ATO Interpretative Decision

ATO ID 2003/497 (Withdrawn)

Income Tax

CGT - Demutualisation of a foreign mutual entity
FOI status: may be released
Status of this decision: Decision Withdrawn 9 March 2012
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Does a CGT event in Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997) happen to a member of a foreign mutual entity under the demutualisation of that entity?

Decision

Yes. CGT event C2 (about cancellation, surrender and similar endings) in section 104-25 of the ITAA 1997 happens as the member's rights in the foreign mutual entity end.

Facts

The taxpayer took out a number of pension policies with a foreign mutual assurance entity (foreign mutual) on different dates before 20 September 1985. The taxpayer acquired membership rights in the foreign mutual at the time the first policy issued.

The foreign mutual demutualised in 2000. As a result, the taxpayer received an amount of money for the membership rights ending.

Reasons for Decision

CGT event C2 happens if ownership of an intangible CGT asset ends by the asset:

•
being redeemed or cancelled (paragraph 104-25(1)(a) of the ITAA 1997);
•
being released, discharged or satisfied (paragraph 104-25(1)(b) of the ITAA 1997);
•
expiring (paragraph 104-25(1)(c) of the ITAA 1997); or
•
being abandoned, surrendered or forfeited (paragraph 104-25(1)(d) of the ITAA 1997).

In this case, the membership rights in the foreign mutual ended by being redeemed or cancelled when the foreign mutual demutualised.

The taxpayer will make a capital gain or capital loss from the CGT event equal to the difference between the cost base of the membership rights and the capital proceeds received. Payments made by the taxpayer to the foreign mutual only relate to the policies, and are not part of the cost base of the membership rights.

As the membership rights were acquired prior to 20 September 1985 the capital gain or capital loss is be disregarded.

Date of decision:  30 September 2002

Year of income:  Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1997
   Division 104
   section 104-25
   paragraph 104-25(1)(a)
   paragraph 104-25(1)(b)
   paragraph 104-25(1)(c)
   paragraph 104-25(1)(d)
   subsection 104-25(2)
   subsection 104-25(3)
   paragraph 104-25(5)(a)

Keywords
Capital gains tax
CGT assets
CGT capital proceeds
CGT cost base
CGT demutualisation
CGT events C1-C3 - end of a CGT asset
CGT exemptions
Foreign life assurance policies
Pre-CGT assets

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  27 June 2003

ISSN: 1445-2782

history
  Date: Version:
  30 September 2002 Original statement
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