Consolidation Reference Manual

C2 Assets

C2-5 Worked examples - cost setting on exit

Pre-CGT assets on exit

C2-5 Appendix

Section 711-65 of Income Tax Assessment Act 1997 as it stood prior to Taxation Laws Amendment (2010 Measures No. 1) Act 2010

711-65 Membership interests treated as having been acquired before 20 September 1985 - simple case

When this section applies

(1)

This section applies if:

(a)

any of the assets (a pre-CGT factor asset), that the *head company of the old group holds at the leaving time because the leaving entity is taken by subsection 701-(1) to be a part of the head company, has a *pre-CGT factor under section 705-125; and

(b)

section 711-70 (about the multiple exit of *subsidiary members) does not apply; and

(c)

the leaving entity does not cease to be a subsidiary member of the old group where Subdivision 705-C (about the old group joining another consolidated group) applies.

Interests treated as if purchased before 20 September 1985

(2)

If this section applies, a number of the *membership interests in the leaving entity that *members of the old group hold are taken to have been acquired before 20 September 1985.

Note: Because of the deemed acquisition of the membership interests, this section is the only basis on which any of these interests can be pre-CGT assets.

Number of pre-CGT membership interests

(3)

The number is the result of the formula in subsection (4), rounded down to:

(a)

the nearest whole number if the result is not already a whole number; or

(b)

zero if the result is a number more than zero but less than one.

Formula

(4)

The formula is:

(Number of *membership interests in leaving entity held by *members of old group) x (Leaving entity's pre-CGT proportion)

where:

leaving entity's pre-CGT proportion is the amount worked out under subsection (5).

Pre-CGT proportion

(5)

Work out the leaving entity's pre-CGT proportion in this way:

Leaving entity's pre-CGT proportion

Step 1.

For each *pre-CGT factor asset, multiply its *market value before the leaving time by its *pre-CGT factor.

Step 2.

Add up all the results of step 1.

Step 3.

Add up the *market values of all the assets that the *head company holds at the leaving time because the leaving entity is taken by section 701-1 to be a part of the head company.

Step 4.

Divide the result of step 2 by the result of step 3.

Dealing with classes of membership interests

(6)

If there are 2 or more classes of *membership interests in the leaving entity, this section operates separately in relation to each class as if the interests in that class were all the interests in the entity.

Allocation of the number to particular membership interests

(7)

The *head company must choose which particular *membership interests comprise the number worked out under subsection (2).

Modification if leaving entity is a trust

(8)

If the leaving entity is a trust, a *membership interest in it is not taken into account under this section unless the membership interest is either a unit or an interest in the trust.

Current at 6 May 2011