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Division 138—Dealings between companies under common ownership

Table of Subdivisions

Guide to Division 138

138-A Application of Division

138-B Plant

138-C Adjustment of direct interests for CGT events A1 and B1 (pre and post CGT assets)

138-D Adjustment of direct interests for CGT events (post-CGT assets)

138-E Groups

138-F Other adjustments

Guide to Division 138

138-1 What this Division is about

This Division is designed to overcome timing advantages that bring forward capital losses and defer capital gains that can arise when value is shifted between companies under common ownership.

Value shifts can occur when one company (the originating company):

• transfers a CGT asset to another company (the recipient); or

• creates a CGT asset in the recipient (for example, by creating contractual rights or granting an option);

for less than its market value.

This will reduce the market value of the shares in the originating company and increase the market value of the shares in the recipient company.

This Division sets out a 3 stage adjustment process.

Certain assets can be grouped in applying this Division.

Subdivision 138-A—Application of Division

Table of sections

138-10 What assets are affected?

138-15 When this Division may affect you

138-20 Exceptions

138-25 Meaning of under common ownership

138-30 Market value substitution not to apply

138-10 What assets are affected?

(1) This Division may adjust the *cost base and *reduced cost base of a *share you have in, or a loan you have to, a company (the originating company).

(2) It may also adjust the *cost base and *reduced cost base of a *CGT asset you own if, because of owning the asset, you have an indirect interest (through one or more interposed companies or trusts) in a *share in or a loan to a company (also the originating company).

Note: These adjustments are made under Subdivision 138-F.

Example: An entity has shares in a company, which makes a loan to another company. The person has an indirect interest in the loan through the shares.

(3) It may also adjust the *cost base and *reduced cost base of a *share you have in another company or an indirect interest in a share in another company.

Note: These adjustments are made under section 138-430.

138-15 When this Division may affect you

(1) You will only have to make an adjustment if:

(a) one of the *CGT events specified in the table in subsection (2) (the trigger event) happens involving the originating company and another company (the recipient company); and

(b) the companies are *under common ownership at the time of the event.

(2) The *CGT events are:

*Relevant CGT events**
Event No.	Description	See section
A1	The originating company disposes of a CGT asset to the recipient company	104-10
B1	The originating company enters an agreement with the recipient company for the right to the use and enjoyment of a *CGT asset	104-15
D1	The originating company creates contractual or other rights in the recipient company	104-35
D2	The originating company grants an option to the recipient company	104-40
D3	The originating company grants a right to income from mining to the recipient company	104-45
F1	The originating company grants a lease to the recipient company	104-110

138-20 Exceptions

(1) You will not have to make an adjustment in these cases:

(a) the recipient company is a *100% subsidiary of the originating company;

(b) the trigger event involves a distribution to shareholders of the originating company in the course of winding it up, and the company is dissolved:

(i) within 3 years after the winding up started; or

(ii) within a further time allowed by the Commissioner;

(2) *CGT event B1 is not a trigger event if title in the *CGT asset does not pass to the recipient company when the agreement ends.

(3) *CGT event D1 is not a trigger event if:

(a) the originating company created the rights by borrowing money or obtaining credit from another entity; or

(b) the rights require the originating company to do something that is another CGT event; or

138-25 Meaning of under common ownership

(1) Two companies are under common ownership at a time if, at that time:

(a) they are members of the same *wholly-owned group; or

(b) after tracing the beneficial ownership of the shares in each of the companies (through any interposed companies and trusts) to the individuals who ultimately hold it, that beneficial ownership is held by the same individuals in the same proportions.

(2) In tracing the beneficial ownership of shares mentioned in paragraph (1)(b), ignore shares whose dividends can reasonably be regarded as being equivalent to the payment of interest on a loan having regard to:

(a) the way in which the dividends are calculated; and

(b) the conditions applying to the payment of the dividends; and

138-30 Market value substitution not to apply

In working out the *capital proceeds from a *CGT event (for this Division), disregard section 116-30 (the market value substitution rule).

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