ATO ID 2003/641: Capital gains tax: demerger relief - more than two parcels of original interests - different acquisition times
Date of decision: 9 July 2003
Year of income: Year ended 30 June 2003
Business line: Small Business/Individual Taxpayers

Issue
In applying subsection 115-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997), when is a taxpayer treated as having acquired new interests in a demerged entity as a replacement for more than two original parcels of interests which were acquired at different times?

Decision
The new interests will be treated, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired at the same time as the original shares, determined on a reasonable basis of identification.

Facts
The taxpayer acquired forty shares in the head entity of a demerger group in August 2000. An additional forty shares were acquired in September 2002. In November 2002 the group undertook a demerger. Under the demerger a CGT event happened to each of the eighty shares and the taxpayer received forty new shares in the demerged entity; one for every two shares held in the head entity. The demerger qualified for rollover relief in terms of Division 125 of the ITAA 1997. In January 2003 the taxpayer sold the shares in the demerged entity and made a capital gain on each of the shares.

Reasons for decision
Summary: Subsection 115-25(1) of the ITAA 1997 states that a capital gain can only be a discount capital gain where the asset which gave rise to the capital gain was acquired at least twelve months before the relevant CGT event. The replacement asset, acquired in a replacement-asset rollover, will be treated for the purposes of subsection 115-30(1) of the ITAA 1997 as having been acquired at the time the original asset involved in the rollover was acquired. The definition of replacement-asset roll-over in section 112-115 of the ITAA 1997 includes demerger rollovers. It is reasonable to treat twenty of the new shares, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired in August 2000 and twenty in September 2002, ie on a proportionate basis. It is not considered reasonable to treat each new share as relating to one August 2000 share and one September 2002 share in order to treat all new shares as having been received in August 2000. [Note: this will have the effect of treating the taxpayer's capital gains on half of the new shares as discount capital gains.]

Legislative references: Income Tax Assessment Act 1997 subsection 115-25(1) subsection 115-30(1) section 112-115 Division 125
Related ATO interpretative decisions: ATO ID 2003/639 | ATO ID 2003/640
Subject references: Acquisition of CGT assets Capital gains Capital gains tax CGT original assets CGT replacement asset roll-over CGT replacement assets Demerger roll-over Demerging entity