A T O home
Legal Database
Search   
for 
 
Access the database 
Browse database
Searches  
View last document
Quick access 
View legislation
View a document
Email Cross Reference Material Previous/Next Section Contents Previous/Next Result
Printable version
Printable
version

INCOME TAX ASSESSMENT ACT 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-3 - CAPITAL GAINS AND LOSSES: SPECIAL TOPICS  

Division 126 - Same-asset roll-overs  

Subdivision 126-B - Companies in the same wholly-owned group  

Operative provisions

SECTION 126-85  Effect of roll-over on certain liquidations  

126-85(1)  

 View history reference ITAA 36
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).

126-85(2)  

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;
 ITAA 36


(b) (Omitted by No 94 of 1999)
 ITAA 36


(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;
 ITAA 36


(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;
 ITAA 36


(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;
 View history reference ITAA 36


(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.
 ITAA 36

126-85(3)  

 View history reference ITAA 36
The reduction of the *capital gain is worked out in this way.

Method statement

Step 1. 

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.


Step 2. 

Work out (disregarding this Subdivision):

(a) the sum of the *capital gains the subsidiary would make on the *disposal of its CGT roll-over assets to the holding company; and
(b) the sum of the *capital losses it would make except for Subdivision 170-D on the disposal of its *CGT assets to the holding company;

in the course of the liquidation assuming the *capital proceeds were the assets' *market values at the time of the disposal.


Step 3. 

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.


Step 4. 

Express the number of post-CGT shares as a fraction of the total number of shares the holding company owned in the subsidiary.


Step 5. 

Multiply the overall *capital gain from Step 2 by the fraction from Step 4.


Step 6. 

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.

Note:

This Subdivision is modified in calculating the attributable income of a CFC: see section 419 of the Income Tax Assessment Act 1936.


 



This information is provided by CCH Australia Limited. View the disclaimer and notice of copyright.
Top of page
More information on page