Income Tax Assessment Act 1997
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Hide history noteSECTION 705-65 Cost of membership interests in the joining entity - step 1 in working out allocable cost amount 705-65(1)
For the purposes of step 1 in the table in section 705-60 , the step 1 amount is the sum of the following amounts for each * membership interest that * members of the joined group hold in the joining entity at the joining time:
Note:
If the joining entity is a trust, the step 1 amount may be increased by section 713-20 for settled capital that could be distributed tax free in respect of discretionary interests in the trust.
| Working out the step 1 amount | ||
| Item | If the market value of the membership interest is … | The amount is … |
| 1 | equal to or greater than its *cost base | its cost base |
| 2 | less than its *cost base but greater than its *reduced cost base | its *market value |
| 3 | less than or equal to its *reduced cost base | its reduced cost base |
Note:
Under section 716-855 , if membership interests are pre-CGT assets that have been subject to certain roll-overs, the cost base and reduced cost base are worked out in the same way as if they were post-CGT assets.
No indexation of cost base of pre-CGT membership interests
705-65(2)
If the * membership interest is a * pre-CGT asset, in working out its * cost base for the purposes of subsection (1) no element is indexed.
Adjustment if value shifting or loss transfer provision could apply
705-65(3)
If, on the assumption that a * CGT event had happened just before the joining time in relation to the * membership interest, the * cost base or the * reduced cost base of the membership interest would have been changed by a provision of this Act, then the cost base or reduced cost base of the membership interest that is to be used in subsection (1) of this section is instead: (a) the cost base as it would have been so changed; or (b) the reduced cost base, as it would have been so changed, but ignoring the amount of any reduction resulting from the application of former subsection 160ZK(5) of the Income Tax Assessment Act 1936 .
Note:
For example, a change in the cost base or reduced cost base may be required under provisions that apply where a loss transfer or value shift involving the joining entity has occurred.
705-65(3AA)
If, on the assumption that: (a) the * members of the joined group had, just before the joining time, * disposed of their * membership interest in the joining entity; and (b) the consideration received by the members for the disposal were equal to the * market value of the membership interest at that time;
they would have made a * capital loss that section 727-615 would have reduced (because of an indirect value shift), then the * reduced cost base of the membership interest that is to be used in subsection (1) of this section is reduced by the amount of that reduction.
Reduction if section 165-115ZD could apply
705-65(3A)
If, on the assumption that: (a) the * members of the joined group had, just before the joining time, * disposed of their * membership interest in the joining entity; and (b) the consideration received by the members for the disposal were equal to the * market value of the membership interest at that time;
the * reduced cost base of the membership interest would have been reduced as a result of the operation of section 165-115ZD of this Act or the Income Tax (Transitional Provisions) Act 1997 , then the reduced cost base of the membership interest that is to be used in subsection (1) of this section is reduced by the amount of that reduction.
Certain provisions not to apply after joining time
705-65(4)
Also, if a provision mentioned in subsection (3) , (3AA) or (3A) would, because of events that happened before the joining time, apply to a * CGT event or a * realisation event that happens after the joining time in relation to the * members ' * membership interests in the joining entity, the provision does not so apply.
Reduction in cost base under subsection 110-55(7) to be added back
705-65(5)
If, in working out the * reduced cost base of the * membership interest for the purposes of subsection (1) , a reduction has taken place under subsection 110-55(7) (about certain distributions of pre-acquisition profits), the reduced cost base is increased by the amount of that reduction.
Reduction in reduced cost base under subsection 165-115ZA(3) to be added back
705-65(5A)
If: (a) in working out the * reduced cost base of the * membership interest for the purposes of subsection (1) , a reduction has taken place under subsection 165-115ZA(3) (about alterations in ownership or control of loss companies); and (b) the reduction is to some extent attributable to so much of an amount that was taken into account both in working out the amount of the reduction and in working out:
(i) the step 5 amount under section 705-100 ; or
(ia) the step 5A amount under section 705-102 ; or
(ii) the step 6 amount under section 705-110 ; or
(iii) the step 6A amount under section 705-112 ;
the reduced cost base is, to the extent mentioned in paragraph (b) , increased by:
(c) if subparagraph (b)(i) or (ia) applies - the amount of that reduction; or (d) if subparagraph (b)(ii) or (iii) applies - the amount of that reduction multiplied by the * corporate tax rate.705-65(5B)
For the purposes of working out the * cost base or * reduced cost base of a * membership interest under subsection (1) , if: (a) either or both of the following things happen after the joining time:
(i) money is paid, or becomes required to be paid, in respect of * acquiring the membership interest;
(b) because the thing happened after the joining time, it was not taken into account in working out the first element of the cost base or reduced cost base of the membership interest;
(ii) property is given, or becomes required to be given, in respect of acquiring the membership interest; and
Note:
This would be the case if the money was only to be paid etc. if a contingency happened after the joining time.
the thing is nevertheless so taken into account, and taken always to have been so taken into account.
Non-membership equity interests
705-65(6)
For the purposes of this section, if at the joining time a *member of the joined group holds a *non-membership equity interest in the joining entity, that non-membership equity interest is treated as if it were a *membership interest in the joining entity.
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