ATO ID 2003/639: Capital gains tax: demerger relief - two 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 a new interest in a demerged entity as a replacement for two original interests which were acquired at different times?

Decision
The new interest will be treated, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired at the earliest time that either original interest was acquired.

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

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 roll-over was acquired. The definition of replacement-asset roll-over in section 112-115 of the ITAA 1997 includes demerger rollovers. As the taxpayer's two original shares have two different acquisition dates, it is reasonable to treat the new share, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired in August 2000 (the earlier of the two acquisition dates). [Note: the taxpayer's capital gain satisfies the twelve month ownership requirement to be a discount capital gain.]

Legislative references: Income Tax Assessment Act 1997 subsection 112-115 subsection 115-25(1) subsection 115-30(1) Division 125
Related ATO interpretative decisions: ATO ID 2003/640 | ATO ID 2003/641
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