Document ID: chunk:federal_register_of_legislation:C2025C00029:section:11:p6
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 11 (pt 6/20)
Character Range: 6643158–6645865

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.

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.

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.

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