138-80 What this Subdivision does
This Subdivision adjusts the cost base of shares and loans where CGT event A1 or B1 happened in relation to certain plant.
It does not matter whether the plant was acquired before or after the companies last came under common ownership, or before or after 20 September 1985.
If the plant does not qualify for treatment under this Subdivision, Subdivision 138-C or 138-D may apply.
Operative provisions
138-85 Plant must be involved
138-90 Pre-conditions for adjustments to your shares
138-95 Pre-conditions for adjustments to your loans
138-100 Reduction of cost base—shares
138-105 Reduction of cost base—loans
138-110 Application to depreciable plant group
[This is the end of the Guide.]
(1) This Subdivision affects you only if:
(a) the trigger event is CGT event A1 or B1; and
(b) it involved
(c) the requirements in subsection (2) are satisfied.
(2) The requirements are:
(a) the *capital proceeds from the trigger event must be less than the amount (residual value) that is the greater of:
(i) the *written down value of the *plant; and
(ii) the value assigned to it in the books of the originating company;
at the time of the event; and
(b) the market value of the plant (at that time) must not be more than 110% of its residual value (at that time); and
(c) the expenditure incurred by the originating company on its last *acquisition of the plant must have been less than $1 million. (The expenditure can include giving property: see section 103-5.)
Note: If an adjustment is not made under this Subdivision, Subdivision 138-C or 138-D may apply.
138-90 Pre-conditions for adjustments to your shares
You make a calculation under this Subdivision for a
*share in the originating company if you *acquired the share on or after 20 September 1985 and owned it at the time of the trigger event.138-95 Pre-conditions for adjustments to your loans
You make a calculation under this Subdivision for a loan to the originating company if:
(a) you
(b) one of the requirements in column 2 and one of the requirements in column 3 of this table are satisfied.
|
Additional loan requirements |
||
|
|
One of these requirements is satisfied |
|
|
1 |
you did not deal at arm’s length with the originating company in connection with the loan |
the *cost base or *reduced cost base of one or more shares in the originating company is reduced to nil under section 138-100 |
|
2 |
the value of the loan was reduced as a result of the trigger event |
no shares in the originating company were *acquired on or after 20 September 1985 and before the time of the trigger event |
138-100 Reduction of cost base—shares
(1) You work out the reduction in the
*cost base and *reduced cost base of each *share described in section 138-90 as at the time just before the time of the trigger event. The reduction is worked out in this way.Method statement
Step 1. Express the market value of the
Step 2. Subtract from the residual value of the
*plant the *capital proceeds from the trigger event.Step 3. Multiply the Step 2 amount by the fraction from Step 1.
Step 4. The result is the amount by which you reduce the
*cost base and *reduced cost base of the share.Example 1: Company A, which owns all 10 shares in company B, acquires all 10 shares in company C for $20,000 (their market value) on 1 July 1998.
Company C has a post-CGT depreciable asset with a market value and written down value of $20,000.
C transfers the asset to B for nothing on 10 September 1998.
C is the originating company and B the recipient company. The cost base of each share in C (which is $2,000) is reduced as follows:
Example 2: The same fact situation except that the written down value and book value (the residual value) of the asset is $18,500.
The cost base of each share in C is reduced as follows:
(2) However, you do not reduce the
*cost base and *reduced cost base of a *share under subsection (1) if:(a) at the time of the trigger event, there were 2 or more classes of
(b) it would be unreasonable to reduce the
*cost base and *reduced cost base of a share under that subsection.(3) Instead, you reduce the
*cost base and *reduced cost base of the *share by a reasonable amount having regard to:(a) the circumstances in which you
(b) the extent to which its market value was reduced as a result of the trigger event happening.
138-105 Reduction of cost base—loans
(1) You work out the reduction in the
*cost base and *reduced cost base of each loan described in section 138-95 as at the time just before the time of the trigger event. The reduction is worked out in this way.Method statement
Step 1. Express the market value of the loan as a fraction of the total market values of all loans to the originating company.
Step 2. If section 138-100 has operated to reduce the
Step 3. However, if there were no
*shares on which section 138-100 could operate, multiply the difference between the residual value of the *plant and the *capital proceeds from the trigger event by that fraction.Step 4. The result at Step 2 or Step 3 is the amount by which you reduce the
*cost base and *reduced cost base of the loan.Example: On 1 July 1998 Company A acquires all 10 shares in company B for $100 and lends company B $100. Company B acquires a depreciable asset for $200. Company A acquired all 10 shares in Company C for $100 on 1 July 1998.
B transfers the depreciable asset to C on 1 July 1999 for nothing.
Given straight line depreciation, and indexation adjustment, of 10%.
The cost base and reduced cost base of each share are reduced to nil.
CB = 11 - 1/10 x (190 - 0) = 0 with $80 excess over all the shares
RCB = 10 - 1/10 x (190 - 0) = 0 with $90 excess over all the shares
The cost base and reduced cost base of the loan to B are reduced as follows:
CB = 110 - 1 x 80 = 30
RCB = 100 - 1 x 90 = 10
(2) However, you do not reduce the
*cost base and *reduced cost base of a loan under subsection (1) if:(a) at the time of the trigger event, you or another entity owned:
(i) a
(ii) another loan to the originating company; and
(b) it would be unreasonable to reduce the
*cost base and *reduced cost base of the loan under that subsection.(3) Instead, you reduce the
*cost base and *reduced cost base of the loan by a reasonable amount having regard to:(a) the circumstances in which you
(b) the extent to which its market value was reduced as a result of the trigger event happening.
138-110 Application to depreciable plant group
You make the calculation under this Subdivision for all of the items of
*plant that you have allocated to a depreciable plant group as if:(a) they were a single
(b)
*CGT event A1 happened in relation to the single asset at the time of the first trigger event for an asset in the group in the income year; and(c) the
*capital proceeds from the trigger event were the sum of the capital proceeds for the *CGT events that happened in relation to all of the items; and(d) the residual value of the single asset were the sum of the residual values of all the items.
For allocating assets to a group: see Subdivision 138-E.
Income Tax Assessment Act| Apprentice Tax Practitioner Program