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-E - Entitlement to shares after demutualisation and scrip for scrip roll-over  

Operative provisions

SECTION 126-195   Consequences of roll-over  

126-195(1)    
A *capital gain or *capital loss the trustee makes from the *CGT event is disregarded.

126-195(2)    
The first element of the *cost base of the replacement share for the entity is the cost base of the replacement share in the hands of the trustee just before the *CGT event happened. The first element of the *reduced cost base of the replacement share for the entity is worked out similarly.

Example:

The JB mutual insurance company demutualises, issuing shares in JB Limited to its policyholders. It is unable to locate some of its policyholders so it establishes a trust and issues shares to the trustee on behalf of those policyholders. Steve is one of those policyholders (being potentially entitled to 50 shares).

JB Limited is taken over by PVDM Limited. Members of JB are issued with 2 shares in PVDM for each share they have in JB. The trustee obtains a roll-over under Subdivision 124-M for the exchange. Each PVDM share held by the trustee has a cost base and reduced cost base of $15.

Steve writes to the trustee and proves his entitlement to the shares held in trust for him.

There is a roll-over under this Subdivision so that any capital gain or loss made by the trustee is disregarded. The first element of the cost base and reduced cost base of each of Steve ' s PVDM shares is $15.