Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-1 - CAPITAL GAINS AND LOSSES: GENERAL TOPICS  

Division 104 - CGT events  

Subdivision 104-K - Other CGT events  

SECTION 104-230   Pre-CGT shares or trust interest: CGT event K6  

104-230(1)    
CGT event K6 happens if:

(a) you own *shares in a company or an interest in a trust you *acquired before 20 September 1985; and

(b) *CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; and

(c) there is no roll-over for the other CGT event; and

(d) the applicable requirement in subsection (2) is satisfied.

104-230(2)    
Just before the other event happened:

(a) the *market value of property of the company or trust (that is not its *trading stock) that was *acquired on or after 20 September 1985; or

(b) the market value of interests the company or trust owned through interposed companies or trusts in property (except trading stock) that was *acquired on or after 20 September 1985;

must be at least 75% of the *net value of the company or trust.

104-230(5)    
The time of CGT event K6 is when the other event happens.

104-230(6)    

You make a *capital gain equal to that part of the *capital proceeds from the *share or interest that is reasonably attributable to the amount by which the *market value of the property referred to in subsection (2) is more than the sum of the *cost bases of that property.

Note:

You cannot make a capital loss.

104-230(7)    

This section applies to property that a company that is a foreign resident *acquired after 15 August 1989 from another company as if it were acquired before 20 September 1985 if:

(a) the other company acquired it before 20 September 1985; and

(b) the companies are members of the same *wholly-owned group; and

(c) the property is not *taxable Australian property.

104-230(8)    
In working out the *net value of a company or trust for the purposes of subsection (2), disregard:

(a) the discharge or release of any liabilities; or

(b) the *market value of any *CGT assets acquired;

if the discharge or release, or the *acquisition, was done for a purpose that included ensuring that the requirement in subsection (2) would not be satisfied in a particular situation.

Exceptions

104-230(9)    
CGT event K6 does not happen if:

(a) for a company referred to in subsection (2) - some of its *shares were listed for quotation in the official list of a stock exchange in Australia or a foreign country at the time of the other event and at all times in the period of 5 years before the time of the other event; or

(b) for a trust referred to in subsection (2) that is a unit trust - some of its units were so listed, or were ordinarily available to the public for subscription or purchase, at the time of the other event and at all times in that period.

104-230(9A)    

Paragraph (9)(a) applies to a case where:

(a) the company referred to in subsection (2) is a *demerged entity; and

(b) *shares in the demerged entity do not satisfy the test referred to in that paragraph; and

(c) the demerger happened not more than 5 years before the other CGT event happened;

as if shares in the demerged entity were listed for quotation in the official list of a stock exchange in Australia or a foreign country at all times when some of the shares in the *head entity of the *demerger group were so listed.

Example:

Louise owns shares in a company which has been listed for 3 years. The company is the head entity of a demerger group. As part of a demerger, she receives new interests in a demerged entity. The demerged entity then lists in its own right.

Since the head entity was listed for only 3 years, the demerged entity must remain listed for 2 years before Louise ' s new interests become eligible for the exception from CGT event K6.

104-230(9B)    

Paragraph (9)(b) applies to a case where:

(a) the trust referred to in subsection (2) is a *demerged entity and a unit trust; and

(b) units in the demerged entity do not satisfy the test referred to in that paragraph; and

(c) the demerger happened not more than 5 years before the other CGT event happened;

as if units in the demerged entity were listed for quotation in the official list of a stock exchange in Australia or a foreign country, or were ordinarily available to the public for subscription or purchase, at all times when some of the units in the *head entity of the *demerger group were so listed or available.

104-230(10)    

A *capital gain is disregarded for a *share in a company or an interest in a trust to the extent that, had you *acquired it on or after 20 September 1985, you could have chosen a roll-over for the other *CGT event under Subdivision 124-M (scrip for scrip roll-over).

Example:

Bill owns a unit in a trust that he acquired before 20 September 1985. He exchanges the unit for a unit in another trust worth $60 and $40 cash. He makes a capital gain of $50 because of CGT event K6.

Had the unit been acquired after 20 September 1985, Bill would have been entitled to a partial roll-over of the capital gain under Subdivision 124-M to the extent that his capital proceeds constituted a replacement unit.

Bill can therefore disregard 60/100 of the $50 gain ($30). The cost base of Bill ' s replacement unit is reduced by this amount. Bill must include the remaining $20 of the CGT event K6 gain in the calculation of his net capital gain or loss for the year.

Note:

A capital gain or loss made by a demerging entity from CGT event K6 happening as a result of a demerger is also disregarded: see section 125-155 .