Consolidation Reference Manual

C2 Assets

C2-5 Worked examples - cost setting on exit

Pre-CGT assets on exit

C2-5-715 Appendix

Section 711-65 as it stood prior to Taxation Laws Amendment (2010 Measures No. 1) Act 2010

711-65 Membership interests treated as having been acquired before 20 September 1985 - simple case

When this section applies

(1)

This section applies if:

(a)

any of the assets ( a pre-CGT factor asset ), that the *head company of the old group holds at the leaving time because the leaving entity is taken by subsection 701-(1) to be a part of the head company, has a *pre-CGT factor under section 705-125; and

(b)

section 711-70 (about the multiple exit of *subsidiary members) does not apply; and

(c)

the leaving entity does not cease to be a subsidiary member of the old group where Subdivision 705-C (about the old group joining another consolidated group) applies.

Interests treated as if purchased before 20 September 1985

(2)

If this section applies, a number of the *membership interests in the leaving entity that *members of the old group hold are taken to have been acquired before 20 September 1985.

Note: Because of the deemed acquisition of the membership interests, this section is the only basis on which any of these interests can be pre-CGT assets.

Number of pre-CGT membership interests

(3)

The number is the result of the formula in subsection (4), rounded down to:

(a)

the nearest whole number if the result is not already a whole number; or

(b)

zero if the result is a number more than zero but less than one.

Formula

(4)

The formula is:

(Number of *membership interests in leaving entity held by *members of old group) x (Leaving entity's pre-CGT proportion)

where:

leaving entity's pre-CGT proportion is the amount worked out under subsection (5).

Pre-CGT proportion

(5)

Work out the leaving entity's pre-CGT proportion in this way:

Leaving entity's pre-CGT proportion

Step 1

For each *pre-CGT factor asset, multiply its *market value before the leaving time by its *pre-CGT factor.

Step 2

Add up all the results of step 1.

Step 3

Add up the *market values of all the assets that the *head company holds at the leaving time because the leaving entity is taken by section 701-1 to be a part of the head company.

Step 4

Divide the result of step 2 by the result of step 3.

Dealing with classes of membership interests

(6)

If there are 2 or more classes of *membership interests in the leaving entity, this section operates separately in relation to each class as if the interests in that class were all the interests in the entity.

Allocation of the number to particular membership interests

(7)

The *head company must choose which particular *membership interests comprise the number worked out under subsection (2).

Modification if leaving entity is a trust

(8)

If the leaving entity is a trust, a *membership interest in it is not taken into account under this section unless the membership interest is either a unit or an interest in the trust.

Section 711-70 as it stood before Taxation Laws Amendment (2010 Measures No. 1) Act 2010

711-70 Membership interests treated as having been acquired before 20 September 1985 - multiple exit case

(1)

If 2 or more entities (multiple exit entities) cease to be *subsidiary members of the old group at the same time because of an event happening in relation to one of them (other than where Subdivision 705-C applies), a number of the *membership interests (subject interests) held in any multiple exit entity by:

(a)

*members of the old group; or

(b)

other multiple exit entities; or

(c)

any combination of paragraphs (a) and (b);

are taken to have been acquired before 20 September 1985.

Numbers to be worked out first for bottom entities

(2)

Numbers are to be worked out first for subject interests in multiple exit entities that do not themselves hold any of the subject interests in other multiple exit entities.

Numbers to be worked out progressively up to those subject interests held only by members of the old group

(3)

If the holders of other subject interests are or include multiple exit entities, numbers must be worked out for the former subject interests before both the latter and any subject interests whose holders consist entirely of *members of the old group.

How to work out the numbers

(4)

The number for subject interests in a particular multiple exit entity that is required to be worked out under subsection (2) or (3) is worked out by applying subsections 711-65(3) to (6) as if:

(a)

a reference in those subsections to *membership interests that members of the old group hold in the leaving entity were a reference to the subject interests; and

(b)

assets (previously numbered assets) of the multiple exit entity consisting of other subject interests for which a number has been worked out as required by subsection (2) or (3) of this section were assets that the *head company holds at the leaving time because the entity is taken by section 701-1 to be a part of the *head company; and

(c)

each previously numbered asset were treated as having a *pre-CGT factor of 1.

Example:

Companies A, B, C, D and E are all subsidiary members that leave the old group at the same time. Just before the leaving time, company A owned shares in company B and company C, and company B owned shares in companies D and E.

First, work out company A's number for membership interests in company C and company B's number for membership interests in companies D and E.

Next, work out company A's number for membership interests in company B, taking into account the number just worked out for company B's assets consisting of shares in companies D and E.

Finally, work out the old group's number for membership interests in company A, taking into account the numbers worked out for its assets consisting of shares in companies B and C.

Note: Because of the deemed acquisition of the membership interests, this section is the only basis on which any of the subject interests can be pre-CGT assets.

Allocation of the number to particular membership interests

(5)

The *head company must:

(a)

choose which particular *membership interests comprise any number worked out under this section; and

(b)

if any *membership interest that is so chosen is held by a multiple exit entity-inform that entity of the fact.

Modification if leaving entity is a trust

(6)

A *membership interest in a trust that is one of the multiple exit entities is not taken into account under this section unless the membership interest is either a unit or an interest in the trust.

Current at 6 May 2011