Income Tax Assessment Act 1997

s 725-210 — Consequences for down interests depend on pre ‑ shift gains and losses

(1) The consequences for a * down interest also depend on whether it has a * pre ‑ shift gain or a * pre ‑ shift loss. (2) It has a pre ‑ shift gain if, immediately before the * decrease time, its * market value was greater than its * adjustable value. (3) It has a pre ‑ shift loss if, immediately before the * decrease time, its * market value was equal to or less than its * adjustable value.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-220 — Neutral direct value shifts

(1) The consequences are different if the total decrease in * market value of your * down interests is equal to the sum of: (a) the total increase in market value of your * up interests; and (b) the total * discounts given to you on the issue of your up interests. (2) In that case, this Subdivision and Subdivisions 725 ‑ D to 725 ‑ F apply to you as if the * direct value shift: (a) consisted only of: (i) the decreases in * market value of your * down interests; and (ii) the issue at a * discount of your * up interests covered by subsection 725 ‑ 145(2); and (iii) the increases in market value of your up interests covered by subsection 725 ‑ 145(3); and (b) were from each of your down interests to each of your up interests. (3) This section has effect despite section 725 ‑ 160.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-225 — Issue of bonus shares or units

(1) The consequences are different if you are an * affected owner of * up interests (the bonus interests ) that the target entity issues to you, at a * discount, under the * scheme, in relation to * down interests (the original interests ) of which you are an affected owner. Effect of treatment under subsection 130 ‑ 20(3) (2) To the extent that the * direct value shift is to the bonus interests from original interests in relation to which the target entity issued bonus interests to which: (a) subsection 130 ‑ 20(3) applies (because none of them is a dividend or otherwise assessable income); and (b) item 1 of the table in that subsection applies (because the original interests are post ‑ CGT assets); these paragraphs apply: (c) the respective * cost bases and * reduced cost bases of those original interests are not reduced; (d) the bonus interests referred to in subsection (1) do not give rise to a * taxing event generating a gain for you under the table in section 725 ‑ 245 on any of those original interests. (3) To the extent that the * direct value shift is from the original interests to bonus interests to which subsection 130 ‑ 20(3) applies (because none of them is a dividend or otherwise assessable income) and: (a) item 1 of the table in that subsection applies (because the original interests are post ‑ CGT assets); or (b) item 2 of that table applies (because the original interests are pre ‑ CGT assets and an amount has been paid for the bonus interests that you were required to pay); the respective * cost bases and * reduced cost bases of those bonus interests are not uplifted. Effect of treatment under subsection 6BA(3) of the Income Tax Assessment Act 1936 (4) To the extent that the * direct value shift is to the bonus interests from original interests in relation to which the target entity issued bonus interests to which subsection 6BA(3) of the Income Tax Assessment Act 1936 applies (either because they are shares issued for no consideration and none of them is a dividend or because they qualify for the intercorporate dividend rebate): (a) the respective * adjustable values of those original interests, in their character as * trading stock or * revenue assets, are not reduced; and (b) the bonus interests referred to in subsection (1) do not give rise to a * taxing event generating a gain for you under the table in section 725 ‑ 335 on any of those original interests. (5) To the extent that the * direct value shift is from the original interests to bonus interests to which subsection 6BA(3) of the Income Tax Assessment Act 1936 applies, the respective * adjustable values of those bonus interests of which you are an affected owner, in their character as * trading stock or * revenue assets, are not uplifted.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29)

s 725-230 — Off ‑ market buy ‑ backs

(1) The consequences are different if: (a) a decrease in the * market value of a * down interest of which you are an * affected owner is reasonably attributable to the target entity proposing to buy back that interest for less than its market value; and (b) the target entity does buy back that down interest; and (c) subsection 159GZZZQ(2) of the Income Tax Assessment Act 1936 treats you as having received the down interest’s market value worked out as if the buy ‑ back had not occurred and was never proposed to occur. (2) The * adjustable value of the * down interest is not reduced, and there is no * taxing event generating a gain. Note: The down interest is not dealt with here because it is already dealt with in Division 16K of Part III of the Income Tax Assessment Act 1936 . (3) Also, to the extent that the * direct value shift is from the * down interest to * up interests of which you are an * affected owner, uplifts in the * adjustable value of the up interests are worked out under either or both of: (a) item 8 of the table in subsection 725 ‑ 250(2); and (b) item 9 of the table in subsection 725 ‑ 335(3); as if the down interest were one owned by another affected owner.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-240 — CGT consequences; meaning of adjustable value

(1) The CGT consequences for you of a * direct value shift are of one or more of these 3 kinds: (a) there are one or more * taxing events generating a gain for * down interests of which you are an affected owner (see subsection (2)); (b) the * cost base and * reduced cost base of down interests of which you are an * affected owner are reduced (see subsection (3)); (c) the cost base and reduced cost base of * up interests of which you are an affected owner are uplifted (see subsection (4)). Note: If there is a taxing event generating a gain, CGT event K8 happens. See section 104 ‑ 250. Taxing event generating a gain (2) To work out: (a) whether under the table in section 725 ‑ 245 there is a * taxing event generating a gain for you on a * down interest; and (b) if so, the amount of the gain; assume that the adjustable value from time to time of that or any other * equity or loan interest in the * target entity is its * cost base. Note: For example, for that purpose the question whether the interest has a pre ‑ shift gain or a pre ‑ shift loss is determined on the basis that the interest’s adjustable value is its cost base. Reduction or uplift of cost base and reduced cost base (3) The * cost base and the * reduced cost base of a * down interest are reduced at the * decrease time to the extent that section 725 ‑ 250 provides for the * adjustable value of the interest to be reduced. (4) The * cost base and the * reduced cost base of an * up interest are uplifted at the * increase time to the extent that section 725 ‑ 250 provides for the * adjustable value of the interest to be uplifted. (5) However, the * cost base or * reduced cost base is uplifted only to the extent that the amount of the uplift is still reflected in the * market value of the interest when a later * CGT event happens to the interest. (6) To work out: (a) whether the * cost base or * reduced cost base of the interest is reduced or uplifted; and (b) if so, by how much; assume that: (c) the adjustable value from time to time of that or any other * equity or loan interest in the * target entity is its cost base or reduced cost base, as appropriate; and (d) if the interest is an * up interest because it was issued at a * discount—the adjustable value of the interest immediately before it was issued was its cost base or reduced cost base, as appropriate, when it was issued. Note: For example, for that purpose the question whether the interest has a pre ‑ shift gain or a pre ‑ shift loss is determined on the basis that the interest’s adjustable value is its cost base or reduced cost base, as appropriate. Reductions and uplifts also apply to pre ‑ CGT assets (7) A reduction or uplift occurs regardless of whether the entity that owns the interest * acquired it before, on or after 20 September 1985.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 16 of 2003, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 1 (items 1–6, 9–26), Sch 2, 3, Sch 4 (items 1–7), Sch 5 (items 2–5), Sch 6 (items 1–9), Sch 7 (items 1, 2, 4–29), Sch 8, Sch 9 (items 1, 2, 13–21), Sch 10 (item 2), Sch 11 (items 1–3), Sch 12, 13, Sch 14 (items 1–7), Sch 16 (items 1–3), Sch 19 (items 1–3), Sch 21, 22, Sch 23 (items 10–13) and Sch 24 (items 20–23): 24 Oct 2002 (s 2(1) items 1A, 2–11, 13, 14) Sch 7 (item 3): ( see Sch 10 (item 224) of Act No. 41, 2005) Sch 25 (items 1–10), Sch 26 (items 1–4, 8), Sch 27 (items 1–19, 21), Sch 28 (items 1–12, 19), Sch 29 (items 12, 13) and Sch 30 (items 1, 2): 29 June 2002 (s 2(1) items 15–19, 21, 23) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-245 — Table of taxing events generating a gain for interests as CGT assets

To the extent that the * direct value shift is from * down interests of which you are an * affected owner, and that are specified in an item in the table, to * up interests specified in that item, those up interests give rise to a taxing event generating a gain for you on each of those down interests. The gain is worked out under section 725 ‑ 365. Taxing events generating a gain for down interests as CGT assets Item Down interests: Up interests: 1 * down interests that: (a) are owned by you ; and (b) are neither your * revenue assets nor your * trading stock ; and (c) have * pre ‑ shift gains ; and (d) are * post ‑ CGT assets * up interests owned by you that: (a) are neither your revenue assets nor your trading stock ; and (b) are * pre ‑ CGT assets 2 * down interests that: (a) are owned by you ; and (b) are neither your * revenue assets nor your * trading stock ; and (c) have * pre ‑ shift gains * up interests owned by you that are your trading stock or revenue assets 3 * down interests owned by you that: (a) are of the one kind (either your * trading stock or your * revenue assets ); and (b) have * pre ‑ shift gains * up interests owned by you that: (a) are of the other kind (either your revenue assets or your trading stock ); or (b) are neither your * revenue assets nor your * trading stock 4 * down interests owned by you that have * pre ‑ shift gains up interests owned by other * affected owners Note: If there is a taxing event generating a gain on a down interest, CGT event K8 happens: see section 104 ‑ 250. However, a capital gain you make under CGT event K8 is disregarded if the down interest: • is your trading stock (see section 118 ‑ 25); or • is a pre ‑ CGT asset (see subsection 104 ‑ 250(5)).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 16 of 2003, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 1 (items 1–6, 9–26), Sch 2, 3, Sch 4 (items 1–7), Sch 5 (items 2–5), Sch 6 (items 1–9), Sch 7 (items 1, 2, 4–29), Sch 8, Sch 9 (items 1, 2, 13–21), Sch 10 (item 2), Sch 11 (items 1–3), Sch 12, 13, Sch 14 (items 1–7), Sch 16 (items 1–3), Sch 19 (items 1–3), Sch 21, 22, Sch 23 (items 10–13) and Sch 24 (items 20–23): 24 Oct 2002 (s 2(1) items 1A, 2–11, 13, 14) Sch 7 (item 3): ( see Sch 10 (item 224) of Act No. 41, 2005) Sch 25 (items 1–10), Sch 26 (items 1–4, 8), Sch 27 (items 1–19, 21), Sch 28 (items 1–12, 19), Sch 29 (items 12, 13) and Sch 30 (items 1, 2): 29 June 2002 (s 2(1) items 15–19, 21, 23) | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29)

s 725-250 — Table of consequences for adjustable values of interests as CGT assets

(1) The table in subsection (2) sets out consequences of the * direct value shift for the * adjustable values of * down interests and * up interests of which you are an * affected owner, in their character as * CGT assets. (2) To the extent that the * direct value shift is from * down interests specified in an item in the table to * up interests specified in that item: (a) the * adjustable value of each of those down interests is decreased by the amount worked out under the section (if any) specified for the down interests in the last column of that item; and (b) the adjustable value of each of those * up interests is uplifted by the amount worked out under the section (if any) specified for the up interests in that column. Consequences of the direct value shift for adjustable values of CGT assets Item To the extent that the direct value shift is from: To: The decrease or uplift is worked out under: 1 * down interests that: (a) are owned by you ; and (b) have * pre ‑ shift gains ; and (c) are * post ‑ CGT assets * up interests owned by you that do not give rise to a * taxing event generating a gain for you on those down interests under section 725 ‑ 245 for the down interests: section 725 ‑ 365; and for the up interests: section 725 ‑ 370 2 * down interests that: (a) are owned by you ; and (b) have * pre ‑ shift gains ; and (c) are * pre ‑ CGT assets * up interests owned by you that are * pre ‑ CGT assets for the down interests: section 725 ‑ 365; and for the up interests: section 725 ‑ 370 3 * down interests that: (a) are owned by you ; and (b) have * pre ‑ shift gains ; and (c) are * pre ‑ CGT assets * up interests owned by you that are * post ‑ CGT assets for the down interests: section 725 ‑ 365; and for the up interests: section 725 ‑ 375 4 * down interests owned by you that have * pre ‑ shift gains * up interests owned by you that give rise to a * taxing event generating a gain on those down interests under section 725 ‑ 245 for the down interests: section 725 ‑ 365; and for the up interests: section 725 ‑ 375 5 * down interests owned by you that have * pre ‑ shift losses * up interests owned by you for the down interests: section 725 ‑ 380; and for the up interests: section 725 ‑ 375 6 * down interests owned by you that have * pre ‑ shift gains * up interests owned by other * affected owners for the down interests: section 725 ‑ 365 7 * down interests owned by you that have * pre ‑ shift losses * up interests owned by other * affected owners for the down interests: section 725 ‑ 380 8 * down interests owned by other * affected owners * up interests owned by you for the up interests: section 725 ‑ 375 9 * down interests owned by you * up interests owned by entities that are not * affected owners (there are no decreases or uplifts) 10 * down interests owned by entities that are not * affected owners * up interests owned by you (there are no decreases or uplifts) Reducing uplift to prevent double increase in cost base etc. (3) However, if, apart from paragraph (2)(b), an amount is included in the * cost base or * reduced cost base of an * up interest as a result of the * scheme under which the * direct value shift happens, the uplift in the * adjustable value of the interest under that paragraph is reduced by that amount.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 41 of 2011, effective Schedule 1 (items 1–3): 1 Jan 2011 Schedule 1 (items 4–6) and Schedule 5 (items 25–29, 33, 36–50, 74–78, 80–145, 148–167, 173–175, 383–396, 400, 414–418): Royal Assent Schedule 5 (items 9, 18–20): 28 June 2011 Schedule 5 (items 51–54): 1 July 2011

s 725-255 — Multiple CGT consequences for the same down interest or up interest

(1) A * down interest or * up interest of which you are an * affected owner may be covered by 2 or more items in the table in subsection 725 ‑ 250(2). (2) If the * cost base or * reduced cost base of the same * down interest or * up interest is decreased or uplifted under 2 or more items, it is decreased or uplifted by the total of the amounts worked out under those items. Note: If subsection 725 ‑ 250(3) is relevant, it will affect all the uplifts worked out under all those items. (3) If for a particular * down interest there is a * taxing event generating a gain under an item in the table in section 725 ‑ 245, that taxing event is in addition to: (a) each taxing event generating a gain for that interest under any other item in that table; and (b) each decrease in the * cost base or * reduced cost base of the interest under an item in the table in subsection 725 ‑ 250(2).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 41 of 2011, effective Schedule 1 (items 1–3): 1 Jan 2011 Schedule 1 (items 4–6) and Schedule 5 (items 25–29, 33, 36–50, 74–78, 80–145, 148–167, 173–175, 383–396, 400, 414–418): Royal Assent Schedule 5 (items 9, 18–20): 28 June 2011 Schedule 5 (items 51–54): 1 July 2011

s 725-310 — Consequences for down interest or up interest as trading stock

(1) The consequences of the * direct value shift for your * trading stock are of one or more of these 3 kinds: (a) the * adjustable values of * down interests of which you are an * affected owner are reduced (see subsection (2)); (b) the adjustable values of * up interests of which you are an affected owner are uplifted (see subsection (3)); (c) there are one or more * taxing events generating a gain for down interests of which you are an affected owner (see subsection (5)). Effect of reduction or uplift of adjustable value (2) If the * adjustable value of a * down interest that is your * trading stock is reduced under section 725 ‑ 335, you are treated as if: (a) * immediately before the * decrease time, you had sold the interest to someone else (at * arm’s length and in the ordinary course of business) for its * adjustable value immediately before the decrease time; and (b) immediately after the decrease time, you had bought the interest back for the reduced adjustable value. (3) If the * adjustable value of an * up interest that is your * trading stock is uplifted under section 725 ‑ 335, you are treated as if: (a) * immediately before the * increase time, you had sold the interest to someone else (at * arm’s length and in the ordinary course of business) for its * adjustable value immediately before the increase time; and (b) immediately after the increase time, you had bought the interest back for the uplifted adjustable value. (4) However, the increase in the cost of an * up interest because of paragraph (3)(b) is taken into account from time to time only to the extent that the amount of the increase is still reflected in the * market value of the interest. Note: The situations where the increase in cost would be taken into account include: • in working out your deductions for the cost of trading stock acquired during the income year in which the increase time happens; and • the end of an income year if the interest’s closing value as trading stock is worked out on the basis of its cost; and • the start of the income year in which the interest is disposed of, if that happens in a later income year and the interest’s closing value as trading stock at the end of the previous income year was worked out on the basis of its cost. If the interest stops being trading stock, section 70 ‑ 110 treats you as having disposed of it. Taxing event generating a gain (5) For each * taxing event generating a gain under an item in the table in subsection 725 ‑ 335(3), the gain is included in your assessable income for the income year in which the * decrease time happens.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20) | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29)

s 725-315 — Adjustable value of trading stock

If a * down interest or * up interest is your * trading stock, its adjustable value at a particular time is: (a) if the interest has been trading stock of yours ever since the start of the income year in which that time occurs—its * value as trading stock at the start of the income year; or (b) otherwise—its cost. Note 1: If an interest has been affected by an earlier direct value shift during the same income year, it will be treated as having already been sold and repurchased (because of an earlier application of section 725 ‑ 310). As a result, the cost on repurchase becomes its adjustable value immediately before the decrease time or increase time for the later direct value shift. Note 2: The adjustable value of an interest that is an up interest because it was issued at a discount is worked out under paragraph (b).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29)

s 725-320 — Consequences for down interest or up interest as a revenue asset

(1) The consequences of the * direct value shift for your * revenue assets are of one or more of these 3 kinds: (a) the * adjustable values of * down interests of which you are an * affected owner are reduced (see subsection (2)); (b) the adjustable values of * up interests of which you are an affected owner are uplifted (see subsection (3)); (c) one or more * taxing events generating a gain for down interests of which you are an affected owner (see subsection (5)). Effect of reduction or uplift of adjustable value (2) If the * adjustable value of a * down interest that is your * revenue asset is decreased under section 725 ‑ 335, you are treated as if: (a) * immediately before the * decrease time, you had sold the interest to someone else for its * adjustable value immediately before the decrease time; and (b) immediately afterwards, you had bought the interest back for the reduced adjustable value; and (c) from the time when you bought it back, the interest continued to be a revenue asset, for the same reasons as it was a revenue asset before you sold it. (3) If the * adjustable value of an * up interest that is your * revenue asset is uplifted under section 725 ‑ 335, you are treated as if: (a) * immediately before the * increase time, you had sold the interest to someone else for its * adjustable value immediately before the increase time; and (b) immediately afterwards, you had bought the interest back for the uplifted adjustable value; and (c) from the time when you bought it back, the interest continued to be a revenue asset, for the same reasons as it was a revenue asset before you sold it. (4) However, the uplift in * adjustable value is taken into account only to the extent that the amount of the uplift is still reflected in the * market value of the interest when it is disposed of or otherwise realised. Taxing event generating a gain (5) For each * taxing event generating a gain under an item in the table in subsection 725 ‑ 335(3), the gain is included in your assessable income for the income year in which the * decrease time happens.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-325 — Adjustable value of revenue asset

(1) If a * down interest is your * revenue asset, its adjustable value immediately before the * decrease time is the total of the amounts that would be subtracted from the gross disposal proceeds in calculating any profit or loss on disposal of the interest if you disposed of it immediately before the decrease time. (2) If an * up interest is your * revenue asset and it increases in * market value because of the * direct value shift, its adjustable value immediately before the * increase time is the total of the amounts that would be subtracted from the gross disposal proceeds in calculating any profit or loss on disposal of the interest if you disposed of it immediately before the increase time. (3) If an * up interest is your * revenue asset and it is issued at a * discount, it is taken to have an adjustable value immediately before it is issued equal to the consideration paid or given by you for the interest. Note: If an interest has been affected by an earlier direct value shift during the same income year, it will be treated as having already been sold and repurchased (because of an earlier application of section 725 ‑ 320). As a result, the cost on repurchase becomes its adjustable value immediately before the decrease time or increase time for the later direct value shift.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-335 — How to work out those consequences

(1) This section sets out the consequences of the * direct value shift for a * down interest or * up interest as * trading stock or a * revenue asset. (2) If you have both * trading stock and * revenue assets, items 1 and 2 of the table in subsection (3) can apply once to the trading stock and again to the revenue assets. The other items apply (if at all) to the trading stock and revenue assets together. Decreases and uplifts in adjustable value (3) To the extent that the * direct value shift is from * down interests specified in an item in the table to * up interests specified in that item: (a) the * adjustable value of each of those down interests is decreased by the amount worked out under the section (if any) specified for the down interests in the last column of that item; and (b) the adjustable value of each of those * up interests is uplifted by the amount worked out under the section (if any) specified for the up interests in that column. Consequences for down interest or up interest as trading stock or revenue asset Item To the extent that the direct value shift is from: To: The decrease or uplift is worked out under: 1 * down interests owned by you that: (a) are of the one kind (either your * trading stock or your * revenue assets ); and (b) have * pre ‑ shift gains * up interests owned by you that are of that same kind for the down interests: section 725 ‑ 365; and for the up interests: section 725 ‑ 370 2 * down interests owned by you that: (a) are of the one kind (either your * trading stock or your * revenue assets ); and (b) have * pre ‑ shift gains * up interests owned by you that are of the other kind (either your revenue assets or your trading stock ) for the down interests: section 725 ‑ 365; and for the up interests: section 725 ‑ 375 3 * down interests owned by you that: (a) are your * trading stock or * revenue assets ; and (b) have * pre ‑ shift losses * up interests owned by you that are of that same kind or of the other kind for the down interests: section 725 ‑ 380; and for the up interests: section 725 ‑ 375 4 * down interests owned by you that: (a) are your * trading stock or * revenue assets ; and (b) have * pre ‑ shift gains * up interests owned by you that are neither your revenue assets nor your trading stock for the down interests: section 725 ‑ 365 5 * down interests owned by you that: (a) are your * trading stock or * revenue assets ; and (b) have * pre ‑ shift losses * up interests owned by you that are neither your revenue assets nor your trading stock for the down interests: section 725 ‑ 380 6 * down interests owned by you that are neither your * revenue assets nor your * trading stock * up interests owned by you that are your trading stock or revenue assets for the up interests: section 725 ‑ 375 7 * down interests owned by you that: (a) are your * trading stock or * revenue assets ; and (b) have * pre ‑ shift gains up interests owned by other * affected owners for the down interests: section 725 ‑ 365 8 * down interests owned by you that: (a) are your * trading stock or * revenue assets ; and (b) have * pre ‑ shift losses * up interests owned by other * affected owners for the down interests: section 725 ‑ 380 9 * down interests owned by other * affected owners * up interests owned by you that are your * trading stock or * revenue assets for the up interests: section 725 ‑ 375 10 * down interests owned by you that are your * trading stock or * revenue assets * up interests owned by entities that are not * affected owners (there are no decreases or uplifts) 11 * down interests owned by entities that are not * affected owners * up interests owned by you that are your * trading stock or * revenue assets (there are no decreases or uplifts) Reducing uplift to prevent double increase in adjustable value (3A) However, if, apart from paragraph (3)(b), an amount is included, as a result of the * scheme under which the * direct value shift happens, in the * adjustable value of an * up interest that is your * trading stock or * revenue asset, the uplift in the adjustable value of the interest under that paragraph is reduced by that amount. Taxing events generating a gain (4) To the extent that the * direct value shift is from * down interests: (a) of which you are an * affected owner; and (b) that are specified in item 2, 4 or 7 in the table in subsection (3); to * up interests specified in that item, those up interests give rise to a taxing event generating a gain for you under that item on each of those down interests. The gain is worked out under section 725 ‑ 365.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 41 of 2011, effective Schedule 1 (items 1–3): 1 Jan 2011 Schedule 1 (items 4–6) and Schedule 5 (items 25–29, 33, 36–50, 74–78, 80–145, 148–167, 173–175, 383–396, 400, 414–418): Royal Assent Schedule 5 (items 9, 18–20): 28 June 2011 Schedule 5 (items 51–54): 1 July 2011 | Amended by No 12 of 2012, effective s 4, Sch 2 (items 1–23), Sch 5 and Sch 6 (items 3–6, 11–20, 25, 26, 35–67, 74–83, 94–96, 117–142, 157–178, 183, 200–203, 214–217, 235–240, 248): 21 Mar 2012 (s 2(1) items 1, 3, 5, 6, 10, 14, 18, 19, 27, 31) Sch 6 (item 7): 1 July 2007 (s 2(1) item 7) Sch 6 (item 10): 1 July 2010 (s 2(1) item 9) Sch 6 (items 106–116): 22 Mar 2012 (s 2(1) items 16, 17) Sch 6 (item 143): 22 Jan 2013 (s 2(1) item 20) Sch 6 (items 146–148): never commenced (s 2(1) item 23) Sch 6 (items 179, 181): 3 Oct 2008 (s 2(1) items 28, 30) Sch 6 (item 180): 3 June 2010 (s 2(1) item 29)

s 725-340 — Multiple trading stock or revenue asset consequences for the same down interest or up interest

(1) A * down interest or * up interest of which you are an * affected owner may be covered by 2 or more items in the table in subsection 725 ‑ 335(3). (2) If the * adjustable value of the same * down interest or * up interest is decreased or uplifted under 2 or more items, it is decreased or uplifted by the total of the amounts worked out under those items. Note: If subsection 725 ‑ 335(3A) is relevant, it will affect all the uplifts worked out under all those items. (3) If for a particular * down interest there is a * taxing event generating a gain under an item, that taxing event is in addition to: (a) each taxing event generating a gain for that interest under any other item in the table; and (b) each decrease in the * adjustable value of the interest under that or any other item in the table.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 41 of 2011, effective Schedule 1 (items 1–3): 1 Jan 2011 Schedule 1 (items 4–6) and Schedule 5 (items 25–29, 33, 36–50, 74–78, 80–145, 148–167, 173–175, 383–396, 400, 414–418): Royal Assent Schedule 5 (items 9, 18–20): 28 June 2011 Schedule 5 (items 51–54): 1 July 2011

s 725-365 — Decreases in adjustable values of down interests (with pre ‑ shift gains), and taxing events generating a gain

Use the following method statement: (a) to work out the amount of the gain for a * taxing event generating a gain under: (i) section 725 ‑ 245; or (ii) item 2, 4 or 7 of the table in subsection 725 ‑ 335(3); and (b) to work out the decrease in * adjustable value of a * down interest under: (i) item 1, 2, 3, 4 or 6 of the table in subsection 725 ‑ 250(2); or (ii) item 1, 2, 4 or 7 of the table in subsection 725 ‑ 335(3). Method statement Step 1. Group together all * down interests that: (a) are of the kind referred to in the relevant item; and (b) immediately before the * decrease time, had the same * adjustable value as the down interest; and (c) immediately before that time had the same * market value as the down interest; and (d) sustained the same decrease in market value as the down interest because of the * direct value shift. Step 2. Work out the value shifted from that group of * down interests to the * up interests referred to in the relevant item using the following formula: Step 3. Work out the notional adjustable value of the value shifted from that group of * down interests to those * up interests using the formula: Step 4. The decrease in the * adjustable value of the * down interest under the relevant item is equal to: Step 5. For a * taxing event generating a gain under the relevant item, the amount of the gain is equal to:

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-370 — Uplifts in adjustable values of up interests under certain table items

Use the following method statement to work out the uplift in * adjustable value of an * up interest under: (a) item 1 or 2 of the table in subsection 725 ‑ 250(2); or (b) item 1 of the table in subsection 725 ‑ 335(3). Method statement Step 1. If the * market value of the * up interest increases because of the * direct value shift, group together all up interests of the kind referred to in the relevant item that: (a) immediately before the * increase time, had the same * adjustable value as the up interest; and (b) sustained the same increase in market value as the up interest because of the * direct value shift. If the * up interest is issued at a * discount, group together all * up interests of the kind referred to in the relevant item that: (c) immediately before the * increase time, had the same * adjustable value as the up interest; and (d) because of the direct value shift, are issued at the same discount as the up interest. Step 2. The notional adjustable value of the value shifted from the * down interests referred to in the relevant item to all the * up interests referred to in that item has already been worked out under one or more applications of step 3 of the method statement in section 725 ‑ 365. Step 3. Use the following formula to work out how much of that notional adjustable value is attributable to the value shifted to the group of * up interests referred to in step 1 of this method statement: Step 4. The uplift in the * adjustable value of the * up interest under the relevant item is equal to:

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-375 — Uplifts in adjustable values of up interests under other table items

Use the following method statement to work out the uplift in * adjustable value of an * up interest under: (a) item 3, 4, 5 or 8 of the table in subsection 725 ‑ 250(2); or (b) item 2, 3, 6 or 9 of the table in subsection 725 ‑ 335(3). Method statement Step 1. If the * market value of the * up interest increases because of the direct value shift, group together all * up interests of the kind referred to in the relevant item that sustained the same increase in market value as the up interest because of the direct value shift. If the up interest is issued at a discount, group together all up interests of the kind referred to in the relevant item that are issued at a discount of the same amount as the up interest because of the direct value shift. Step 2. The value shifted to that group of * up interests from the * down interests referred to in the relevant item is the amount worked out using the formula: where: sum of the group increases or discounts means (as appropriate): (a) the sum of the increases in * market value of all * up interests in the group because of the * direct value shift; or (b) the sum of the * discounts at which all * up interests in the group were issued because of the * direct value shift. total value of the direct value shift means: (a) if the sum of the decreases in * market value of all * down interests because of the * direct value shift is equal to or greater than the sum of the increases in market value of all * up interests and all * discounts given because of the shift—the sum of the decreases; or (b) if the sum of the decreases in market value of all down interests because of the direct value shift is less than the sum of the increases in market value of all up interests and all discounts given because of the shift—the sum of the increases and discounts. Step 3. The uplift in the * adjustable value of the * up interest under the relevant item is equal to:

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 725-380 — Decreases in adjustable value of down interests (with pre ‑ shift losses)

Use the following method statement to work out the decrease in * adjustable value of a * down interest under: (a) item 5 or 7 of the table in subsection 725 ‑ 250(2); or (b) item 3, 5 or 8 of the table in subsection 725 ‑ 335(3). Method statement Step 1. Group together all * down interests of the kind referred to in the relevant item that: (a) immediately before the * decrease time, had the same * adjustable value as the down interest; and (b) immediately before that time had the same * market value as the down interest; and (c) sustained the same decrease in market value as the down interest because of the * direct value shift. Step 2. Work out the value shifted from that group of * down interests to the * up interests referred to in the relevant item using the formula: Step 3. The decrease in * adjustable value of the * down interest under the relevant item is equal to:

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-1 — What this Division is about

If there is a net shift of value between 2 related entities because of a non ‑ arm’s length dealing, this Division: (a) prevents losses from arising, because of the value shift, on realisation of direct or indirect equity or loan interests in the losing entity; and (b) within limits, prevents gains from arising, because of the value shift, on realisation of direct or indirect equity or loan interests in the gaining entity. However, it does so only for interests that are owned by entities involved in the value shift. Table of sections 727 ‑ 5 What is an indirect value shift? 727 ‑ 10 How does this Division deal with indirect value shifts? 727 ‑ 15 When does an indirect value shift have consequences under this Division? 727 ‑ 25 Effect of this Division on realisations at a loss that occur before the nature or extent of an indirect value shift can be fully determined

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-5 — What is an indirect value shift?

(1) An indirect value shift arises when there is a net shift of value from one entity to another. Example: Company A transfers property to company B in return for a cash payment. If the market value of the property is $180 million but the cash payment is only $50 million, there is a net shift of value from company A to company B of $130 million. (2) It is called indirect because the transaction will have the indirect effect of shifting value from equity or loan interests in the losing entity to equity or loan interests in the gaining entity. This is because the net shift in value between the entities will usually decrease the market value of interests in the losing entity and increase the market value of interests in the gaining entity. Example: Assume that company C owns all the shares in company A and company D owns all the shares in company B. The net shift of value from company A to company B will reduce the value of company C’s shares in company A and increase the value of company D’s shares in company B. (3) It will also produce corresponding effects further up a chain of entities. Example: Assume that company E owns all the shares in company C and company D. The net shift of value from company A to company B will also reduce the value of company E’s shares in company C and increase the value of its shares in company D. (4) This Division is not concerned with the tax treatment of the net shift in value between the entities at the bottom of the chains. Instead, it deals with the effects on the market value of interests (both direct and indirect) in those entities. (5) An indirect value shift distorts the relationship between the market value of an equity or loan interest and its value for income tax purposes. When the interest is realised, this can produce an inappropriate loss for income tax purposes, or an inappropriate gain. Example: If company E sold its shares in company C, the indirect value shift could (apart from this Division) result in a loss for income tax purposes. Company E could defer the corresponding gain on its shares in company D by not selling these.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-10 — How does this Division deal with indirect value shifts?

(1) To prevent an inappropriate loss or gain from arising on realisation of an interest, this Division reduces the amount of the loss or gain (realisation time method). However, a choice can be made to adjust the interest’s value for income tax purposes in a way that takes account of the indirect value shift (adjustable value method). (2) This Division does not create taxing events giving rise to gains or losses.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-15 — When does an indirect value shift have consequences under this Division?

(1) Indirect value shift is defined very broadly, but the application of this Division is limited in various ways. (2) The losing entity must be a company or trust (except a superannuation entity). However, the gaining entity can be any kind of entity, including an individual. (3) This Division does not apply if entities deal with each other at arm’s length, or provide economic benefits in return for full market value. (4) The losing entity and the gaining entity must be connected by having had the same ultimate controller . In the case of closely held entities, they may instead be connected by having had a high level of common ownership . (5) The only interests affected are those owned by entities involved in the indirect value shift or by their associates. (6) There are a range of exclusions, such as: (a) exclusions for minor indirect value shifts; and (b) a series of rules designed to provide safe harbour treatment for common transactions relating to services; and (c) anti ‑ overlap provisions to prevent double ‑ counting. (7) Rules of thumb are included to make it easier to determine the market value of some kinds of economic benefits. (8) To reduce compliance costs for: (a) * small business entities; and (b) entities that meet the CGT small business net asset threshold ($6 million); interests owned by those entities are not affected by this Division.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 80 of 2007, effective 21 June 2007

s 727-25 — Effect of this Division on realisations at a loss that occur before the nature or extent of an indirect value shift can be fully determined

(1) To determine whether a scheme gives rise to an indirect value shift, it must be possible to identify all the economic benefits under the scheme, and the providers and recipients of those benefits. (2) Before then, interests that might be affected by the scheme may be realised at a loss. Subdivision 727 ‑ K contains special rules that apply if that happens.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-95 — Main object

The main object of this Division is: (a) to prevent inappropriate losses from arising on the realisation of direct or indirect equity or loan interests in an entity from which there has been a net shift of value because of a dealing that is not at * arm’s length; and (b) to prevent inappropriate gains from arising on the realisation of * direct equity interests or * indirect equity interests in the entity to which that value has been shifted; in cases where the 2 entities are related as set out in this Division.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 143 of 2007, effective Schedule 1 (items 1, 4, 128–194, 222, 223, 225, 226), Schedule 2, Schedule 5 (items 1–16, 48(1)–(3)), Schedule 6 and Schedule 7 (items 18–68): Royal Assent Schedule 5 (items 31–46): 15 Mar 2007 (s 2(1) item 6) | Amended by No 88 of 2013, effective s 4, Sch 1 (items 1–18), Sch 3 and Sch 7 (items 200–210, 236–242): 28 June 2013 (s 2(1) items 1, 2, 5, 21, 26) Sch 1 (items 33, 34): 1 July 2013 (s 2(1) item 3) Sch 5 (items 1–5, 7–9) and Sch 6 (items 3–41, 50–65): 29 June 2013 (s 2(1) items 8, 9, 14) Sch 7 (items 1–4): 1 July 2012 (s 2(1) item 15)

s 727-100 — When an indirect value shift has consequences under this Division

An * indirect value shift (see Subdivision 727 ‑ B) has consequences under this Division if, and only if: (a) the * losing entity is at the time of the indirect value shift a company or trust (except one listed in section 727 ‑ 125 (about superannuation entities)); and (b) in relation to either or both of the following: (i) the losing entity * providing one or more economic benefits to the gaining entity * in connection with the * scheme from which the indirect value shift results; (ii) the gaining entity providing one or more economic benefits to the losing entity in connection with the scheme; the 2 entities are not dealing with each other at * arm’s length; and (c) either or both of sections 727 ‑ 105 and 727 ‑ 110 are satisfied; and (d) no exclusion in Subdivision 727 ‑ C applies. Note 1: The consequences for direct and indirect interests in the losing entity or in the gaining entity are set out in Subdivision 727 ‑ F. If those consequences are to be worked out using the realisation time method (under Subdivision 727 ‑ G), there are further exclusions for certain 95% services indirect value shifts: see section 727 ‑ 700. Note 2: An indirect value shift does not have consequences for interests in the losing entity or gaining entity owned immediately before the IVS time by an entity that: • is a small business entity for each income year that includes any of the IVS period; or • would satisfy the maximum net asset value test in section 152 ‑ 15 throughout the IVS period. See subsection 727 ‑ 470(2).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 80 of 2007, effective 21 June 2007

s 727-105 — Ultimate controller test

It must be the case that, at some time during the * IVS period: (a) the * losing entity and the * gaining entity have the same * ultimate controller; or (b) the ultimate controller of the losing entity is the same entity that was the ultimate controller of the gaining entity at a different time during that period; or (c) the gaining entity is the ultimate controller of the losing entity; or (d) the losing entity is the ultimate controller of the gaining entity. For the concept of IVS period , see section 727 ‑ 150. For the concept of ultimate controller , see section 727 ‑ 350.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-110 — Common ‑ ownership nexus test (if both losing and gaining entities are closely held)

(1) Or, it must be the case that: (a) at some time during the * IVS period, neither the * losing entity nor the * gaining entity has 300 or more members (in the case of a company) or 300 or more beneficiaries (in the case of a trust); and (b) the losing entity and the gaining entity have a * common ‑ ownership nexus within the IVS period. For the concept of IVS period , see section 727 ‑ 150. For the concept of common ‑ ownership nexus , see section 727 ‑ 400. (2) Section 124 ‑ 810 (under which certain companies and trusts are not regarded as having 300 or more members or beneficiaries) also applies for the purposes of this Division. (3) In addition, this Division applies to a * non ‑ fixed trust as if it did not have 300 or more beneficiaries.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-125 — No consequences if losing entity is a complying superannuation entity etc.

An * indirect value shift has no consequences under this Division if the * losing entity is one of the following in relation to the income year in which the indirect value shift happens: (a) a * complying superannuation entity; (b) a * non ‑ complying superannuation fund; (c) a * non ‑ complying approved deposit fund.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Repealed and substituted by No 64 of 2020, effective Sch 3 (items 72–122): 1 July 2020 (s 2(1) item 5) Sch 3 (items 228–239, 325, 326): 1 Oct 2020 (s 2(1) item 6) Sch 3 (items 327–330): 1 July 2017 (s 2(1) item 7)

s 727-150 — How to determine whether a scheme results in an indirect value shift

(1) A * scheme can result in one or more * indirect value shifts only if one or more economic benefits have been, are being, or are to be, * provided * in connection with the scheme. (2) The question whether the * scheme has that result must be determined by reference to the facts and circumstances that exist at the earliest time (either when the scheme is entered into or later) when it is reasonable to conclude that: (a) all the economic benefits that have been, are being, or are to be, * provided * in connection with the scheme can be identified; and (b) for each of those economic benefits: (i) the entity that has provided, is providing, or is to provide, the economic benefit can be identified; and (ii) the entity to which the economic benefit has been, is being, or is to be, provided can be identified; and (iii) if the economic benefit is to be provided—those entities are in existence, and the providing of the economic benefit is not contingent; and (c) there are no other economic benefits that are to be provided in connection with the scheme if some contingency is met. That time is called the IVS time for the scheme. Note: In most cases, the IVS time will be at or soon after the scheme is entered into. However, if: • direct or indirect interests in a company or trust are realised at a loss when the IVS time for the scheme has not yet happened (even if it never happens); and • the company or trust has provided, is providing, is to provide, or might provide, economic benefits in connection with the scheme; there may be consequences for those interests similar to those of an indirect value shift resulting from the scheme. See Subdivision 727 ‑ K. (3) The * scheme results in an indirect value shift from one entity (the losing entity ) to another entity (the gaining entity ) if the total * market value of the one or more economic benefits (the greater benefits ) that the losing entity has * provided, is providing, or is to provide, to the gaining entity * in connection with the scheme exceeds: (a) the total market value of the one or more economic benefits ( lesser benefits ) that the gaining entity has provided, is providing, or is to provide, to the losing entity in connection with the scheme; or (b) if there are no economic benefits covered by paragraph (a)—nil. That excess is the amount of the indirect value shift. (4) The * market value of an economic benefit is to be determined as at the earliest time when it is reasonable to conclude that: (a) the economic benefit can be identified; and (b) paragraph (2)(b) is satisfied for that benefit. For more rules affecting how the market value of an economic benefit is determined, see Subdivision 727 ‑ D. (5) Neither the * losing entity nor the * gaining entity needs to be a party to the * scheme. A benefit can be provided by act or omission. (6) The indirect value shift happens at the * IVS time. (7) The IVS period for a * scheme starts immediately before the scheme is entered into and ends at the * IVS time. (8) A contingency that is artificial, or is virtually certain to be met, is treated under this Division as if it had been met.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-155 — Providing economic benefits

Examples (1) These are some examples of an entity providing an economic benefit to another entity: (a) the first entity pays an amount to the other entity (in this case the * market value of the benefit is the amount of the payment); (b) the first entity provides an asset or services to the other entity; (c) the first entity does something that creates an asset in the hands of the other entity (for example, a company issues shares to its members); (d) the first entity incurs a liability to the other entity, or increases a liability it already owes to the other entity; (e) the first entity terminates all or part of a liability owed by the other entity; (f) the first entity does something that increases the market value of an asset that the other entity holds. (2) These examples are not intended to limit the meaning of providing an economic benefit. Things treated as economic benefits (3) This Division applies as if the ending of: (a) a * primary equity interest or * secondary equity interest in an entity; or (b) a right that the owner of a * primary equity interest or * secondary equity interest in an entity has because of owning the interest; were an economic benefit that the owner of the interest provides to that entity.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-160 — When an economic benefit is provided in connection with a scheme

(1) An economic benefit has been, is being, is to be, or might be, * provided by an entity to another entity in connection with a * scheme if, and only if: (a) the benefit has been, is being, is to be, or might be, provided under the scheme; or (b) the providing of the benefit is reasonably attributable to: (i) something that has been, is being, is to be, or might be, done or omitted under the scheme (whether before, at the time of, or after, the providing of the benefit) by an entity that is either of those entities or a third entity; or (ii) 2 or more such things. (2) An entity referred to in paragraph (1)(b) need not be a party to the * scheme. A benefit can be provided by act or omission.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-165 — Preventing double ‑ counting of economic benefits

Rights to have economic benefits provided (1) If an economic benefit that has been, is being, is to be, or might be, * provided as mentioned in subsection 727 ‑ 150(3) or 727 ‑ 855(1) consists of a right to have economic benefits provided, that subsection applies to the right but does not also apply to those economic benefits. Example: Acme Ltd enters into an agreement with Paragon Pty Ltd under which Acme is to provide services to Paragon over a 5 year period in return for payments. Paragon’s rights under the agreement are economic benefits that Acme provides to Paragon when the agreement is made. The services are economic benefits that Acme is to provide to Paragon. Because of this subsection, the market value of the rights is taken into account in working out whether there has been an indirect value shift, but the market value of the services is not. Effect of an economic benefit on interests in the entity to which it is provided (2) If an economic benefit has been, is being, or is to be, * provided to an entity, then, for the purposes of subsection 727 ‑ 150(3) or 727 ‑ 855(1), disregard an economic benefit to the extent that: (a) it consists of an increase in the * market value of: (i) an * equity or loan interest in the entity; or (ii) an * indirect equity or loan interest in the entity; and (b) the increase is reasonably attributable to the first ‑ mentioned benefit.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-200 — What this Subdivision is about

Some indirect value shifts do not have consequences under this Division. Note 1: If the consequences of an indirect value shift are to be worked out using the realisation time method (under Subdivision 727 ‑ G), there are further exclusions for certain 95% services indirect value shifts: see section 727 ‑ 700. Note 2: For cases where there may be both a direct value shift and an indirect value shift, see Subdivision 727 ‑ L. Table of sections General 727 ‑ 215 Amount does not exceed $50,000 727 ‑ 220 Disposal of asset at cost, or at undervalue if full value is not reflected in adjustable values of equity or loan interests in the losing entity Indirect value shifts involving services 727 ‑ 230 Services provided by losing entity to gaining entity for at least their direct cost 727 ‑ 235 Services provided by gaining entity to losing entity for no more than a commercially realistic price 727 ‑ 240 What services certain provisions apply to 727 ‑ 245 How to work out certain amounts for the purposes of sections 727 ‑ 230 and 727 ‑ 235 Anti ‑ overlap provisions 727 ‑ 250 Distribution by an entity to a member or beneficiary Miscellaneous 727 ‑ 260 Shift down a wholly ‑ owned chain of entities

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-215 — Amount does not exceed $50,000

(1) An * indirect value shift does not have consequences under this Division if the amount of it does not exceed $50,000. (2) However, subsection (1) does not apply to an * indirect value shift (and is taken never to have applied to it) if: (a) before, at the same time as, or after it, another indirect value shift happens for which the same entity is the losing entity as for the first indirect value shift; and (b) having regard to all relevant circumstances, it is reasonable to conclude that the sole or main reason why one of the indirect value shifts happened under a different * scheme from the other was so that its amount would not exceed $50,000.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-220 — Disposal of asset at cost, or at undervalue if full value is not reflected in adjustable values of equity or loan interests in the losing entity

(1) An * indirect value shift does not have consequences under this Division if the conditions in this section are met. (2) The * greater benefits must consist entirely of: (a) the * losing entity transferring a * CGT asset to the * gaining entity; or (b) a right to have the losing entity transfer an asset to the gaining entity. (3) There must be * lesser benefits and, as at the * IVS time, the total * market value of the lesser benefits must not be less than the greatest of these amounts: (a) the asset’s * cost base at that time; (b) the asset’s cost; (c) the asset’s market value immediately before the most recent time (if any), since the * losing entity * acquired the asset, when an * affected owner has acquired: (i) a * primary equity interest in the losing entity; or (ii) an * indirect primary equity interest in the losing entity. (4) A * primary equity interest in an entity is an indirect primary equity interest in another entity if, and only if: (a) the first entity owns a primary equity interest in the other entity; or (b) the first entity owns a primary equity interest that is an indirect primary equity interest in the other entity because of one or more other applications of this subsection.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-230 — Services provided by losing entity to gaining entity for at least their direct cost

An * indirect value shift does not have consequences under this Division if: (a) to the extent of at least 95% of their total * market value, the * greater benefits consist entirely of: (i) a right to have services that are covered by section 727 ‑ 240 provided directly by the losing entity to the gaining entity; or (ii) services that are covered by section 727 ‑ 240 and have been, are being, or are to be, so provided; or both; and (b) there are * lesser benefits and, as at the * IVS time, the total market value of the lesser benefits is not less than the total of: (i) the present value of the direct cost to the losing entity of providing the services; and (ii) the present value of a reasonable allocation of the total direct cost to the losing entity of providing services that include the first ‑ mentioned services (so far as it is not already covered by subparagraph (i)). To work out the costs and present values referred to in paragraph (b), see section 727 ‑ 245.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-235 — Services provided by gaining entity to losing entity for no more than a commercially realistic price

(1) An * indirect value shift does not have consequences under this Division if: (a) there are * lesser benefits and, to the extent of at least 95% of their total * market value, the lesser benefits consist entirely of: (i) a right to have services that are covered by section 727 ‑ 240 provided directly by the gaining entity to the losing entity; or (ii) services that are covered by section 727 ‑ 240 and have been, are being, or are to be, so provided; or both; and (b) as at the * IVS time, the total market value of the greater benefits is not more than the total of: (i) the present value of the direct cost to the gaining entity of providing the services; and (ii) the present value of a reasonable allocation of the total direct cost to the gaining entity of providing services that include the first ‑ mentioned services (so far as it is not already covered by subparagraph (i)); and (iii) the present value of a reasonable allocation of the indirect cost to the gaining entity of providing the first ‑ mentioned services; and (iv) the mark ‑ up worked out under subsection (2) or (3) of this section. To work out the costs and present values referred to in paragraph (1)(b), see section 727 ‑ 245. (2) If it is reasonable to estimate that an entity providing the same quantity of services of the same kind in the same market would charge for them on the basis of a particular percentage mark ‑ up, or on the basis of a percentage mark ‑ up within a particular range, the mark ‑ up for the purposes of subparagraph (1)(b)(iv) is: • the total of the respective present values of the costs mentioned in subparagraphs (1)(b)(i), (ii) and (iii); multiplied by: • that percentage mark ‑ up, or the highest percentage in that range. (3) Otherwise, the mark ‑ up for the purposes of subparagraph (1)(b)(iv) is 10% of the total of the respective present values of the costs mentioned in subparagraphs (1)(b)(i), (ii) and (iii).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-240 — What services certain provisions apply to

(1) Sections 727 ‑ 230, 727 ‑ 235, 727 ‑ 700 and 727 ‑ 725 apply only to services consisting of: (a) doing work (including professional work and giving professional advice or any other kind of advice); or Note: Examples include accounting or legal services; advertising services and financial management services. (b) providing (including allowing use of) facilities for entertainment, recreation or instruction; or (c) leasing, renting, hiring, or allowing the use of, any asset; or (d) packaging, transporting or storing any property; or (e) providing insurance; or (f) services provided, by a banker to a customer, in the course of the banker carrying on the business of banking; or (g) lending money or providing any other form of financial accommodation. (2) It does not matter whether services covered by paragraph (1)(a) also involve supplying property.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-245 — How to work out certain amounts for the purposes of sections 727 ‑ 230 and 727 ‑ 235

(1) The costs mentioned in paragraph 727 ‑ 230(b) or 727 ‑ 235(1)(b) are to be worked out: (a) in accordance with generally accepted accounting practices; and (b) to the extent that the services are to be provided in the future, on the basis of a reasonable estimate of those costs. (2) To avoid doubt, the direct cost or indirect cost mentioned in paragraph 727 ‑ 230(b) or 727 ‑ 235(1)(b) does not include: (a) to the extent that the services consist of or include lending money or providing any other form of financial accommodation—the amount of the loan or other accommodation; or (b) to the extent that the services consist of or include leasing, renting, hiring, or allowing the use of, any asset: (i) the cost of acquiring the asset; or (ii) the cost of acquiring an interest in, or right in respect of, the asset in order to provide the services. Example: Acme Ltd is the holding company of Group Financier Pty Ltd. Group Financier Pty Ltd borrows $20 million at 7% per annum, and on lends it to other subsidiaries of Acme Ltd at 8% per annum. The $20 million does not form part of Group Financier Pty Ltd’s direct cost of the services it provides to the other subsidiaries in the form of the on lending. However, the 7% interest that Group Financier Pty Ltd pays on the $20 million does form part of that direct cost. (3) The present values mentioned in paragraph 727 ‑ 230(b) or 727 ‑ 235(1)(b) are to be worked out using a discount rate equal to the rate that, for the purposes of section 109N of Income Tax Assessment Act 1936 , is the benchmark interest rate for the income year in which the * IVS time occurs. Note: That section is about distributions to entities connected with a private company.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-250 — Distribution by an entity to a member or beneficiary

(1) An * indirect value shift does not have consequences under this Division if: (a) the * greater benefits consist entirely of: (i) a distribution of income or capital that the * losing entity makes to the * gaining entity; or (ii) a right to a distribution of income or capital that the losing entity is to make to the gaining entity; because the gaining entity holds * primary equity interests in the losing entity; and (b) either: (i) an amount covered by one or more of subsections (2), (3) and (4); or (ii) the total of 2 or more such amounts; equals or exceeds the amount of the distribution. Conditions (2) This subsection covers an amount that the assessable income, * exempt income or * non ‑ assessable non ‑ exempt income of the gaining entity for any income year includes because of the distribution or right. (3) This subsection covers an amount by which the * cost base or * reduced cost base (or both) of some or all of the * primary equity interests referred to in subsection (1) changes because of the distribution or right. (4) This subsection covers an amount that, because of the distribution or right, is taken into account: (a) under section 116 ‑ 20 in working out the * capital proceeds of a * CGT event that happens during any income year to some or all of the * primary equity interests referred to in subsection (1); or (b) in working out a * capital gain that an entity makes from CGT event E4 or G1 happening during any income year to some or all of those primary equity interests; or (c) in working out whether a loss or gain is * realised for income tax purposes by a * realisation event that happens to some or all of those primary equity interests (in their character as * trading stock or * revenue assets). Application of section to deemed dividend (5) If a * corporate tax entity makes a * distribution that is not otherwise a distribution of income or capital, this section applies as if the distribution were a distribution of income or capital the entity made. Note: Subsection (5) extends this section to cover something that is taken to be a dividend paid by a company. Compare item 1 of the table in subsection 960 ‑ 120(1).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 67 of 2024, effective sch 1 (items 4 ‑ 7), sch 3 (items 1 ‑ 7), sch 5 (items 49 ‑ 52), sch 6: 1 Oct 2024 (s 2(1) items 3, 7, 10, 12)

s 727-260 — Shift down a wholly ‑ owned chain of entities

(1) An * indirect value shift does not have consequences under this Division if the * gaining entity is a * wholly ‑ owned subsidiary of the * losing entity throughout the * IVS period. Exception: impact on market value of primary loan interest (2) However, subsection (1) does not apply if the * indirect value shift has produced a * disaggregated attributable decrease, in the * market value of an * affected interest in the * losing entity that is also a * primary loan interest in an entity covered by subsection (3), for the owner of the interest. (3) This subsection covers: (a) the * losing entity; and (b) an entity that owns * primary equity interests in an entity that this subsection covers because of one or more previous applications of it.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-300 — What the rules in this Subdivision are for

This Subdivision is used in determining whether there has been an * indirect value shift and, if so: (a) whether it has consequences under this Division; and (b) if it does, the amount of it.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-315 — Transfer, for its adjustable value, of depreciating asset acquired for less than $1,500,000

(1) This Division applies to an economic benefit consisting of: (a) an entity transferring to another entity a * depreciating asset (except a building or structure) for which the transferring entity has deducted or can deduct an amount under Division 40; or (b) a right to have an entity transfer such a depreciating asset to another entity; as if the economic benefit’s * market value were equal to the greater (the residual value ) of: (c) the asset’s * adjustable value at the time when the economic benefit was or is * provided; and (d) the value assigned to the asset at that time in the transferring entity’s books; but only if: (e) as at that time, the * cost of the unit to the transferring entity is less than $1,500,000; and (f) it is reasonable for the transferring entity to conclude that the unit’s actual market value at that time was, is, or will be, not less than 80%, and not more than 120%, of the residual value; and (g) both the transferring entity and the other entity choose to have the market value of that economic benefit treated as being equal to the residual value. (2) If: (a) each of 2 or more economic benefits of the kind mentioned in subsection (1) has been, is being, is to be, or might be, provided by the same transferring entity, to the same other entity, * in connection with the same * scheme; and (b) it is reasonable for the transferring entity to conclude that the total of the * depreciating assets’ actual * market values at the respective times when the economic benefits were or are * provided was, is, or will be, not less than 80%, and not more than 120%, of the total of their respective residual values under subsection (1); paragraph (1)(f) is taken to be satisfied for each of the economic benefits.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-350 — Ultimate controller

An entity is an ultimate controller of another entity if, and only if: (a) the first entity * controls (for value shifting purposes) the other entity; and (b) there is no entity that controls (for value shifting purposes) both the first entity and the other entity.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-355 — Control (for value shifting purposes) of a company

50% stake test (1) An entity controls (for value shifting purposes) a company if the entity, or the entity and its * associates between them: (a) can exercise, or can control the exercise of, at least 50% of the voting power in the company (either directly, or indirectly through one or more interposed entities); or (b) have the right to receive (either directly, or indirectly through one or more interposed entities) at least 50% of any dividends that the company may pay; or (c) have the right to receive (either directly, or indirectly through one or more interposed entities) at least 50% of any distribution of capital of the company. 40% stake test (2) An entity also controls (for value shifting purposes) a company if the entity, or the entity and its * associates between them: (a) can exercise, or can control the exercise of, at least 40% of the voting power in the company (either directly, or indirectly through one or more interposed entities); or (b) have the right to receive (either directly, or indirectly through one or more interposed entities) at least 40% of any dividends that the company may pay; or (c) have the right to receive (either directly, or indirectly through one or more interposed entities) at least 40% of any distribution of capital of the company; unless an entity (other than the first entity and its associates) either alone or together with its associates in fact controls the company. Actual control test (3) An entity also controls (for value shifting purposes) a company if the entity, either alone or together with its * associates, in fact controls the company.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 16 of 2003, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 1 (items 1–6, 9–26), Sch 2, 3, Sch 4 (items 1–7), Sch 5 (items 2–5), Sch 6 (items 1–9), Sch 7 (items 1, 2, 4–29), Sch 8, Sch 9 (items 1, 2, 13–21), Sch 10 (item 2), Sch 11 (items 1–3), Sch 12, 13, Sch 14 (items 1–7), Sch 16 (items 1–3), Sch 19 (items 1–3), Sch 21, 22, Sch 23 (items 10–13) and Sch 24 (items 20–23): 24 Oct 2002 (s 2(1) items 1A, 2–11, 13, 14) Sch 7 (item 3): ( see Sch 10 (item 224) of Act No. 41, 2005) Sch 25 (items 1–10), Sch 26 (items 1–4, 8), Sch 27 (items 1–19, 21), Sch 28 (items 1–12, 19), Sch 29 (items 12, 13) and Sch 30 (items 1, 2): 29 June 2002 (s 2(1) items 15–19, 21, 23)

s 727-360 — Control (for value shifting purposes) of a fixed trust

40% stake test (1) An entity controls (for value shifting purposes) a * fixed trust if the entity, or the entity and its * associates between them, have the right to receive (either directly, or indirectly through one or more interposed entities) at least 40% of any distribution of trust income, or trust capital, to beneficiaries of the trust. Other tests (2) An entity also controls (for value shifting purposes) a * fixed trust if: (a) the entity, or an * associate of the entity, whether alone or with other associates (the relevant entity ), has the power to obtain the beneficial enjoyment of the trust’s capital or income (whether or not by exercising its power of appointment or revocation, and whether with or without another entity’s consent); or (b) the relevant entity is able to control the application of the trust’s capital or income in any manner (whether directly or indirectly); or (c) the relevant entity is able to do a thing mentioned in paragraph (a) or (b) under a * scheme; or (d) a trustee of the trust is accustomed or is under an obligation (whether formally or informally), or might reasonably be expected, to act in accordance with the relevant entity’s directions, instructions or wishes; or (e) the relevant entity is able to remove or appoint a trustee of the trust.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-365 — Control (for value shifting purposes) of a non ‑ fixed trust

Trustee tests (1) An entity controls (for value shifting purposes) a * non ‑ fixed trust if: (a) the entity or an * associate of the entity is a trustee of the trust; or (b) the entity, or the entity and its * associates between them, can remove or appoint the trustee, or one or more of the trustees, of the trust; or (c) a trustee of the trust is accustomed to act, is under an obligation (whether formally or informally) to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of: (i) the entity or an * associate of the entity; or (ii) 2 or more entities, at least one of which is the entity or an associate of the entity. Tests based on control of the trust income or capital (2) An entity also controls (for value shifting purposes) a * non ‑ fixed trust if the entity, or the entity and its * associates between them: (a) have the power to obtain the beneficial enjoyment of trust income or capital; or (b) can control in any way at all, whether directly or indirectly, the application of trust income or capital; or (c) can, under a * scheme, gain the enjoyment or control referred to in paragraph (a) or (b). (3) An entity also controls (for value shifting purposes) a * non ‑ fixed trust if: (a) the entity, or any of its * associates, can benefit under the trust otherwise than because of a * fixed entitlement to a share of the income or capital of the trust; or (b) if the entity, or the entity and its * associates between them, have the right to receive (either directly, or indirectly through one or more interposed entities) at least 40% of any distribution of trust income, or trust capital.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-370 — Preventing double counting for percentage stake tests

If an interest giving an entity, or an entity and its * associates: (a) the ability to exercise, or control the exercise of, any of the voting power in a company; or (b) the right to receive dividends that a company may pay; or (c) the right to receive a distribution of capital of a company; or (d) the right to receive a distribution of trust income or trust capital; is both direct and indirect, and (apart from this section) would be counted more than once in applying subsection 727 ‑ 355(1) or (2) or section 727 ‑ 360, only the direct interest is to be counted.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-375 — Tests in this Subdivision are exhaustive

An entity does not control (for value shifting purposes) a company or trust except as provided in this Subdivision.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-400 — When 2 entities have a common ‑ ownership nexus within a period

(1) 2 entities have a common ‑ ownership nexus within a period if, and only if, they satisfy the test in any of the one or more items in the table applicable to them. Common ‑ ownership nexus within a period Item If the entities are: This is the test: 1 both companies There must be 2 or more * ultimate owners who: (a) at some time during that period, because of the same test in section 727 ‑ 405, have * ultimate stakes, of percentages totalling at least 80%, in one of the companies; and (b) at that or a different time during that period, because of that same test, have * ultimate stakes, of percentages totalling at least 80%, in the other company Also, subsection (2) of this section must be satisfied 2 both * fixed trusts There must be 2 or more * ultimate owners who: (a) at some time during that period, because of the same test in section 727 ‑ 410, have * ultimate stakes, of percentages totalling at least 80%, in one of the trusts; and (b) at that or a different time during that period, because of that same test, have * ultimate stakes, of percentages totalling at least 80%, in the other trust Also, subsection (2) of this section must be satisfied 3 a company and a * fixed trust There must be 2 or more * ultimate owners who: (a) at some time during that period, because of the same test in section 727 ‑ 405, have * ultimate stakes, of percentages totalling at least 80%, in the company; and (b) at that or a different time during that period, because of the same test in section 727 ‑ 410, have * ultimate stakes, of percentages totalling at least 80%, in the trust Also, subsection (2) of this section must be satisfied 4 a company and a * non ‑ fixed trust There must be 2 or more * ultimate owners: (a) each of whom * controls (for value shifting purposes) the non ‑ fixed trust because of section 727 ‑ 365 at the same time during that period; and (b) who, at that or a different time during that period, have * ultimate stakes, of percentages totalling at least 80%, in the company because of the same test in section 727 ‑ 405 5 a * fixed trust and a * non ‑ fixed trust There must be 2 or more * ultimate owners: (a) each of whom * controls (for value shifting purposes) the non ‑ fixed trust because of section 727 ‑ 365 at the same time during that period; and (b) who, at that or a different time during that period, have * ultimate stakes, of percentages totalling at least 80%, in the fixed trust because of the same test in section 727 ‑ 410 Additional condition about profile of percentage ultimate stakes held by 2 or more ultimate owners (2) In order to satisfy the test in item 1, 2 or 3 in the table in subsection (1), at least one of subsections (3), (4) and (5) must be satisfied. (3) For at least one of the * ultimate owners referred to in that item, the percentage of the * ultimate stake that owner has as mentioned in paragraph (a) in the last column of that item must be at least 40%, and so must the percentage of the ultimate stake that owner has as mentioned in paragraph (b) in the last column of that item. (4) Alternatively, for each of those * ultimate owners, the percentage of the * ultimate stake that owner has as mentioned in that paragraph (a) must be the same as the percentage of the ultimate stake that owner has as mentioned in that paragraph (b). (5) Alternatively, the number of those * ultimate owners must not exceed 16.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-405 — Ultimate stake of a particular percentage in a company

(1) This section sets out 3 tests of whether an entity has an ultimate stake of a particular percentage (the test percentage ) in a company. Note: In applying the tests, follow the rules in section 727 ‑ 415. Voting power (2) The first test is that, after tracing, to the * ultimate owners who ultimately hold it, the direct and indirect ownership of all * shares in the company that carry the right to exercise voting power in the company, that ownership is held by the entity to the extent of the test percentage of that voting power. Dividends (3) The second test is that, after tracing, to the * ultimate owners who ultimately hold it, the direct and indirect ownership of all * shares in the company that carry the right to receive any dividends that the company may pay, that ownership is held by the entity to the extent of the test percentage of those dividends. Capital distributions (4) The third test is that, after tracing, to the * ultimate owners who ultimately hold it, the direct and indirect ownership of all * shares in the company that carry the right to receive any distribution of capital of the company, that ownership is held by the entity to the extent of the test percentage of the distribution. Certain shares ignored (5) In tracing the ownership of * shares in a company, ignore * shares whose * dividends can reasonably be regarded as being equivalent to the payment of interest on a loan having regard to: (a) how the dividends are calculated; and (b) the conditions applying to the payment of the dividends; and (c) any other relevant matters.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-410 — Ultimate stake of a particular percentage in a fixed trust

(1) This section sets out 2 tests of whether an entity has an ultimate stake of a particular percentage (the test percentage ) in a * fixed trust. Note: In applying the tests, follow the rules in section 727 ‑ 415. Income distributions (2) The first test is that, after tracing, to the * ultimate owners who ultimately hold them, the direct and indirect rights to receive distributions of trust income, those rights are held by the entity to the extent of the test percentage of each such distribution. Capital distributions (3) The second test is that, after tracing, to the * ultimate owners who ultimately hold them, the direct and indirect rights to receive distributions of trust capital, those rights are held by the entity to the extent of the test percentage of each such distribution.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-415 — Rules for tracing

(1) In applying sections 727 ‑ 400, 727 ‑ 405 and 727 ‑ 410, follow the rules in this section. Interposed entities (2) Tracing is to be done through any interposed entities. Ownership or rights held jointly (3) If some of the ownership or rights of a particular kind in relation to a company or trust are held by 2 or more entities jointly or in common, each of the entities is treated as holding a proportion of the ownership or rights so held. The proportion is to be worked out on a reasonable basis, so that the total of the proportions equals the total of the ownership or rights so held. Ownership or rights held by associate (4) If, at a particular time: (a) an * ultimate owner is an * associate of another ultimate owner; and (b) the associate ultimately holds some of the ownership or rights of a particular kind in relation to a company or trust; then, in determining whether the other ultimate owner is one of 2 or more ultimate owners because of whom the conditions in an item in the table in section 727 ‑ 400 are satisfied, the ownership or rights of that kind in relation to the company or trust held by the associate at that time: (c) to the extent of a particular percentage, may be treated as being instead held by the other ultimate owner; and (d) to the extent so treated, cannot be treated as being instead held by any other ultimate owner of whom the first ultimate owner is an associate. (5) If one or more applications of subsection (4) are necessary to establish that an * ultimate owner is one of 2 or more ultimate owners because of whom the conditions in an item in the table in section 727 ‑ 400 are satisfied, that subsection must be applied accordingly.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-450 — What this Subdivision is about

This Subdivision tells you: • which method to use to work out the consequences of an indirect value shift for equity or loan interests, and indirect equity or loan interests, in the losing entity and in the gaining entity; and • which interests, and which owners, are affected. Table of sections Operative provisions 727 ‑ 455 Consequences of the indirect value shift Affected interests 727 ‑ 460 Affected interests in the losing entity 727 ‑ 465 Affected interests in the gaining entity 727 ‑ 470 Exceptions 727 ‑ 520 Equity or loan interest and related terms 727 ‑ 525 Indirect equity or loan interest Affected owners 727 ‑ 530 Who are the affected owners Choices about method to be used 727 ‑ 550 Choosing the adjustable value method 727 ‑ 555 Giving other affected owners information about the choice

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-455 — Consequences of the indirect value shift

The consequences (if any) of an * indirect value shift must be worked out using the * realisation time method unless the * adjustable value method is chosen in accordance with section 727 ‑ 550. Note: Later provisions of this Subdivision set out the interests to which those consequences apply (see sections 727 ‑ 460 to 727 ‑ 525), which are in turn determined by who are the affected owners (see section 727 ‑ 530).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-460 — Affected interests in the losing entity

These are the affected interests in the * losing entity: (a) each * equity or loan interest that an * affected owner owns in the losing entity immediately before the * IVS time; and (b) each equity or loan interest that: (i) an affected owner owns in another affected owner immediately before the IVS time; and (ii) is an * indirect equity or loan interest in the losing entity; (except one covered by an exception in section 727 ‑ 470).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-465 — Affected interests in the gaining entity

If immediately before the * IVS time the * gaining entity is a company or trust (except one listed in section 727 ‑ 125 (about superannuation entities)), these are the affected interests in the gaining entity: (a) each * equity or loan interest that an * affected owner owns in the gaining entity immediately before the * IVS time; and (b) each equity or loan interest that: (i) an affected owner owns in another affected owner immediately before the IVS time; and (ii) is an * indirect equity or loan interest in the gaining entity; (except one covered by an exception in section 727 ‑ 470).

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-470 — Exceptions

Mere active participants (1) An * equity or loan interest that an * active participant in the * scheme owns in another active participant immediately before the * IVS time is not an * affected interest in the * losing entity or in the * gaining entity unless one of the active participants is also covered by 1, 2, 3 or 4 in the table in subsection 727 ‑ 530(1) (about who is an affected owner). Entity that is a small business entity, or satisfies the maximum net asset value test for small business relief (2) An * equity or loan interest that an entity (the owner ) owns immediately before the * IVS time is not an * affected interest in the * losing entity or in the * gaining entity if the owner: (a) is a * small business entity for each income year that includes any of the * IVS period; or (b) would satisfy the maximum net asset value test in section 152 ‑ 15 throughout the * IVS period. (3) If the owner is not in existence for part of the * IVS period, disregard that part in applying subsection (2). Interests in superannuation entities not covered (4) An * equity or loan interest in an * affected owner is not an * affected interest in the * losing entity or in the * gaining entity if the affected owner is an entity listed in section 727 ‑ 125 (about superannuation entities) in relation to the income year in which the * IVS time happens.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 80 of 2007, effective 21 June 2007

s 727-520 — Equity or loan interest and related terms

(1) An equity or loan interest in an entity is a * primary interest, or a * secondary interest, in the entity. (2) A primary interest in an entity is a * primary equity interest, or a * primary loan interest, in the entity. (3) The meaning of primary equity interest in an entity is set out in the table. Primary equity interests Item In the case of this kind of entity: Primary equity interest means: 1 a company a * share in the company; or an interest as joint owner (including as tenant in common) of a * share in the company 2 a trust any of these: (a) an interest in the trust income or trust capital; or (b) any other interest in the trust; or (c) an interest as joint owner (including as tenant in common) of an interest covered by paragraph (a) or (b) (4) A primary loan interest in an entity is: (a) a loan to the entity; or (b) an interest as joint owner (including as tenant in common) of a loan to the entity. (5) A secondary interest in an entity is a * secondary equity interest, or a * secondary loan interest, in the entity. (6) A secondary equity interest in an entity is a right or option: (a) to * acquire an existing * primary equity interest in the entity; or (b) to have the entity issue a new primary equity interest. (7) A secondary loan interest in an entity is a right or option: (a) to * acquire an existing * primary loan interest in the entity; or (b) to have the entity issue a new primary loan interest.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 16 of 2003, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 1 (items 1–6, 9–26), Sch 2, 3, Sch 4 (items 1–7), Sch 5 (items 2–5), Sch 6 (items 1–9), Sch 7 (items 1, 2, 4–29), Sch 8, Sch 9 (items 1, 2, 13–21), Sch 10 (item 2), Sch 11 (items 1–3), Sch 12, 13, Sch 14 (items 1–7), Sch 16 (items 1–3), Sch 19 (items 1–3), Sch 21, 22, Sch 23 (items 10–13) and Sch 24 (items 20–23): 24 Oct 2002 (s 2(1) items 1A, 2–11, 13, 14) Sch 7 (item 3): ( see Sch 10 (item 224) of Act No. 41, 2005) Sch 25 (items 1–10), Sch 26 (items 1–4, 8), Sch 27 (items 1–19, 21), Sch 28 (items 1–12, 19), Sch 29 (items 12, 13) and Sch 30 (items 1, 2): 29 June 2002 (s 2(1) items 15–19, 21, 23)

s 727-525 — Indirect equity or loan interest

An * equity or loan interest in an entity is an indirect equity or loan interest in another entity if, and only if: (a) the first entity owns an equity or loan interest in the other entity; or (b) the first entity owns an equity or loan interest that is an indirect equity or loan interest in the other entity because of one or more other applications of this section.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-530 — Who are the affected owners

(1) The table sets out the affected owners for the * indirect value shift. Affected owners Item In this case: The affected owners include: 1 At least one condition in section 727 ‑ 105 (ultimate controller test) is satisfied each * ultimate controller because of which a condition in that section is satisfied; and each entity that, at a time during the * IVS period when such an ultimate controller * controlled (for value shifting purposes) the losing entity, was an * intermediate controller of the losing entity; and each entity that, at a time during the IVS period when such an ultimate controller controlled (for value shifting purposes) the gaining entity, was an intermediate controller of the gaining entity 2 The conditions in section 727 ‑ 110 (common ‑ ownership nexus test) are satisfied in respect of: (a) one or more times; or (b) one or more sets of 2 times each * ultimate owner who is one of 2 or more ultimate owners because of whom the condition in the applicable item of that table is satisfied in respect of any of those times; and each entity through which ownership or rights are traced to such an ultimate owner in applying the applicable item of that table in respect of any of those times 3 Any case the * losing entity and the * gaining entity 4 Any case each entity that, at any time after the * scheme was entered into, is an * associate of an entity that is an affected owner because of item 1, 2 or 3 of this table 5 Any case each * active participant in the * scheme (2) An entity is an intermediate controller of another entity if, and only if: (a) the first entity * controls (for value shifting purposes) the other entity; and (b) the first entity is * controlled (for value shifting purposes) by an * ultimate controller of the other entity. Active participants (if both losing and gaining entities are closely held) (3) An entity (the first entity ) is an active participant in the * scheme if: (a) at some time during the * IVS period, neither the losing entity nor the gaining entity has 300 or more members (in the case of a company) or 300 or more beneficiaries (in the case of a trust); and (b) the first entity: (i) actively participated in, or directly facilitated, the entering into of the * scheme; or (ii) at some time during the * IVS period actively participated in, or directly facilitated, the carrying out of the scheme; (whether or not it did so at the direction of some other entity); and (c) at some time during the * IVS period, the first entity owned: (i) an * equity or loan interest in the losing entity or in the gaining entity; or (ii) an * indirect equity or loan interest in the losing entity or in the gaining entity; and (d) the first entity is neither the losing entity nor the gaining entity. Note: Subsections 727 ‑ 110(2) and (3) contain rules about when an entity is treated as having or not having 300 or more members or beneficiaries.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-550 — Choosing the adjustable value method

(1) This section sets out rules for: (a) choosing to use the * adjustable value method to work out the consequences of an * indirect value shift; or (b) choosing (when using the adjustable value method) not to work out on a * loss ‑ focussed basis the reductions in the * adjustable values of * affected interests. Who makes the choice (2) The choice must be made in accordance with the table. Who makes the choice Item In this case: The choice must be made by: 1 If the conditions in section 727 ‑ 110 (common ‑ ownership nexus test) are satisfied jointly by the * ultimate owners because of whom the condition in the applicable item of the table in section 727 ‑ 400 is satisfied 2 Item 1 does not apply, and there is an entity: (a) who is the sole * ultimate controller because of whom the conditions in section 727 ‑ 105 (ultimate controller test) are satisfied; or (b) who would be that sole ultimate controller if sections 727 ‑ 355 to 727 ‑ 375 were applied ignoring that entity’s * associates that entity 3 Neither of items 1 and 2 applies jointly by the 2 or more * ultimate controllers because of whom the conditions in section 727 ‑ 105 (ultimate controller test) are satisfied When choice must be made (3) The choice must be made within 2 years after the first * realisation event that happens to an * affected interest at or after the IVS time. Choice binds all affected owners (4) The choice binds all * affected owners for the * indirect value shift.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-555 — Giving other affected owners information about the choice

(1) An entity that makes a choice under section 727 ‑ 550 (including a choice made jointly with one or more other entities) must inform all entities that it knows to be * affected owners for the * indirect value shift about the content of the choice. The entity must do so in writing within one month after making the choice. Penalty: 30 penalty units. (2) If: (a) a choice under section 727 ‑ 550 is made jointly by 2 or more entities; and (b) one of the entities complies with subsection (1); no other entity need comply with that subsection in relation to that choice. (3) If an * affected owner for an * indirect value shift has reason to believe that an entity may have made a choice under section 727 ‑ 550 (including a choice made jointly with one or more other entities), the affected owner may give the entity a written notice asking whether the entity has made such a choice. (4) Within one month after receiving a notice under subsection (3), an entity must inform the * affected owner in writing whether the entity has made a choice under section 727 ‑ 550 and, if so, about the content of the choice. Penalty: 30 penalty units. (5) The Commissioner may extend the period for complying with a provision of this section.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-600 — What this Subdivision is about

Under the realisation time method: • losses on realisation of affected interests in the losing entity are reduced; and • gains on realisation of affected interests in the gaining entity are reduced, within limits worked out by reference to the reductions in losses on affected interests in the losing entity; and • certain 95% services indirect value shifts are disregarded. This Subdivision also explains how its reduction of a loss or gain affects CGT assets, trading stock and revenue assets. Table of sections Operative provisions 727 ‑ 610 Consequences of indirect value shift 727 ‑ 615 Reduction of loss on realisation event for affected interest in losing entity 727 ‑ 620 Reduction of gain on realisation event for affected interest in gaining entity 727 ‑ 625 Total gain reductions not to exceed total loss reductions 727 ‑ 630 How cap in section 727 ‑ 625 applies if affected interest is also trading stock or a revenue asset 727 ‑ 635 Splitting an equity or loan interest 727 ‑ 640 Merging equity or loan interests 727 ‑ 645 Effect of CGT roll ‑ over Further exclusion for certain 95% services indirect value shifts if realisation time method must be used 727 ‑ 700 When 95% services indirect value shift is excluded 95% services indirect value shifts that are not excluded 727 ‑ 705 Another provision of the income tax law affects amount related to services by at least $100,000 727 ‑ 710 Ongoing or recent service arrangement reduces value of losing entity by at least $100,000 727 ‑ 715 Service arrangements reduce value of losing entity that is a group service provider by at least $500,000 727 ‑ 720 Abnormal service arrangement reduces value of losing entity that is not a group service provider by at least $500,000 727 ‑ 725 Meaning of predominantly ‑ services indirect value shift

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-610 — Consequences of indirect value shift

(1) This Subdivision sets out the realisation time method of working out the consequences (if any) of an * indirect value shift. (2) If those consequences are to be worked out using that method, this Subdivision applies to each * realisation event: (a) by which a loss would, apart from this Division, be * realised for income tax purposes; and (b) that happens to an * affected interest in the * losing entity; and (c) that is the first realisation event that happens to that interest at or after the * IVS time; and (d) that happens: (i) if the amount of the indirect value shift is $500,000 or more—at any time after the IVS time; or (ii) otherwise—within 4 years after the IVS time. (3) If: (a) those consequences are to be worked out using that method; and (b) the * gaining entity is a company or trust (except one listed in section 727 ‑ 125 (about superannuation entities)) immediately before the * IVS time; this Subdivision applies to each * realisation event: (c) by which a gain would, apart from this Division, be * realised for income tax purposes; and (d) that happens to an * affected interest in the * gaining entity; and (e) that is the first realisation event that happens to that interest at or after the IVS time. (4) The consequences for the * affected interest depend on its character. There are consequences for the interest in its character as a * CGT asset. However, if the interest is also * trading stock or a * revenue asset, there are additional consequences for it in that character. (5) In working out the consequences for an * affected interest in the * losing entity or * gaining entity, in the interest’s character as * trading stock, a * realisation event is disregarded for the purposes of identifying under paragraph (2)(c) or (3)(e) the first realisation event that happens to that interest at or after the * IVS time, if: (a) the realisation event consists of the ending of an income year; and (b) the * value of the interest as trading stock on hand of an entity at the end of the income year is the interest’s * cost; and (c) the interest became part of the entity’s trading stock on hand during that income year, or the value of the interest as trading stock of the entity on hand at the start of the income year was also the interest’s cost.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-615 — Reduction of loss on realisation event for affected interest in losing entity

If this Subdivision applies to a * realisation event that happens to an * affected interest in the * losing entity, a loss that would, apart from this Division, be * realised for income tax purposes by the event is reduced by an amount that is reasonable having regard to: (a) a reasonable estimate of the amount (if any) by which the * indirect value shift has reduced the interest’s * market value; and (b) if the interest is also an affected interest in the * gaining entity—a reasonable estimate of the extent (if any) to which the interest’s market value at the time of the realisation event still reflects the effect of the indirect value shift on the market value of * equity or loan interests in the gaining entity.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-620 — Reduction of gain on realisation event for affected interest in gaining entity

If this Subdivision applies to a * realisation event that happens to an * affected interest in the * gaining entity, a gain that would, apart from this Division, be * realised for income tax purposes by the event is reduced by an amount that is reasonable having regard to: (a) a reasonable estimate of the amount (if any) by which the * indirect value shift has increased the interest’s * market value; and (b) a reasonable estimate of the extent (if any) to which the interest’s market value at the time of the realisation event still reflects the effect of the indirect value shift on the market value of * equity or loan interests in the gaining entity.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-625 — Total gain reductions not to exceed total loss reductions

(1) This section ensures that the total ( total gain reductions ) of the amounts by which section 727 ‑ 620 reduces gains * realised for income tax purposes by * realisation events happening at the same time does not exceed the total ( total loss reductions ) of: (a) the amounts by which section 727 ‑ 615 reduces losses that: (i) would, apart from this Division, be * realised for income tax purposes by * realisation events happening before or at that time; and (ii) have not already been taken into account in a previous application of this section; and (b) the amounts by which section 727 ‑ 850 (as applying to the * scheme from which the * indirect value shift results) reduces losses that: (i) would, apart from this Division, be realised for income tax purposes by realisation events happening before the * IVS time to * equity or loan interests, or * indirect equity or loan interests, in the * losing entity; and (ii) have not already been taken into account in a previous application of this section. (2) If, apart from this section, the total gain reductions would exceed the total loss reductions, the amount by which section 727 ‑ 620 reduces each of the gains is itself reduced by the amount worked out using this formula: (3) For the purposes of the formula: number of interests means the number of * affected interests in the * gaining entity to which * realisation events happened at that time.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-630 — How cap in section 727 ‑ 625 applies if affected interest is also trading stock or a revenue asset

(1) This section affects how to work out the total gain reductions and the total loss reductions for the purposes of section 727 ‑ 625 if: (a) a * realisation event covered by that section happens to an * equity or loan interest, or to an * indirect equity or loan interest, in the * losing entity or in the * gaining entity; and (b) the interest is also * trading stock or a * revenue asset at the time of the event. Trading stock (2) In the case of an * equity or loan interest, or an * indirect equity or loan interest, in the * losing entity that is * trading stock at that time: (a) the amount (if any) by which section 727 ‑ 615 or 727 ‑ 850 reduces a loss worked out under section 977 ‑ 25 or 977 ‑ 30 (about realisation events for trading stock) that would, apart from this Division, be * realised for income tax purposes by the event is taken into account; and (b) the amount (if any) by which section 727 ‑ 615 or 727 ‑ 850 reduces a loss worked out under section 977 ‑ 10 (about realisation events for CGT assets) that would, apart from this Division, be * realised for income tax purposes by the event is not taken into account; in working out the total loss reductions. (3) In the case of an * affected interest in the * gaining entity that is * trading stock at that time: (a) the amount (if any) by which section 727 ‑ 620 reduces a gain worked out under section 977 ‑ 35 or 977 ‑ 40 (about realisation events for trading stock) that would, apart from this Division, be * realised for income tax purposes by the event is taken into account; and (b) the amount (if any) by which section 727 ‑ 620 reduces a gain worked out under section 977 ‑ 15 (about realisation events for CGT assets) that would, apart from this Division, be * realised for income tax purposes by the event is not taken into account; in working out the total gain reductions. Revenue asset (4) In the case of an * equity or loan interest, or an * indirect equity or loan interest, in the * losing entity that is a * revenue asset at that time, the greater of the following is taken into account in working out the total loss reductions: (a) the amount (if any) by which section 727 ‑ 615 or 727 ‑ 850 reduces a loss worked out under section 977 ‑ 55 (about realisation events for revenue assets) that would, apart from this Division, be * realised for income tax purposes by the event; (b) the amount (if any) by which section 727 ‑ 615 or 727 ‑ 850 reduces a loss worked out under section 977 ‑ 10 (about realisation events for CGT assets) that would, apart from this Division, be * realised for income tax purposes by the event. (5) In the case of an * affected interest in the * gaining entity that is a * revenue asset at that time, the greater of the following amounts is taken into account in working out the total gain reductions: (a) the amount (if any) by which section 727 ‑ 620 reduces a gain worked out under section 977 ‑ 55 (about realisation events for revenue assets) that would, apart from this Division, be * realised for income tax purposes by the event; (b) the amount (if any) by which section 727 ‑ 620 reduces a gain worked out under section 977 ‑ 15 (about realisation events for CGT assets) that would, apart from this Division, be * realised for income tax purposes by the event.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-635 — Splitting an equity or loan interest

If an * equity or loan interest in the * losing entity or in the * gaining entity is split into 2 or more equity or loan interests at or after the * IVS time: (a) each of the 2 or more interests inherits whatever characteristics would have been relevant to applying this Subdivision to the first interest if the split had not happened; and (b) those characteristics include characteristics the first interest has inherited because of any other application or applications of this section or section 727 ‑ 640; and (c) if a characteristic of the first interest involves an amount or quantity, the amount or quantity for that characteristic as inherited by each of the 2 or more interests is a reasonable proportion of the amount or quantity for that characteristic of the first interest.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-640 — Merging equity or loan interests

If 2 or more * equity or loan interests (the original interests ) in the * losing entity or in the * gaining entity are merged into 1 or more * equity or loan interests (the new interests ) at or after the * IVS time: (a) each of the new interests inherits whatever characteristics would have been relevant to applying this Subdivision to the original interests if the merging had not happened; and (b) those characteristics include characteristics inherited by any of the original interests because of any other application or applications of this section or section 727 ‑ 635; and (c) if a characteristic of any of the original interests involves an amount or quantity, the amount or quantity for that characteristic as inherited by any of the new interests is a reasonable proportion of the amount or quantity for that characteristic of the original interest.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-645 — Effect of CGT roll ‑ over

(1) If: (a) this Subdivision applies to a * realisation event that is a * CGT event that happens to an * affected interest in the * losing entity; and (b) section 727 ‑ 615 reduces a loss that would, apart from this Division, be * realised for income tax purposes by the CGT event; and (c) there is a roll ‑ over for the CGT event; the interest’s * reduced cost base at the time of the CGT event is taken to have been reduced by the amount by which section 727 ‑ 615 reduces that loss, but is so taken only for the purposes of working out: (d) the interest’s reduced cost base, from time to time after the roll ‑ over, for the entity that * acquired the interest because of the CGT event; and (e) in the case of a * replacement ‑ asset roll ‑ over—the reduced cost base of the replacement CGT asset, from time to time after the roll ‑ over, for the entity that * disposed of the interest. Note: Because of the roll ‑ over, the loss reduction under section 727 ‑ 615 will have no tax effect. This subsection ensures that the loss reduction is passed on, through the reduction in reduced cost base, to prevent or reduce a loss arising on a later CGT event. (2) If: (a) this Subdivision applies to a * realisation event that is a * CGT event that happens to an * affected interest in the * gaining entity; and (b) section 727 ‑ 620 reduces a gain that would, apart from this Division, be * realised for income tax purposes by the CGT event; and (c) there is a roll ‑ over for the CGT event; the interest’s * cost base at the time of the CGT event is taken to have been uplifted by the amount by which section 727 ‑ 620 reduces that gain, but is so taken only for the purposes of working out: (d) the interest’s cost base, from time to time after the roll ‑ over, for the entity that * acquired the interest because of the CGT event; and (e) in the case of a * replacement ‑ asset roll ‑ over—the cost base of the replacement CGT asset, from time to time after the roll ‑ over, for the entity that * disposed of the interest. Note: Because of the roll ‑ over, the gain reduction under section 727 ‑ 620 will have no tax effect. This subsection ensures that the gain reduction is passed on, through the uplift in cost base, to prevent or reduce a gain arising on a later CGT event.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-700 — When 95% services indirect value shift is excluded

(1) If the * indirect value shift is a * 95% services indirect value shift, this Subdivision does not apply to a * realisation event that: (a) happens to an * affected interest in the * losing entity that is owned by an entity (the owner ); and (b) is covered by subsection 727 ‑ 610(2); unless: (c) the conditions in section 727 ‑ 705 are met for the indirect value shift; or (d) the conditions in section 727 ‑ 710, 727 ‑ 715 or 727 ‑ 720 are met for the indirect value shift and for that realisation event. (2) An * indirect value shift is a 95% services indirect value shift if, and only if, to the extent of at least 95% of their total * market value, the * greater benefits consist entirely of: (a) a right to have services that are covered by section 727 ‑ 240 provided directly by the * losing entity to the * gaining entity; or (b) services that are covered by section 727 ‑ 240 and have been, are being, or are to be, so provided; or both. (3) This section does not limit any other exclusion in this Subdivision or in Subdivision 727 ‑ C.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-705 — Another provision of the income tax law affects amount related to services by at least $100,000

The conditions in this section are met if: (a) the * losing entity or the * gaining entity lodges an * income tax return for an income year during some or all of which the owner owned the interest; and (b) a provision of this Act: (i) reduces or excludes an amount that is included in the return; or (ii) increases an amount that is so included; or (iii) includes an amount not included in the return; for the purposes of working out the taxable income, a * tax loss, or a * net capital loss, of that entity for that income year; and (c) the amount is related to the right mentioned in paragraph 727 ‑ 700(2)(a), or to some or all of the services mentioned in paragraph 727 ‑ 700(2)(a) or (b), from the point of view of the losing entity providing the services or of the gaining entity receiving them; and (d) if the amount is so reduced or increased—the reduction or increase is at least $100,000; and (e) if the amount is so excluded or included—the amount is at least $100,000; and (f) at some time after the return is lodged, the entity that lodged it is aware, or ought reasonably to be aware, of the reduction, exclusion, increase or inclusion. Example: If the Commissioner has notified an entity affected by a determination under Part IVA of the Income Tax Assessment Act 1936 , the entity ought reasonably to be aware of the effect of the determination.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-710 — Ongoing or recent service arrangement reduces value of losing entity by at least $100,000

(1) Either or both of these must be true: (a) when the * realisation event mentioned in subsection 727 ‑ 700(1) happens, some or all of the services mentioned in paragraph 727 ‑ 700(2)(a) or (b) have not yet been provided; or (b) some or all of those services have been provided in the income year (of the * losing entity) in which the realisation event happens, or in the previous income year. (2) It must be reasonable to conclude that the total (the total market value ) of the * market values, immediately before the * realisation event, of * primary interests in the * losing entity then owned by * affected owners is less than it would have been if none of the following had happened: (a) the * 95% services indirect value shift; and (b) all other * predominantly ‑ services indirect value shifts that satisfy subsection (1) (or that would satisfy it if they were * 95% services indirect value shifts). (3) It must also be reasonable to conclude that the total * market value is less than it would have been by at least: (a) $100,000, if the total of the * adjustable values, immediately before the * realisation event, of the * primary interests referred to in subsection (2) is less than or equal to $2,000,000; or (b) 5% of the total of those * adjustable values, if that total is greater than $2,000,000 and less than or equal to $10,000,000; or (c) $500,000, if that total is greater than $10,000,000. (4) For the purposes of subsections (2) and (3), disregard an * indirect value shift referred to in paragraph (2)(a) or (b) if services are provided directly by the * losing entity to the * gaining entity under the * scheme before the income year (of the losing entity) before the one in which the * realisation event happened.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-715 — Service arrangements reduce value of losing entity that is a group service provider by at least $500,000

(1) At some time during the period (the ownership period ) when the owner owned the interest, the sole or dominant activity of the * losing entity must consist of providing services directly to one or more entities (the group entities ) each of which is covered by one or more of the following paragraphs: (a) the * gaining entity; (b) an * affected owner; (c) an entity that has at that time the same * ultimate controller as the losing entity or the gaining entity; (d) if the conditions in section 727 ‑ 110 (common ‑ ownership nexus test) are satisfied for the * indirect value shift—an entity that has with the losing entity or with the gaining entity a * common ‑ ownership nexus within that period. (2) It must be reasonable to conclude that the total (the total market value ) of the * market values, immediately before the * realisation event, of * primary interests in the * losing entity then owned by * affected owners is less than it would have been if none of the following had happened: (a) the * 95% services indirect value shift; and (b) each * predominantly ‑ services indirect value shift for which the same entity is the losing entity as for the 95% services indirect value shift, and that happened: (i) if the amount of the * indirect value shift is $500,000 or more—at any time during the ownership period; or (ii) otherwise—during the ownership period but within 4 years before the realisation event, or at the same time as the realisation event. Thresholds for reduction of the total market value (3) It must also be reasonable to conclude that the total * market value is less than it would have been by at least $500,000, and by at least the lesser of: (a) 5% of the total of the * adjustable values of * primary interests in the * losing entity owned by * affected owners at: (i) if subsection (4) applies—the time determined under that subsection; or (ii) otherwise—the start of the income year in which the * realisation event happens; and (b) the amount worked out under the table. Alternative threshold for reduction of the total market value Item In this case: The amount is: 1 The ownership period is 4 years or less worked out using this formula: 2 The ownership period is more than 4 years $25,000,000 (3A) If at the time referred to in subsection (3) a * primary interest covered by that subsection was * trading stock or a * revenue asset, its * adjustable value taken into account under that subsection is the greater of its adjustable value as a * CGT asset and its adjustable value as trading stock or a revenue asset. (4) If the owner of the interest is an * affected owner because of item 1, 2, 3 or 4 in the table in subsection 727 ‑ 530(1) (about who is an affected owner), the time for the purposes of subparagraph (3)(a)(i) of this section is the latest of: (a) the start of the income year in which the * realisation event happens; and (b) the start of the most recent period (if any): (i) that ended before or at the time of the * realisation event; and (ii) throughout which at least one of the group entities had the same * ultimate controller as the losing entity or the gaining entity; and (c) the start of the most recent period (if any): (i) that ended before or at the time of the realisation event; and (ii) within which at least one of the group entities has with the losing entity or with the gaining entity a * common ‑ ownership nexus.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 16 of 2003, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 1 (items 1–6, 9–26), Sch 2, 3, Sch 4 (items 1–7), Sch 5 (items 2–5), Sch 6 (items 1–9), Sch 7 (items 1, 2, 4–29), Sch 8, Sch 9 (items 1, 2, 13–21), Sch 10 (item 2), Sch 11 (items 1–3), Sch 12, 13, Sch 14 (items 1–7), Sch 16 (items 1–3), Sch 19 (items 1–3), Sch 21, 22, Sch 23 (items 10–13) and Sch 24 (items 20–23): 24 Oct 2002 (s 2(1) items 1A, 2–11, 13, 14) Sch 7 (item 3): ( see Sch 10 (item 224) of Act No. 41, 2005) Sch 25 (items 1–10), Sch 26 (items 1–4, 8), Sch 27 (items 1–19, 21), Sch 28 (items 1–12, 19), Sch 29 (items 12, 13) and Sch 30 (items 1, 2): 29 June 2002 (s 2(1) items 15–19, 21, 23) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-720 — Abnormal service arrangement reduces value of losing entity that is not a group service provider by at least $500,000

(1) It must be the case that at no time during the period when the owner owned the interest did the sole or dominant activity of the * losing entity consist of providing services as mentioned in subsection 727 ‑ 715(1). (2) It must be reasonable to conclude that the total (the total market value ) of the * market values, immediately before the * realisation event, of * primary interests in the * losing entity then owned by * affected owners is less than it would have been if none of the following had happened: (a) the * 95% services indirect value shift; (b) each * predominantly ‑ services indirect value shift that meets either of these conditions: (i) its amount was less than $500,000 and it happened within 4 years before the realisation event, or at the same time as the realisation event; (ii) its amount was $500,000 or more and it happened at any time before the realisation event, or at the same time as the realisation event; and that meets all of these conditions: (iii) the same entity is the losing entity for it as for the 95% services indirect value shift; (iv) it happened under a different * scheme from the 95% services indirect value shift; and (v) having regard to all relevant circumstances, it is reasonable to conclude that the sole or main reason why it happened under a different scheme was to prevent the conditions in section 727 ‑ 705, 727 ‑ 710, 727 ‑ 715 or this section from being met. (3) It must also be reasonable to conclude that the total * market value is less than it would have been by at least: (a) $500,000, if the total of the * adjustable values, immediately before the * realisation event, of the * primary interests referred to in subsection (2) is less than or equal to $10,000,000; or (b) 5% of the total of those * adjustable values, if that total is greater than $10,000,000 and less than or equal to $100,000,000; or (c) $5,000,000, if that total is greater than $100,000,000. (4) The providing of the services mentioned in paragraph 727 ‑ 700(2)(a) or (b) by the losing entity must not be in the ordinary course of its business.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-725 — Meaning of predominantly ‑ services indirect value shift

An * indirect value shift is a predominantly ‑ services indirect value shift if, and only if, the * greater benefits consist entirely or predominantly of: (a) a right to have services that are covered by section 727 ‑ 240 provided directly by the * losing entity to the * gaining entity; or (b) services that are covered by section 727 ‑ 240 and have been, are being, or are to be, so provided; or both.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-750 — What this Subdivision is about

Under the adjustable value method: • the adjustable values of affected interests in the losing entity are reduced; and • the adjustable values of affected interests in the gaining entity are uplifted, within limits worked out by references to the reductions in the adjustable values of affected interests in the losing entity. The consequences of that are: • the cost base and reduced cost base of the interests are reduced or uplifted (or both); and • if the interests are also trading stock or revenue assets, there are further consequences for them in their character as such. Table of sections 727 ‑ 755 Consequences of indirect value shift Reductions of adjustable value 727 ‑ 770 Reduction under the adjustable value method 727 ‑ 775 Has there been a disaggregated attributable decrease? 727 ‑ 780 Working out the reduction on a loss ‑ focussed basis Uplifts of adjustable value 727 ‑ 800 Uplift under the attributable increase method 727 ‑ 805 Has there been a disaggregated attributable increase? 727 ‑ 810 Scaling ‑ down formula Consequences of the method for various kinds of assets 727 ‑ 830 CGT assets 727 ‑ 835 Trading stock 727 ‑ 840 Revenue assets

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-755 — Consequences of indirect value shift

(1) This Subdivision sets out the adjustable value method of working out the consequences (if any) of an * indirect value shift. (2) If those consequences are to be worked out using that method: (a) the * adjustable value of each * affected interest in the * losing entity is reduced as provided in this Subdivision; and (b) if the * gaining entity is a company or trust (except one listed in section 727 ‑ 125 (about superannuation entities)) immediately before the * IVS time, the * adjustable value of each * affected interest in the * gaining entity is uplifted as provided in this Subdivision. (3) The consequences for the * affected interest depend on its character. There are consequences for the interest in its character as a * CGT asset. However, if the interest is also * trading stock or a * revenue asset, there are additional consequences for it in that character.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-770 — Reduction under the adjustable value method

(1) This section sets out how to work out the amount (if any) by which the * adjustable value of an * affected interest in the * losing entity is reduced. (2) First, work out under section 727 ‑ 775 whether the * indirect value shift has produced for the owner of the interest a * disaggregated attributable decrease in the * market value of the interest. (3) If it has not, the interest’s * adjustable value is not reduced because of the * indirect value shift. (4) If it has, the amount (if any) by which the interest’s * adjustable value is reduced is worked out on a * loss ‑ focussed basis under section 727 ‑ 780. (5) However, if a choice is made in accordance with section 727 ‑ 550 for the reduction not to be worked out on a * loss ‑ focussed basis, the reduction is equal to the * disaggregated attributable decrease. Reduction not to exceed reasonable amount (6) If the reduction worked out as provided in subsection (4) or (5) is not reasonable in the circumstances, having regard to the objects of this Division, the interest’s * adjustable value is instead reduced by so much of that reduction as is reasonable in the circumstances, having regard to those objects. Note: The main object of this Division is set out in section 727 ‑ 95.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-775 — Has there been a disaggregated attributable decrease?

(1) This section sets out how to determine whether an * indirect value shift has produced, for the owner of an * equity or loan interest, a disaggregated attributable decrease in the * market value of the interest and, if so, the amount of it. (2) Work out the * market value of the interest at the * IVS time, but disregarding: (a) all effects on the market value of the interest during the * IVS period, except effects that are reasonably attributable to the * indirect value shift; and (b) the effects (if any) of the indirect value shift on the market value of * equity or loan interests, or * indirect equity or loan interests, in the gaining entity. (This result is called the notional resulting market value .) Note: Paragraph (2)(b) is necessary because the market value of the interest may also have been affected by the increase in the market value of interests in the gaining entity, because the entity in which the interest is held had direct or indirect interests in both the losing entity and the gaining entity. In such a case, the reduction in adjustable value under this Division will usually be offset by an uplift under this Division. (3) If the notional resulting * market value is less than the market value (the old market value ) of the interest: (a) at the start of the * IVS period; or (b) if the owner last began to own the interest during that period—when the owner last began to own the interest; the difference is the disaggregated attributable decrease . (4) The * indirect value shift has not produced a disaggregated attributable decrease for the owner of the interest if the notional resulting * market value is greater than or equal to the old market value. (5) The * market value of the interest at a particular time may be worked out under subsection (2) or (3) by making a reasonable estimate of that market value.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-780 — Working out the reduction on a loss ‑ focussed basis

(1) Use the table in subsection (2) of this section to work out on a loss ‑ focussed basis the amount (if any) by which the interest’s * adjustable value is reduced. (2) This involves comparing the old * market value, and the notional resulting market value, with the interest’s * adjustable value (the old adjustable value ) immediately before the * IVS time. Reduction under the attributable decrease method Item If the old market value: And the notional resulting market value: This is the result: 1 is greater than or equal to the old adjustable value is less than the old adjustable value the * adjustable value is reduced to the notional resulting market value 2 is greater than or equal to the old adjustable value is greater than or equal to the old adjustable value the * adjustable value is not reduced because of the * indirect value shift 3 is less than the old adjustable value is less than the old adjustable value the * adjustable value is reduced by the amount of the * disaggregated attributable decrease Note 1: Because of item 1, the indirect value shift cannot cause a loss to arise on disposal of the interest. Note 2: Because of item 3 the loss already embedded in the interest is preserved, but the indirect value shift does not increase it.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-800 — Uplift under the attributable increase method

(1) This section sets out how to work out the amount (if any) by which the * adjustable value of an * affected interest in the * gaining entity is uplifted. (2) First, work out under section 727 ‑ 805 whether the * indirect value shift has produced for the owner of the interest a * disaggregated attributable increase in the * market value of the interest. (3) If it has not, the interest’s * adjustable value is not uplifted because of the * indirect value shift. (4) If it has, the * adjustable value is uplifted by the amount worked out using the scaling ‑ down formula in section 727 ‑ 810, subject to the rest of this section. Note: The uplift will be less than or equal to the disaggregated attributable increase. Cap if interest has both a disaggregated attributable increase and a disaggregated attributable decrease (5) If the * indirect value shift has also produced for the owner of the interest a * disaggregated attributable decrease in the * market value of the interest, the interest’s * adjustable value: (a) is not uplifted if it is not also reduced under this Division because of the indirect value shift; and (b) if it is also reduced under this Division because of the indirect value shift—is not uplifted by more than the reduction. Cap based on notional distribution by gaining entity of dividends or capital equal to total reductions in adjustable value of affected interests in losing entity (6) However, the interest’s * adjustable value is not uplifted by more than the greater of these amounts: (a) the amount (if any) that the * affected owner of the interest would receive (directly, or indirectly through one or more interposed entities) in respect of the interest if: (i) the * gaining entity were to pay as * dividends, at the time (the payment time ) immediately before the * IVS time, an amount (the total reduction amount ) equal to the total of the amounts by which the * adjustable values of * equity or loan interests in the * losing entity are reduced under this Subdivision because of the * indirect value shift; and (ii) those dividends were successively paid or distributed at the payment time by each entity interposed between the gaining entity and that affected owner; and (b) the amount (if any) that the * affected owner of the interest would receive (directly, or indirectly through one or more interposed entities) in respect of the interest if: (i) the gaining entity were to pay the total reduction amount at the payment time as a distribution of capital; and (ii) that capital was successively paid or distributed at the payment time by each entity interposed between the gaining entity and that affected owner. (6A) The reduction of * adjustable value that is to be taken into account under subparagraph (6)(a)(i) for an * equity or loan interest in the * losing entity is: (a) if the interest is * trading stock immediately before the * IVS time—the one worked out on the basis of the interest’s adjustable value under subsection 727 ‑ 835(2); or (b) otherwise—the greater or greatest of these: (i) the reduction of the interest’s * cost base; (ii) the reduction of the interest’s * reduced cost base; (iii) the reduction (if any) worked out on the basis of the interest’s adjustable value under subsection 727 ‑ 840(2) (about revenue assets). Uplift not to exceed reasonable amount (7) If the uplift worked out as provided in subsections (4), (5) and (6) is not reasonable in the circumstances, having regard to the objects of this Division, the interest’s * adjustable value is instead uplifted by an amount that is reasonable in the circumstances, having regard to those objects. Note: The main object of this Division is set out in section 727 ‑ 95.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 16 of 2003, effective s 4: 11 Apr 2003 (s 2(1) item 1) Sch 1 (items 1–6, 9–26), Sch 2, 3, Sch 4 (items 1–7), Sch 5 (items 2–5), Sch 6 (items 1–9), Sch 7 (items 1, 2, 4–29), Sch 8, Sch 9 (items 1, 2, 13–21), Sch 10 (item 2), Sch 11 (items 1–3), Sch 12, 13, Sch 14 (items 1–7), Sch 16 (items 1–3), Sch 19 (items 1–3), Sch 21, 22, Sch 23 (items 10–13) and Sch 24 (items 20–23): 24 Oct 2002 (s 2(1) items 1A, 2–11, 13, 14) Sch 7 (item 3): ( see Sch 10 (item 224) of Act No. 41, 2005) Sch 25 (items 1–10), Sch 26 (items 1–4, 8), Sch 27 (items 1–19, 21), Sch 28 (items 1–12, 19), Sch 29 (items 12, 13) and Sch 30 (items 1, 2): 29 June 2002 (s 2(1) items 15–19, 21, 23) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-805 — Has there been a disaggregated attributable increase?

(1) This section sets out how to determine whether an * indirect value shift has produced, for the owner of an * equity or loan interest, a disaggregated attributable increase in the * market value of the interest and, if so, the amount of it. (2) Make a reasonable estimate of the * market value of the interest at the * IVS time, but disregarding: (a) all effects on the market value of the interest during the * IVS period, except effects that are reasonably attributable to the * indirect value shift; and (b) the effects (if any) of the indirect value shift on the market value of * equity or loan interests, or * indirect equity or loan interests, in the losing entity. (This result is called the notional resulting market value .) Note: Paragraph (2)(b) is necessary because the market value of the interest may also have been affected by the decrease in the market value of interests in the losing entity, because the entity in which the interest is held had direct or indirect interests in both the losing entity and the gaining entity. In such a case, the increase in adjustable value under this Division will usually be offset by a reduction under this Division. (3) If the notional resulting market value is greater than a reasonable estimate of the * market value (the old market value ) of the interest: (a) at the start of the * IVS period; or (b) if the owner last began to own the interest during that period—when the owner last began to own the interest; the difference is the disaggregated attributable increase . (4) The * indirect value shift has not produced a disaggregated attributable increase for the owner of the interest if the notional resulting market value is less than or equal to the old market value.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-810 — Scaling ‑ down formula

(1) The scaling ‑ down formula for the purposes of section 727 ‑ 800 is: Note: The numerator in the fraction can never exceed the denominator. This means that the fraction can never exceed 1, so the uplift will never exceed the disaggregated attributable increase. (2) For the purposes of the formula: total disaggregated attributable decreases means the total of: (a) all * disaggregated attributable decreases that the * indirect value shift has produced, in the * market values of * affected interests in the * losing entity, for the entities that owned those interests immediately before the * IVS time; and (b) if: (i) section 727 ‑ 850 (as applying to the * scheme from which the indirect value shift results) reduces losses that are * realised for income tax purposes by * realisation events happening before the * IVS time to * equity or loan interests, or to * indirect equity or loan interests, in the losing entity; and (ii) the indirect value shift is the only indirect value shift, or is the greater or greatest of 2 or more indirect value shifts, that results from the scheme and for which the losing entity is the losing entity; for each of those realisation events, the amounts that would, if: (iii) the * presumed indirect value shift were an indirect value shift; and (iv) the IVS time for the presumed indirect value shift were the time of that realisation event; be the disaggregated attributable decreases that the presumed indirect value shift has produced, in the market value of the equity or loan interests to which that realisation event happened, for the entities that owned those interests immediately before the time of that realisation event. total reductions for affected interests means the total of: (a) all reductions under this Division, because of the indirect value shift, of * adjustable values of affected interests in the losing entity; and (b) if paragraph (b) of the definition of total disaggregated attributable decreases applies—the amounts by which section 727 ‑ 850 reduces the losses (if any) referred to in that paragraph.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-830 — CGT assets

(1) The * cost base of an * equity or loan interest is reduced or uplifted immediately before the * IVS time to the extent that this Division provides for the * adjustable value of the interest to be reduced or uplifted. (2) The * reduced cost base of an * equity or loan interest is reduced or uplifted immediately before the * IVS time to the extent that this Division provides for the * adjustable value of the interest to be reduced or uplifted. (3) However, the * cost base or * reduced cost base is uplifted only to the extent that the amount of the uplift is still reflected in the * market value of the interest when a later * CGT event happens to the interest. (4) To work out: (a) whether the * cost base or * reduced cost base of the interest is reduced or uplifted; and (b) if so, by how much; assume that the adjustable value from time to time of that or any other * equity or loan interest is its cost base or reduced cost base, as appropriate. (5) If this Division provides for the * adjustable value of an * equity or loan interest to be both reduced and uplifted: (a) the reduction and uplift for which subsection (1) or (2) of this section provides offset each other to the extent of whichever of them is the lesser; but (b) if subsection (3) of this section cancels or reduces the uplift, this subsection is taken always to have applied on that basis. Reductions and uplifts also apply to pre ‑ CGT assets (6) A reduction or uplift occurs regardless of whether the entity that owns the interest * acquired it before, on or after 20 September 1985.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-835 — Trading stock

(1) This section deals with: (a) how this Division applies to an * equity or loan interest that is * trading stock of an entity at the time (the adjustment time ) immediately before the * IVS time; and (b) the income tax consequences of this Division reducing or uplifting the * adjustable value of the interest. (2) The interest’s adjustable value at a particular time is: (a) if the interest has been * trading stock of the entity ever since the start of the income year of the entity in which that time occurs—its * value as trading stock at the start of the income year; or (b) otherwise—its cost. (3) If this Division reduces or uplifts the interest’s * adjustable value, the entity is treated as if: (a) immediately before the adjustment time, the entity had sold the interest to someone else (at * arm’s length and in the ordinary course of business) for its * adjustable value immediately before that time; and (b) immediately after the adjustment time, the entity had bought the interest back for the reduced or uplifted adjustable value. Note: The notional sale and repurchase are separated in time. As a result, if this section is applied to another indirect value shift that happens later in the same income year, the interest’s adjustable value will be the cost on the notional repurchase: see paragraph (2)(b). (4) However, the increase in the cost of an interest because of paragraph (3)(b) is taken into account from time to time only to the extent that the amount of the increase is still reflected in the * market value of the interest. Note: The situations where the increase in cost would be taken into account include: • in working out your deductions for the cost of trading stock acquired during the income year in which the increase happens; and • the end of an income year if the interest’s closing value as trading stock is worked out on the basis of its cost; and • the start of the income year in which the interest is disposed of, if that happens in a later income year and the interest’s closing value as trading stock at the end of the previous income year was worked out on the basis of its cost. (5) If this Division provides for the * adjustable value of the interest to be both reduced and uplifted: (a) the reduction and uplift offset each other to the extent of whichever of them is the lesser, and subsection (3) of this section applies accordingly; but (b) to the extent that the amount of the uplift is no longer reflected in the * market value of the interest, this section is taken always to have applied on the basis that the amount of the uplift was reduced to the same extent.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-840 — Revenue assets

(1) This section deals with: (a) how this Division applies to an * equity or loan interest that is a * revenue asset of an entity at the time (the adjustment time ) immediately before the * IVS time; and (b) the income tax consequences of this Division reducing or uplifting the * adjustable value of the interest. (2) The interest’s adjustable value at a particular time is the total of the amounts that would be subtracted from the gross disposal proceeds in calculating any profit or loss on disposal of the interest if the entity disposed of it at that time. (3) If this Division reduces or uplifts the interest’s * adjustable value, the entity is treated as if: (a) immediately before the adjustment time, the entity had sold the interest to someone else (at * arm’s length and in the ordinary course of business) for its adjustable value immediately before that time; and (b) immediately after the adjustment time, the entity had bought the interest back for the reduced or uplifted adjustable value. Note: The notional sale and repurchase are separated in time. As a result, if this section is applied to another indirect value shift that happens later in the same income year, the interest’s adjustable value will be based on the cost on the notional repurchase: see subsection (2). (4) However, an uplift in the * adjustable value of the interest is taken into account only to the extent that the amount of the uplift is still reflected in the * market value of the interest when it is disposed of or otherwise realised. (5) If this Division provides for the * adjustable value of the interest to be both reduced and uplifted: (a) the reduction and uplift offset each other to the extent of whichever of them is the lesser, and subsection (3) of this section applies accordingly; but (b) to the extent that the amount of the uplift is no longer reflected in the * market value of the interest, this section is taken always to have applied on the basis that the amount of the uplift was reduced to the same extent.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-850 — Consequences of scheme under this Subdivision

(1) If: (a) as at the time when a * scheme is entered into, or a later time, an entity (the prospective losing entity ) has * provided, is providing, is to provide, or might provide, one or more economic benefits * in connection with the scheme; and (b) the prospective losing entity is a company or trust (except one listed in section 727 ‑ 125 (about superannuation entities)); and (c) a * realisation event happens to an * equity or loan interest, or to an * indirect equity or loan interest, in the prospective losing entity at a time when no * IVS time for the scheme has yet happened (whether or not one happens later); and (d) apart from this Division, a loss would be * realised for income tax purposes by the realisation event; and (e) because of section 727 ‑ 855, the scheme results in a * presumed indirect value shift affecting the realisation event; and (f) section 727 ‑ 860 (about prospective gaining entities) is satisfied; and (g) no exclusion in Subdivision 727 ‑ C applies to the presumed indirect value shift because of section 727 ‑ 865; and (h) on the assumptions set out in subsection 727 ‑ 865(3), the interest would be an * affected interest in the prospective losing entity; the loss is reduced by an amount that is reasonable having regard to a reasonable estimate of the amount (if any) by which the scheme has reduced the interest’s * market value during the period that ends at the time of the realisation event and started at the later of: (i) when the scheme was entered into; and (j) the time of the last realisation event that happened to the interest. Note 1: This Subdivision does not reduce gains from realisation events, but loss reductions under this Subdivision are taken into account in working out: • gain reductions under Subdivision 727 ‑ G for interests in a gaining entity that are realised after the IVS time for the scheme (see section 727 ‑ 625); or • uplifts under Subdivision 727 ‑ H in the adjustable values of interests in a gaining entity (see section 727 ‑ 810). Note 2: Section 727 ‑ 865 provides for how other provisions of this Division apply for the purposes of this Subdivision. Further exclusion for certain 95% services indirect value shifts (2) The loss is not reduced if the * presumed indirect value shift is a * 95% services indirect value shift because of subsection 727 ‑ 865(2), unless: (a) the conditions in section 727 ‑ 705 (as applying because of that subsection) are met for the presumed indirect value shift; or (b) the conditions in section 727 ‑ 710, 727 ‑ 715 or 727 ‑ 720 (as applying because of that subsection) are met for the presumed indirect value shift and for the realisation event.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-855 — Presumed indirect value shift

(1) The * scheme results in a presumed indirect value shift affecting the * realisation event if, and only if, as at the time of the realisation event, it is reasonable to conclude that the total * market value of the economic benefits (the greater benefits ) that: (a) the * prospective losing entity has * provided, is providing, is to provide, or might provide, * in connection with the * scheme, to another entity, or to each of 2 or more other entities; and (b) can be identified (even if the other entity or entities cannot be identified or are not all in existence, or the provision of some or all of the economic benefits is contingent); exceeds: (c) the total market value of the economic benefits (the lesser benefits ) that: (i) have been, are being, are to be, or might be, provided to the prospective losing entity in connection with the scheme; and (ii) can be identified (even if the entity or entities providing the benefits cannot be identified or are not all in existence, or the provision of some or all of the economic benefits is contingent); or (d) if there are no economic benefits covered by paragraph (c)—nil. That excess is the amount of the presumed indirect value shift, which happens at the time of the realisation event. (2) The * market value of an economic benefit is to be determined as at the earliest time when it is reasonable to conclude that: (a) the economic benefit can be identified; and (b) paragraph 727 ‑ 150(2)(b) is satisfied for that benefit; if that time is before the * realisation event. (3) Otherwise, the * market value of the economic benefit is to be determined as at the time immediately before the * realisation event, taking account of any contingency to which provision of the benefit is subject at that time. For more rules affecting how the market value of an economic benefit is determined, see Subdivision 727 ‑ D (as applying because of subsection 727 ‑ 865(1)). (4) An entity referred to in paragraph (1)(a) need not be a party to the * scheme. A benefit can be provided by act or omission.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3) | Amended by No 58 of 2006, effective s. 4, Schedules 1, 2, Schedule 3 (items 1–3, 7), Schedule 4, Schedule 5 (items 1–3) and Schedule 7 (items 51–113, 213–216, 257–263): Royal Assent Sch 7 (items 179–188): 1 July 2004 (s 2(1) item 15) Sch 7 (item 189): 5 July 1999 (s 2(1) item 16) Sch 7 (item 190): 30 June 2000 (s 2(1) item 17) Sch 7 (item 191): 24 Oct 2002 (s 2(1) item 18) Sch 7 (item 192): 30 June 2004 (s 2(1) item 19) Sch 7 (item 193): 22 Dec 1999 (s 2(1) item 20)

s 727-860 — Conditions about the prospective gaining entity

(1) By the deadline set out in subsection (5), the conditions in subsections (2) and (3) must be satisfied for at least one of these entities: (a) the entity or entities referred to in paragraph 727 ‑ 855(1)(a); (b) if at the time of the * realisation event it is reasonable to conclude that the entity, or at least one of the entities, referred to in paragraph 727 ‑ 855(1)(a) will be one of 2 or more entities, but it cannot be determined which—those 2 or more entities. (2) Enough must be known about the identity of an entity covered by subsection (1) for it to be reasonable to conclude that, if: (a) the * presumed indirect value shift were an * indirect value shift resulting from the * scheme; and (b) the * IVS period for the scheme ended at the time of the * realisation event; and (c) that entity were the * gaining entity for the indirect value shift; (d) the * prospective losing entity were the * losing entity for the indirect value shift; and either or both of these would be satisfied for the indirect value shift: (e) section 727 ‑ 105 (Ultimate controller test); and (f) section 727 ‑ 110 (Common ‑ ownership nexus test). (3) Enough must be known about the identity of the entity referred to in subsection (2) for it also to be reasonable to conclude that, in relation to either or both of the following: (a) the * prospective losing entity * providing one or more economic benefits to that entity * in connection with the * scheme; or (b) that entity providing one or more economic benefits to the prospective losing entity in connection with the scheme; that entity and the prospective losing entity were not, are not, will not be, or would not be, dealing with each other at * arm’s length. (4) Each entity that is covered by subsection (1), and for which subsections (2) and (3) are satisfied, is called a prospective gaining entity for the * scheme. (5) The deadline is: (a) if the entity that owned the * equity or loan interest immediately before the * realisation event must lodge an * income tax return for the income year in which the event happens—the time by which the return must be lodged; or (b) otherwise—the end of the 6 months immediately after that income year.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-865 — How other provisions of this Division apply to support this Subdivision

(1) To avoid doubt, these provisions apply for the purposes of working out whether there has been a * presumed indirect value shift and, if so, the amount of it: (a) sections 727 ‑ 155, 727 ‑ 160 and 727 ‑ 165 (about economic benefits); (b) section 727 ‑ 315 (Transfer, for its adjustable value, of depreciating asset acquired for less than $1,500,000). (2) For the purposes of section 727 ‑ 850, these provisions: (a) Subdivision 727 ‑ C (Exclusions), except section 727 ‑ 260 (about a shift down a wholly ‑ owned chain of entities); (b) sections 727 ‑ 700 to 727 ‑ 725 (about 95% services indirect value shifts), except subsection 727 ‑ 700(1); apply to the * presumed indirect value shift on the assumptions set out in subsection (3). (3) The assumptions are: (a) the * presumed indirect value shift is an * indirect value shift resulting from the * scheme; and (b) the * prospective losing entity for the scheme is the * losing entity for that indirect value shift; and (c) each * prospective gaining entity for the scheme is the * gaining entity for that indirect value shift; and (d) the * greater benefits under the presumed indirect value shift are the greater benefits under that indirect value shift; and (e) the * lesser benefits (if any) under the presumed indirect value shift are the lesser benefits under that indirect value shift; and (f) the time of the realisation event mentioned in paragraph 727 ‑ 850(1)(c) is the * IVS time for the scheme; and (g) the * IVS period for the scheme ends at the time of the realisation event; and (h) section 727 ‑ 105 (Ultimate controller test) is satisfied for that indirect value shift according to what it is reasonable to conclude under subsection 727 ‑ 860(2) as applying to the presumed indirect value shift; and (i) section 727 ‑ 110 (Common ‑ ownership nexus test) is satisfied for that indirect value shift according to what it is reasonable to conclude under subsection 727 ‑ 860(2) as applying to the presumed indirect value shift; and (j) a reference to the realisation event mentioned in subsection 727 ‑ 700(1) were a reference to the realisation event mentioned in paragraph 727 ‑ 850(1)(c); and (k) the interest to which the realisation event mentioned in paragraph 727 ‑ 850(1)(c) happens were the interest referred to in paragraph 727 ‑ 700(1)(a); and (l) a reference in any of sections 727 ‑ 700 to 727 ‑ 725 (about 95% services indirect value shifts), except subsection 727 ‑ 700(1), to the owner were a reference to the entity that, at the time of the realisation event mentioned in paragraph 727 ‑ 850(1)(c), owns the interest to which the event happens. (4) Sections 727 ‑ 635 and 727 ‑ 640 affect how this Subdivision applies to * equity or loan interests, and * indirect equity or loan interests, in the * prospective losing entity that are split or merged during the period: (a) starting when the * scheme is entered into; and (b) ending at the time of the * realisation event mentioned in paragraph 727 ‑ 850(1)(c); in the same way as those sections affect how Subdivision 727 ‑ G would apply to those interests on the assumptions set out in subsection (3) of this section. (5) The application of a provision because of this section is additional to, and is not intended to limit, any other application of the provision.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-870 — Effect of CGT roll ‑ over

(1) If: (a) the * realisation event mentioned in paragraph 727 ‑ 850(1)(c) is a * CGT event; and (b) section 727 ‑ 850 reduces a loss that would, apart from this Division, be * realised for income tax purposes by the CGT event; and (c) there is a roll ‑ over for the CGT event; the interest’s * reduced cost base at the time of the CGT event is taken to have been reduced by the amount by which section 727 ‑ 850 reduces that loss, but is so taken only for the purposes of working out: (d) the interest’s reduced cost base, from time to time after the roll ‑ over, for the entity that * acquired the interest because of the CGT event; and (e) in the case of a * replacement ‑ asset roll ‑ over—the reduced cost base of the replacement CGT asset, from time to time after the roll ‑ over, for the entity that * disposed of the interest. Note: Because of the roll ‑ over, the loss reduction under section 727 ‑ 850 will have no tax effect. This subsection ensures that the loss reduction is passed on, through the reduction in reduced cost base, to prevent or reduce a loss arising on a later CGT event.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-875 — Application to CGT asset that is also trading stock or revenue asset

If an * equity or loan interest is also an item of * trading stock or a * revenue asset, this Subdivision applies to the interest once in its character as a CGT asset and again in its character as trading stock or a revenue asset.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)

s 727-905 — How this Subdivision affects the rest of this Division

(1) This Subdivision affects how the rest of this Division applies to a * scheme (the IVS scheme ) that is or includes a scheme (the DVS scheme ) under which there is a * direct value shift. (2) If the * direct value shift: (a) has consequences under Division 725 for an entity as an * affected owner of * down interests (or would do so apart from section 725 ‑ 90 (about direct value shifts that will be reversed)); and (b) also has consequences under that Division for another entity as an affected owner of * up interests (or would do so apart from section 725 ‑ 90); the rest of this Subdivision has effect, for the purposes of Subdivisions 727 ‑ A to 727 ‑ K, in order to determine: (c) whether the IVS scheme results in an * indirect value shift, from the first entity to the other entity, that has consequences under this Division; and (d) whether the IVS scheme has consequences under Subdivision 727 ‑ K because it results in a * presumed indirect value shift affecting a * realisation event happening to * equity or loan interests, or to * indirect equity or loan interests, in the first entity; and (e) those consequences. Note: Section 725 ‑ 50 sets out when a direct value shift has consequences under Division 725. (3) If: (a) the IVS scheme is the DVS scheme; and (b) subsection 725 ‑ 145(2) is satisfied for the * direct value shift (because one or more equity or loan interests in the target entity are issued at a discount); but (c) subsection 725 ‑ 145(3) (about an increase in the market value of one or more equity or loan interests in the target entity) is not satisfied for the direct value shift; Subdivisions 727 ‑ A to 727 ‑ K apply to the IVS scheme only as provided in this section. (4) Otherwise, those Subdivisions apply to the IVS scheme as provided in this section in addition to any other application they have to the scheme.

Amendment history: Inserted by No 90 of 2002, effective s 4, Sch 1–6, 12, Sch 14 (items 1–15, 17–19), Sch 15 (items 1, 3–15, 19–89) and Sch 16 (items 1, 21–55): 24 Oct 2002 (s 2(1) items 1, 2, 4, 5) Sch 13: 29 June 2002 (s 2(1) item 3)