ATO Interpretative Decision
ATO ID 2003/452 (Withdrawn)
Income Tax
Capital Gains Tax: Status of pre-CGT asset owned by demerged entityFOI status: may be released
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This ATO ID is a simple restatement of the law and does not contain an interpretative decision.This document has changed over time. View its history.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Will a demerger under Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997) cause subsection 149-30(1) of the ITAA 1997 to apply to the pre-CGT asset held by the entity, a wholly-owned subsidiary company, at the time it becomes a demerged entity under subsection 125-70(6) of the ITAA 1997?
Decision
No. The demerger under Division 125 of the ITAA 1997 will not cause subsection 149-30(1) of the ITAA 1997 to apply to the pre-CGT asset owned by the entity at the time it becomes a demerged entity.
Facts
An individual owns all the shares in the holding company which fully owns the entity. The entity had acquired the CGT asset prior to 20 September 1985 (the pre-CGT asset). Subsection 149-30(1) of the ITAA 1997 and section 160ZZS of the Income Tax Assessment Act 1936 had never applied to the CGT asset before the time of the demerger.
When the demerger occurs, the holding company will transfer the issued shares in the entity to the individual shareholder of the holding company. The demerger will meet the requirements for relief provided by Division 125 of the ITAA 1997.
After the demerger, the individual will own all of the shares in both the former holding company and the demerged entity.
Reasons for Decision
Under subsection 149-30(1) of the ITAA 1997, an asset stops being a pre-CGT asset when the majority underlying interests in the asset are not held by the same ultimate owners who held the majority underlying interests immediately before 20 September 1985. The asset is deemed to have been acquired by an entity at the time that the majority underlying interests ceased to be held.
An underlying interest in a CGT asset is a beneficial interest that an ultimate owner has (whether directly or indirectly) in the asset or in any ordinary income that may be derived from the asset (subsection 149-15(2) of the ITAA 1997).
Before the demerger, the individual had 100% of the underlying interests in the pre-CGT asset, indirectly, through the ownership of all the shares in the holding company which itself owned all the shares in the entity.
After the demerger the individual will still have 100% of the underlying interests in the pre-CGT asset, indirectly, by virtue of owning all the shares in the demerged entity. As there will be no change in the underlying interests as a result of the demerger, the CGT asset will retain its pre-CGT status.
Date of decision: 13 June 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
Division 125
subsection 125-70(6)
subsection 149-15(2)
subsection 149-30(1)
section 160ZZS Related ATO Interpretative Decisions
ATO ID 2002/1101
ATO ID 2002/1102
Keywords
Capital gains tax
Demerged entity
Demerger
Interest in underlying asset
Pre-CGT assets
Underlying ownership & interests
ISSN: 1445-2782
| Date: | Version: | |
| 13 June 2003 | Original statement | |
| You are here | 9 March 2012 | Archived |