Income Tax Assessment Act 1936


Division 326 - DEMUTUALISATION  

Subdivision 326-G - CGT consequences of disposal of rights or interests resulting from extinguishment of membership rights  


This section applies if:

(a) under the direct method of demutualisation, or the combined direct and holding company method of demutualisation, of a mutual entity, the membership rights of an existing member of the entity are extinguished; and

(b) as a result of the extinguishment of the rights, the member acquires a right or an interest in a right to have shares in the demutualised entity issued to the member; and

(c) the member disposes of the whole or a part of the right or interest otherwise than by receiving the shares.

For the purpose of working out whether the member made a capital gain or capital loss from the disposal, the member is taken to have done the following:

(a) to have paid for the acquisition of the right or interest in the right the amount worked out by using the formula:

Cost of a share or interest   ×   Number of shares

(b) to have paid that amount, and to have acquired the right or interest, on the demutualisation resolution day.

In the formula in paragraph (2)(a):

cost of a share or interest
means the amount that would have been taken to have been paid by the member for the acquisition of a share or an interest in a share in the demutualised entity under Subdivisions 326-D , 326-E and 326-F if the disposal had been the disposal of the shares to which the right or interest in the right related.

number of shares
means the number of shares to which the right or interest in the right related.

If the member is a pre-CGT member who did not acquire membership rights in the demutualising entity by disposing of membership rights in another mutual entity, any capital loss made from the disposal before the demutualisation listing day, or, if there is no such day, before the day on which the shares in the demutualised entity were issued, is to be disregarded.


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