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Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

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

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Division 126 - Same-asset roll-overs  

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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)    

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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).
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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;


(b) (Omitted by No 94 of 1999)


(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;


(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;


(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;

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(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.

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126-85(3)    

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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 .

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