Income Tax Assessment Act 1997
A *capital gain a company (the holding company ) makes because *shares in its *100% subsidiary are cancelled (an example of *CGT event C2: see section 104-25 ) on the liquidation of the subsidiary is reduced if the conditions in subsection (2) are satisfied. The reduction is worked out under subsection (3).
These conditions must be satisfied:
(a) there must be a roll-over under this Subdivision for at least one *CGT asset that the subsidiary *acquired on or after 20 September 1985 (the CGT roll-over asset ) being *disposed of by the subsidiary to the holding company in the course of the liquidation of the subsidiary;
(b) (Omitted by No 94 of 1999)
(c) the disposals must either:
(i) be part of the liquidator's final distribution in the course of the liquidation; or
(ii) have occurred within 18 months of the dissolution of the subsidiary if they are part of an interim distribution in the course of the liquidation;
(d) the holding company must have beneficially owned all of the shares in the subsidiary for the whole period from the time of the disposal, or the first disposal, of a CGT roll-over asset until the cancellation of the shares;
(e) the *market value of the CGT roll-over asset or assets must comprise at least part of the *capital proceeds for the cancellation of the shares in the subsidiary that are beneficially owned by the holding company;
(f) one or more of the shares that were cancelled (the post-CGT shares ) must have been acquired by the holding company on or after 20 September 1985.
The reduction of the *capital gain is worked out in this way. Method statement
Work out (disregarding this section) the sum of the *capital gains and the sum of the *capital losses the holding company would make on the cancellation of its shares in the subsidiary.
Work out (disregarding this Subdivision):
in the course of the liquidation assuming the *capital proceeds were the assets ' *market values at the time of the disposal.
If, after subtracting the sum of the *capital losses from the sum of the *capital gains, there is an overall capital gain from step 1 and an overall capital gain from step 2, then continue. Otherwise there is no adjustment.
Express the number of post-CGT shares as a fraction of the total number of shares the holding company owned in the subsidiary.
Multiply the overall *capital gain from Step 2 by the fraction from Step 4.
Reduce the overall *capital gain from Step 1 by the amount from Step 5. The result is the *capital gain the holding company makes from the cancellation of its shares in the subsidiary.
This Subdivision is modified in calculating the attributable income of a CFC: see section 419 of the Income Tax Assessment Act 1936 .
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