflecting the $1,400 total market value of the shares issued by Margaret Co to Antill Co and Rachael Co. Before and after the arrangement, Margaret Co ' s shares in Robert Co were worth $2 each.

It is necessary to reasonably allocate the cost bases of the cancelled shares (700 × $1) to the 700 shares issued by Robert Co to Margaret Co. In this case, an allocation of $1 per share would be reasonable.


If no new shares are issued by Robert Co, the cost base of the original shares that Margaret Co holds would not be adjusted.


The amount allocated to a new interest under subsection (3) must not be more than its *market value just after the *arrangement was completed.

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