Taxation Determination TD 2002/2





Appendix: 4. A share value shift contemplated by this Determination occurs only if, for each and every shareholder in a company: 5. In these situations, the share value shifting arrangement shifts value between the shares of different shareholders as well as within the shares of the same shareholder but - for each shareholder - the effect is that the decrease in market value of their decreased value shares matches the increase in market value of their increased value shares. 6. In such cases, any value shifted from one shareholder's shares to another shareholder's shares (the value shift between different shareholders) is disregarded. The share value shift is treated as if it were a separate arrangement for each shareholder under which there is only a shift in value from the decreased value shares to the increased value shares held by each shareholder. 7. In this Determination, a reference to: 'post-CGT shares' means shares in a company acquired on or after 20 September 1985; and 'pre-CGT shares' means shares in a company acquired before 20 September 1985. | Example: 8. Debbie and Dave, the sole shareholders of a company, each holds one post-CGT share in the company. In 1997, the company issues, for less than market value consideration, a new share to each of Debbie and Dave. As a result, there is a share value shift from the original shares to the new shares (the relevant increase in value of the new shares being their market value less the amount paid - subparagraph 160ZZRM (1)(c)(ii) of the ITAA 1936). 9. Because the requirements in paragraph 4 above are satisfied (for Debbie and for Dave, the total decrease in market value of their decreased value shares equals the total increase in market value of their increased value shares), the value shift is regarded as comprising: 10. On this characterisation, there are no different person shares in respect of which a capital gain may be triggered. Therefore, only adjustments to cost bases, indexed cost bases and reduced cost bases (relevant cost bases) are required to be made under subsection 160ZZRQ(3) of the ITAA 1936 for the original decreased value shares and under subsection 160ZZRQ(4) of the ITAA 1936 for the new increased value shares. 11. Continuing with the example above, assume that: 12. Division 19B of Part IIIA of the 1936 Act is applied as follows in relation to each shareholder : 13. As a result of these adjustments, each of Debbie and Dave has two shares - the original with a relevant cost base of $6.50, and a new share with paragraph 160ZH(1)(c), (2)(c), or (3)(c) relevant cost base elements of $5.50. There has been no loss of that original relevant cost base of $12, but merely a rearrangement of that amount between the original and the new shares . Commissioner of Taxation 16 January 2002 Previously released in draft form as TD 2001/D3 Previously released in draft form as TD 96/D4


The number, subject heading, date of effect and paragraphs 1 to 7 of this Taxation Determination are a 'public ruling' for the purposes of Part IVAAA of the Taxation Administration Act 1953 and are legally binding on the Commissioner. The remainder of the Determination is administratively binding on the Commissioner. Taxation Rulings TR 92/1 and TR 97/16 together explain how a Determination is legally or administratively binding. | This Determination applies only for the 1997-98 income year and earlier income years. | 1. A share value shifting arrangement is 'neutral' for each shareholder in a company if, and only if, under an arrangement value is shifted between shares of the different shareholders as well as within each shareholder's own shares and, for each shareholder, the total increase in market value of shares that increase in value (or the total discounts given) is equal to the total decrease in market value of post-CGT shares that decrease in value. | 2. In the circumstances contemplated by this Taxation Determination, Division 19B of Part IIIA of the Income Tax Assessment Act 1936 ('ITAA 1936') is applied to each shareholder as though value is shifted under an arrangement only involving the shares of that shareholder. This means that the shareholder does not make a capital gain from the share value shift, provided value is not shifted into pre-CGT shares. Adjustments to cost bases, indexed cost bases and reduced cost bases of shares may be required. | 3. This result is now expressly afforded by section 140-50 of the Income Tax Assessment Act 1997 ('ITAA 1997') for share value shifts which are 'neutral' for all shareholders in a company. This Determination only applies to assessments for the 1997-98 and earlier income years.


Related rulings: TR 92/1 TR 97/16
Legislative references: TAA 1953 Part IVAAA ITAA 1936 Pt IIIA Div 19B ITAA 1936 160ZH(1)(c) ITAA 1936 160ZH(2)(c) ITAA 1936 160ZH(3)(c) ITAA 1936 160ZZRM(1)(c)(ii) ITAA 1936 160ZZRQ(3) ITAA 1936 160ZZRQ(3)(b) ITAA 1936 160ZZRQ(4) ITAA 1936 160ZZRQ(5) ITAA 1936 160ZZRQ(6) ITAA 1936 160ZZRQ(6)(c) ITAA 1997 140-50
Subject references: arrangement capital gains cost base decreased value share increased value share neutral neutral share value shift shares share value shifting value shift