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INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 112 - Modifications to cost base and reduced cost base  

Subdivision 112-A - General modifications  

SECTION 112-20  Market value substitution rule  

 ITAA 36

112-20(1)  

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The first element of your *cost base and *reduced cost base of a *CGT asset you *acquire from another entity is its *market value (at the time of acquisition) if:


(a) you did not incur expenditure to acquire it, except where your acquisition of the asset resulted from:

(i) *CGT event D1 happening; or

(ii) another entity doing something that did not constitute a CGT event happening; or
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(b) some or all of the expenditure you incurred to acquire it cannot be valued; or


(c) you did not deal at *arm's length with the other entity in connection with the acquisition.
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The expenditure can include giving property: see section 103-5.

112-20(2)  

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Despite paragraph (1)(c), if:


(a) you did not deal at *arm's length with the other entity; and
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(b) your *acquisition of the *CGT asset resulted from another entity doing something that did not constitute a CGT event happening;

the *market value is substituted only if what you paid to acquire the CGT asset was more than its market value (at the time of acquisition).

The payment can include giving property: see section 103-5.

112-20(3)  

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There are some situations in which the rule in subsection (1) does not apply. They include the situations set out in this table:
Exceptions to the market value substitution rule
ItemYou *acquired this CGT asset:...in this situation:
1A right to receive *ordinary income or *statutory income from a trust (except a unit trust or a trust that arises because of someone's death)(a)you did not pay or give anything for the right; and
   (b)you did not acquire the right by way of an assignment from another entity
.......... 
2A decoration awarded for valour or brave conductyou did not pay or give anything for it
.......... 
3A contractual or other legal or equitable right resulting from *CGT event D1 happeningyou did not pay or give anything for it
.......... 
4Rights to *acquire:you did not pay or give anything for the rights
 (a)*shares, or options to acquire *shares, in a company; or  
 (b)units, or options to acquire units, in a unit trust;  
 in a situation covered by Subdivision 130-B  
.......... 
5A *share in a company or a right to *acquire a share or *debenture in a companyit was issued or allotted to you by the company and you did not pay or give anything for it
.......... 
6A unit in a unit trust or a right to *acquire a unit or debenture in a unit trustit was issued to you by the trustee of the unit trust and you did not pay or give anything for it
.......... 
7A right to *dispose of a *share in a companyit was issued to you by the company and was exercised by you or by another entity who became the owner of the right

Note 1:

Disregard subsections (2) and (3) for shares or units that you acquired before 16 August 1989: see section 112-20 of the Income Tax (Transitional Provisions) Act 1997.

Note 2:

This section does not apply to ESS interests acquired under employee share schemes: see subsection 130-80(4).


 



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