INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-32 - CO-OPERATIVES AND MUTUAL ENTITIES  

Division 315 - Demutualisation of private health insurers  

Subdivision 315-D - Special cost base rules for certain shares and rights in holding companies  

SECTION 315-210   Cost base for shares and rights in certain holding companies  

315-210(1)  
This section applies in relation to a *CGT asset that is a demutualisation asset if:


(a) the demutualisation asset is:


(i) a share in an entity mentioned in subparagraph 315-85(1)(a)(iii) ; or

(ii) a right to *acquire a share in an entity mentioned in that subparagraph; and


(b) the entity owns other assets in addition to the shares in the demutualising health insurer; and


(c) the share or right is issued to a participating policy holder or the trustee of a lost policy holders trust.

This section applies despite sections 315-80 and 315-145 .

Cost base adjustment

315-210(2)  
The first element of the *cost base and *reduced cost base of the *CGT asset is worked out under the method statement. Method statement


Step 1.

Start with the *market value of the demutualising health insurer on the day the asset is issued.


Step 2.

Divide the result of step 1 by the sum of:

  • (a) the number of shares in the entity that are issued under the demutualisation; and
  • (b) the number of shares in the entity that can be *acquired under rights that are demutualisation assets issued under the demutualisation.

  • Step 3.

    The result of step 2 is the first element of the *cost base and *reduced cost base of the asset, unless the asset is a right.


    Step 4.

    If the asset is a right, multiply the result of step 2 by the number of shares that can be *acquired under the right. The result is the first element of the *cost base and *reduced cost base of the asset.

    Example:

    Wellbeing Health demutualises on 1 April 2008 and has a market value of $400 million on that day. It distributes its accumulated mutual surplus in the form of rights to acquire shares in its holding company Healthiness Insurance Ltd (Healthiness). The rights do not have an exercise price.

    A total of 800 million shares can be acquired in Healthiness under rights issued under the demutualisation. Each right allows the holder to acquire 50 shares. No shares in Healthiness are issued.

    Under the method statement, the first element of the cost base and reduced cost base of each right is worked out by dividing the market value of Wellbeing Health (step 1) by the number of shares in Healthiness that can be acquired under the demutualisation (step 2) and multiplying the result by the number of shares that can be acquired under the right (step 4):


    $ 400 million
    800 million
    ×   50 = $ 25

    Acquisition rule

    315-210(3)  
    The participating policy holder or trustee is taken to have *acquired the *CGT asset at the time it is issued.


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