Division 112—Modifications to cost base and reduced cost base

Table of Subdivisions

Guide to Division 112

112-A General rules

112-B Finding tables for special rules

112-C Replacement-asset roll-over events

112-D Same-asset roll-over events

Guide to Division 112

112-1 What this Division is about

This Division tells you the situations that may modify the general rules about the cost base and reduced cost base of a CGT asset.

112-5 Discussion of modifications

(1) Modifications can occur from the time you acquired the CGT asset to when a CGT event happens in relation to it.

Note: You should keep records of the modifications: see Division 121.

(2) Most modifications replace the first element (what you paid for a CGT asset) of the cost base and reduced cost base of the asset.

(3) Subdivision 112-A contains operative provisions setting out the general situations that may result in a modification to the general rules.

(4) Subdivision 112-B (which is a guide) has a number of tables (each one covering a specialist topic) that tell you each situation that may result in a modification to the general rules.

(5) Subdivision 112-C (which is a guide) explains what a replacement-asset roll-over event is and how it can modify the cost base or reduced cost base.

(6) Subdivision 112-D (which is a guide) explains what a same-asset roll-over event is and how it can modify the cost base or reduced cost base.

Subdivision 112-A—General rules

Table of sections

112-20 Market value substitution rule

112-25 Split, changed or merged assets

112-30 Apportionment rules on acquisition or disposal of part

112-35 Assumption of liability rule

112-20 Market value substitution rule

(1) The first element of your *cost base and *reduced cost base of a *CGT asset you *acquire from another entity is its market value (at the time of acquisition) if:

(a) you did not incur expenditure to acquire it; or

(b) some part of the expenditure you incurred to acquire it cannot be valued; or

(c) you did not deal at arm’s length with the other entity in connection with the acquisition.

The expenditure can include giving property: see section 103-5.

(2) Despite paragraph (1)(c), if you did not deal at arm’s length with the other entity and:

(a) your *acquisition of the *CGT asset resulted from *CGT event D1 happening; or

(b) the *CGT asset is a *share in a company that was issued or allotted to you by the company; or

(c) the *CGT asset is a unit in a unit trust issued to you by the trustee of the unit trust;

the market value is substituted only if what you paid to acquire the CGT asset was more than its market value (at the time of acquisition).

The payment can include giving property: see section 103-5.

(3) The rule in subsection (1) does not apply in the situations set out in this table:

 

Exceptions to the market value substitution rule

Item

You *acquired this CGT asset:

...in this situation:

1

A right to receive *ordinary income from a trust (except a unit trust or a trust that arises because of someone’s death)

(a) you did not pay or give anything for the right; and

(b) you did not acquire the right by way of an assignment from another entity

2

A decoration awarded for valour or brave conduct

you did not pay or give anything for it

3

A contractual or other legal or equitable right

you did not pay or give anything for it

4

Rights to *acquire:

(a) *shares, or options to acquire *shares, in a company; or

(b) units, or options to acquire units, in a unit trust;

in a situation covered by Subdivision 130-B

you did not pay or give anything for the rights

5

A *share in a company

it was issued or allotted to you by the company

6

A unit in a unit trust

it was issued to you by the trustee of the unit trust

112-25 Split, changed or merged assets

Split or changed assets

(1) This section sets out what happens if:

(a) a *CGT asset (the original asset) is split into 2 or more assets (the new assets); or

(b) a *CGT asset (also the original asset) changes in whole or in part into an asset (also the new asset) of a different nature;

and you are the beneficial owner of the original asset and each new asset.

Example: You subdivide a block of land into 3 separate blocks. Each of those blocks is a new asset.

(2) The splitting or change is not a *CGT event.

(3) You work out the *cost base and *reduced cost base of each new asset as follows:

Method statement

Step 1. Work out each element of the *cost base and *reduced cost base of the original asset at the time of the event referred to in subsection (1).

Step 2. Apportion in a reasonable way each element to each new asset. The result is each corresponding element of the new asset’s *cost base and *reduced cost base.

Merged assets

(4) If 2 or more *CGT assets (the original assets) are merged into a single asset (the new asset) and you are the beneficial owner of the original assets and the new asset:

(a) the merger is not a *CGT event; and

(b) each element of the *cost base and *reduced cost base of the new asset (at the time of the merging) is the sum of the corresponding elements of each original asset.

112-30 Apportionment rules on acquisition or disposal of part

Apportionment on acquisition of an asset

(1) If you *acquire a *CGT asset because of a transaction and only part of the expenditure you incurred under the transaction relates to the acquisition of the asset, the first element of your *cost base and *reduced cost base of the asset is that part of the expenditure that is reasonably attributable to the acquisition of the asset.

The expenditure can include giving property: see section 103-5.

Apportionment for CGT asset that was part of another asset

(2) The *cost base and *reduced cost base of a *CGT asset is apportioned if *CGT event A1, B1, C1, E1, E2, E6, E7 or K3 happens to some part of the asset, but not to the remainder of it.

Note: The full list of CGT events is in section 104-5.

(3) The *cost base for the *CGT asset representing the part to which the *CGT event happened is worked out using the formula:

The *reduced cost base is worked out similarly.

(4) The remainder of the *cost base and *reduced cost base of the asset is attributed to the part that remains.

Example: You acquire a truck for $24,000 and sell its motor for $9,000. Suppose the market value of the remainder of the truck is $16,000.

Under subsection (3), the cost base of the motor is:

Under subsection (4), the cost base of the remainder of the truck is:

(5) However, an amount forming part of the *cost base or *reduced cost base of the asset is not apportioned if, on the facts, that amount is wholly attributable to the part to which the *CGT event happened or to the remaining part.

112-35 Assumption of liability rule

If you *acquire a *CGT asset from another entity that is subject to a liability, the first element of your *cost base and *reduced cost base of the asset includes the amount of the liability you assume.

Example: You acquire a block of land for $150,000. You pay $50,000 and assume a liability for an outstanding mortgage of $100,000.

Subdivision 112-B—Finding tables for special rules

Table of sections

112-40 Effect of this Subdivision

112-45 CGT events

112-50 Main residence

112-55 Effect of you dying

112-60 Bonus shares or units

112-65 Rights

112-70 Convertible notes

112-75 Employee share schemes

112-80 Leases

112-85 Options

112-90 An asset stops being a pre-CGT asset

112-95 Transfer of net capital losses within wholly-owned groups of companies

112-97 Commercial debt forgiveness

112-40 Effect of this Subdivision

(1) This Subdivision is a *Guide.

Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150.

(2) It sets out which element of the cost base or reduced cost base of a CGT asset is affected by various situations.

112-45 CGT events

 

CGT events

Item

In this situation:

Element affected:

See section:

1

There is a partial realisation of an item of intellectual property

The total cost base

104-205

2

A trust is created over a CGT asset

First element of cost base and reduced cost base

104-55

3

A trustee makes a capital payment to you in relation to units or an interest in the trust

The total cost base and reduced cost base

104-70

4

A lessee receives a payment from the lessor for agreeing to vary or waive a lease term

The total cost base

104-125

5

A company makes a capital payment to you in relation to your shares

The total cost base and reduced cost base

104-135

6

A liquidator declares shares to be worthless

The total cost base and reduced cost base

104-145

7

There is a shift in share values

The total cost base and reduced cost base

140-60
140-95

8

There is a shift in share values

Fourth element of cost base and reduced cost base

140-65

112-50 Main residence

 

Main residence

Item

In this situation:

Element affected:

See section:

1

A dwelling that is your main residence begins to be used for the first time for the purpose of producing assessable income

The total cost base and reduced cost base

118-192

112-55 Effect of you dying

 

Effect of an individual dying

Item

In this situation:

Element affected:

See section:

1

CGT asset devolves to the legal personal representative

First element of cost base and reduced cost base

128-15

2

CGT asset passes to a beneficiary

First element of cost base and reduced cost base

128-15

3

CGT asset passes to a trustee of:

(a) a complying superannuation fund; or

(b) a complying approved deposit fund; or

(c) a pooled superannuation trust

First element of cost base and reduced cost base

128-25

4

Surviving joint tenant acquires deceased joint tenant’s interest in CGT asset

First element of cost base and reduced cost base

128-50

112-60 Bonus shares or units

 

Bonus shares or units

Item

In this situation:

Element affected:

See section:

1

A company issues you with bonus shares because of a dividend or other amount it owes you

First element of cost base and reduced cost base

130-20

2

A unit trust issues you with bonus units because of a dividend or other amount it owes you

First element of cost base and reduced cost base

130-20

112-65 Rights

 

Exercise of rights

Item

In this situation:

Element affected:

See section:

1

You exercise rights to acquire shares, or options to acquire shares, in a company

First element of cost base and reduced cost base

130-40

2

You exercise rights to acquire units, or options to acquire units, in a unit trust

First element of cost base and reduced cost base

130-40

112-70 Convertible notes

 

Convertible notes

Item

In this situation:

Element affected:

See section:

1

You acquire shares, or units in a unit trust, by converting a convertible note

First element of cost base and reduced cost base

130-60

112-75 Employee share schemes

 

Employee share schemes

Item

In this situation:

Element affected:

See section:

1

You acquire a share or right at a discount under an employee share scheme

First element of cost base and reduced cost base

130-80
130-85

112-80 Leases

 

Leases

Item

In this situation:

Element affected:

See section:

1

A lessee incurs expenditure in obtaining the lessor’s agreement to vary or waive a term of the lease

Fourth element of cost base and reduced cost base

132-1

2

A lessor pays an amount to the lessee for improvements made by the lessee to the property

Fourth element of cost base and reduced cost base

132-5

3

A lessor of a long-term lease incurs expenditure in obtaining the lessee’s agreement to vary or waive a term of the lease or to forfeit or surrender the lease

Fourth element of cost base and reduced cost base

132-10

4

A lessee of land acquires the reversionary interest of the lessor

First element of cost base and reduced cost base

132-15

112-85 Options

 

Exercise of options

Item

In this situation:

Element affected:

See section:

1

Grantee of option acquires the CGT asset the subject of the option

First element of cost base and reduced cost base

134-1

2

Grantor of option acquires the CGT asset the subject of the option

For the grantor—the first element of cost base and reduced cost base;

For the grantee—the second element of cost base and reduced cost base

134-1

112-90 An asset stops being a pre-CGT asset

 

An asset stops being a pre-CGT asset

Item

In this situation:

Element affected:

See section:

1

An asset of a non-public entity stops being a pre-CGT asset

The total cost base and reduced cost base

149-35

2

An asset of a public entity stops being a pre-CGT asset

The total cost base and reduced cost base

149-75

112-95 Transfer of net capital losses within wholly-owned groups of companies

 

Transfer of net capital losses within wholly-owned groups of companies

Item

In this situation:

Element affected:

See section:

1

An amount of a net capital loss is transferred and a company owns a share in the loss company or is owed a debt by it

The total cost base and reduced cost base

170-175

2

An amount of a net capital loss is transferred and a company owns a share in the gain company or is owed a debt by it

The total cost base and reduced cost base

170-180

112-97 Commercial debt forgiveness

The provisions referred to in this table are in the Income Tax Assessment Act 1936.

 

Commercial debt forgiveness

Item

In this situation:

Element affected:

See section:

1

A commercial debt is forgiven

The total cost base and reduced cost base of CGT assets of the debtor (except assets that are excluded assets under Schedule 2C)

245-175 to 245-190 of Schedule 2C

Subdivision 112-C—Replacement-asset roll-over events

Table of sections

112-100 Effect of this Subdivision

112-105 What is a replacement-asset roll-over event?

112-110 How is the cost base of the replacement asset modified?

112-115 Table of replacement-asset roll-over events

112-100 Effect of this Subdivision

This Subdivision is a *Guide.

Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150.

112-105 What is a replacement-asset roll-over event?

(1) A replacement-asset roll-over event allows you to defer the making of a capital gain or a capital loss from one CGT event until a later CGT event happens.

(2) It involves your ownership of one CGT asset (the original asset) ending and you acquiring another one (the replacement asset).

(3) All replacement-asset roll-over events are set out in Divisions 122 and 124.

112-110 How is the cost base of the replacement asset modified?

If you acquired the original asset on or after 20 September 1985:

(a) the first element of the replacement asset’s cost base is replaced by the original asset’s cost base at the time you acquired the replacement asset; and

(b) the first element of the replacement asset’s reduced cost base is replaced by the original asset’s reduced cost base at the time you acquired the replacement asset.

Note 1: Some replacement-asset roll-over events involve other rules that affect the cost base or reduced cost base of the replacement asset.

Note 2: If you acquired the original asset before 20 September 1985, you are taken to have acquired the replacement asset before that day: see Subdivision 124-A.

112-115 Table of replacement-asset roll-over events

This table sets out all the replacement-asset roll-over events and tells you where you can find more detail about each event.

Provisions of this Act are in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

 

Replacement-asset roll-over events

Item

For the rules about this event:

See:

1

Disposal or creation of assets by individual to a wholly-owned company

Subdivision 122-A

2

Disposal or creation of assets by partners to a wholly-owned company

Subdivision 122-B

3

Asset compulsorily acquired, lost or destroyed

Subdivision 124-B

4

Renewal or extension of a statutory licence

Subdivision 124-C

5

Strata title conversion

Subdivision 124-CD

6

Exchange of shares in the same company or units in the same unit trust

Subdivision 124-E

7

Exchange of rights or options to acquire shares in a company or units in a unit trust

Subdivision 124-F

8

Exchange of shares in one company for shares in an interposed company

Subdivision 124-G

9

Exchange of units in a unit trust for shares in a company

Subdivision 124-H

10

Body is converted to an incorporated company

Subdivision 124-I

11

Crown leases

Subdivision 124-J

12

Plant

Subdivision 124-K

13

Prospecting and mining entitlements

Subdivision 124-L

14

Disposal of a security under a securities lending arrangement

section 26BC

Subdivision 112-D—Same-asset roll-over events

Table of sections

112-135 Effect of this Subdivision

112-140 What is a same-asset roll-over event?

112-145 How is the cost base of the asset modified?

112-150 Table of same-asset roll-over events

112-135 Effect of this Subdivision

This Subdivision is a *Guide.

Note: In interpreting an operative provision, a Guide may be considered only for limited purposes: see section 950-150.

112-140 What is a same-asset roll-over event?

A same-asset roll-over event allows one entity (the transferor) to disregard a capital gain or loss it makes from disposing of a CGT asset to, or creating a CGT asset in, another entity (the transferee). Any gain or loss is deferred until another CGT event happens in relation to the asset (in the hands of the transferee).

All same-asset roll-over events are set out in Divisions 122 and 126.

112-145 How is the cost base of the asset modified?

If the transferor acquired the asset on or after 20 September 1985:

(a) the first element of the asset’s cost base (in the hands of the transferee) is replaced by the asset’s cost base at the time the transferee acquired it; and

(b) the first element of the asset’s reduced cost base (in the hands of the transferee) is replaced by the asset’s reduced cost base at the time the transferee acquired it.

Note: If the transferor acquired the asset before 20 September 1985, the transferee is taken to have acquired it before that day: see Subdivision 126-A.

112-150 Table of same-asset roll-over events

This table sets out all the same-asset roll-over events and tells you where you can find more detail about each event.

Provisions of this Act are in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

 

Same-asset roll-over events

Item

For the rules about this event:

See:

1

Transfer of a CGT asset from one spouse to the other because of a marriage breakdown

Subdivision 126-A

2

Transfer of a CGT asset from a company or trust to a spouse because of a marriage breakdown

Subdivision 126-A

3

Transfer of a CGT asset to a wholly-owned company

Subdivision 122-A

4

Transfer of a CGT asset of a partnership to a wholly-owned company

Subdivision 122-B

5

Transfer of a CGT asset between related companies

Subdivision 126-B

6

Disposal of a CGT asset because a trust deed of a complying approved deposit fund or complying superannuation fund is changed

section 160ZZPJ

 

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