Taxation Laws Amendment Act (No. 3) 1997 (147 of 1997)
Schedule 13 Subsidiary company liquidations and capital gains tax
Part 1 Amendment of the Income Tax Assessment Act 1936
1 After section 160ZZOA
Insert:
160ZZOB Effect of section 160ZZO on certain liquidations
Summary of section
(1) This section will in certain circumstances reduce a capital gain or capital loss to a company from the cancellation of shares in a wholly-owned subsidiary in the course of liquidation of the subsidiary. The main requirement is that roll-over relief must have been available to the subsidiary under section 160ZZO for the disposal by the subsidiary of an asset to the company in the course of the liquidation.
Conditions for section applying
(2) The consequences set out in subsection (3) occur if:
(a) either:
(i) one or more elections are made under section 160ZZO that that section apply to disposals of one or more assets (each of which is a 160ZZO CGT asset ) acquired on or after 20 September 1985; or
(ii) subsection 160ZZO(1AA) applies to one or more disposals of assets (each of which is also a 160ZZO CGT asset ) acquired on or after that date;
or both; and
(b) the disposals of the 160ZZO CGT assets are distributions in the course of the liquidation of the transferee mentioned in section 160ZZO, but they are not distributions to which subsection 160ZL(1) applies; and
(c) the market value of the distributed 160ZZO CGT assets constitutes the whole or part of the consideration for the cancellation, in the course of the liquidation, of all of the shares (the transferee's total shares ) beneficially owned in the transferor mentioned in section 160ZZO by the transferee; and
(d) throughout the period from the first or only disposal of a 160ZZO CGT asset until the cancellation of the shares, the transferee beneficially owned all of the shares in the transferor; and
(e) one or more shares (the transferee's CGT shares ) that were cancelled were acquired by the transferee on or after 20 September 1985; and
(f) either:
(i) there is an overall notional gain on distributions to the transferee of the 160ZZO CGT assets in the course of the liquidation and an overall actual gain on the cancellation of the transferee's CGT shares in the course of the liquidation; or
(ii) there is an overall notional loss on distributions to the transferee of the 160ZZO CGT assets in the course of the liquidation and an overall actual loss on the cancellation of the transferee's CGT shares in the course of the liquidation.
Note: Various expressions used in paragraph (f) are defined in section 160ZZOC.
Where overall notional gain on distribution and overall actual gain on cancellation
(3) If subparagraph (2)(f)(i) applies:
(a) except as mentioned in paragraph (b) of this subsection, no capital gain accrues to the transferee, and the transferee incurs no capital loss, on the disposal of any of the transferee's CGT shares constituted by the cancellation; and
(b) a capital gain accrues to the transferee, in respect of the disposal of each of the transferee's CGT shares constituted by the cancellation, of an amount worked out using the formula:
(Overall actual gain - (Adjustment factor * Overall notional gain)) / Number of transferee's CGT shares
Note: The components in the formula are defined in section 160ZZOC.
Where overall notional loss on distribution and overall actual loss on cancellation
(4) If subparagraph (2)(f)(ii) applies:
(a) except as mentioned in paragraph (b) of this subsection, no capital gain accrues to the transferee, and the transferee incurs no capital loss, on the disposal of any of the transferee's CGT shares constituted by the cancellation; and
(b) a capital loss accrues to the transferee, in respect of the disposal of each of the transferee's CGT shares constituted by the cancellation, of an amount worked out using the formula:
(Overall actual loss - (Adjustment factor * Overall notional loss)) / Number of transferee's CGT shares
Note: The components in the formula are defined in section 160ZZOC.
160ZZOC Definitions used in section 160ZZOB
(1) This section contains definitions of various expressions used in section 160ZZOB.
Overall notional gain on distributions
(2) There is an overall notional gain on distributions to the transferee of the 160ZZO CGT assets in the course of the liquidation if:
(a) the sum of the notional gains (see subsection (3)) in respect of all of the distributions of 160ZZO CGT assets by the transferor to the transferee in the course of the liquidation;
exceeds:
(b) the sum of the notional losses (see subsection (4)) in respect of all such distributions.
The amount of the overall notional gain equals the excess.
Notional gain on distribution
(3) There is a notional gain in respect of the distribution of a 160ZZO CGT asset if, disregarding section 160ZZO, a capital gain would have accrued to the transferor in respect of the distribution assuming it had received consideration for the distribution equal to the asset's market value at the time of the distribution.
Notional loss on distribution
(4) There is a notional loss in respect of the distribution of a 160ZZO CGT asset if, disregarding section 160ZZO, a capital loss would have been incurred by the transferor in respect of the distribution assuming it had received consideration for the distribution equal to the asset's market value at the time of the distribution.
Overall notional loss on distributions
(5) There is an overall notional loss on distributions to the transferee of the 160ZZO CGT assets in the course of the liquidation if:
(a) the sum of the notional losses in respect of all the distributions of 160ZZO CGT assets by the transferor to the transferee in the course of the liquidation;
exceeds:
(b) the sum of the notional gains in respect of all such distributions.
The amount of the overall notional loss equals the excess.
Overall actual gain on cancellations
(6) An overall actual gain accrues to the transferor on the cancellation of the transferee's CGT shares if:
(a) the sum of the capital gains that accrue to it in respect of the cancellation, in the course of the liquidation, of all of the transferee's CGT shares;
exceeds:
(b) the sum of the capital losses that it incurs in respect of all such cancellations.
The amount of the overall actual gain equals the excess.
Overall actual loss on cancellation
(7) An overall actual loss accrues to the transferor on the cancellation of the transferee's CGT shares if:
(a) the sum of the capital losses that accrue to it in respect of the cancellation, in the course of the liquidation, of all of the transferee's CGT shares;
exceeds:
(b) the sum of the capital gains that accrue to it in respect of all such cancellations.
The amount of the overall actual loss equals the excess.
Adjustment factor
(8) The adjustment factor is the fraction worked out by dividing the number of the transferee's CGT shares by the number of the transferee's total shares.