Commonwealth Consolidated Acts Commonwealth Consolidated ActsThe table below sets out modifications of the application of Parts 3 - 1 and 3 - 3 (about CGT) of the Income Tax Assessment Act 1997 in respect of events that are described in, or relate to events that are described in, particular demutualisation methods.
Method statement
Step 1. Work out the sum of the amounts that the partner has contributed (the partner's contribution ) to the partnership.
Step 2. Subtract the sum of all the amounts (if any) of the partner's contribution that are repaid to the partner.
Step 3. Subtract the sum of all deductions allowed to the partner for losses of the partnership in previous years of income.
Step 4. Subtract the sum of the amounts of all the debt interests issued by the partner to the extent that they are secured by the partner's interest in the partnership.
Method statement
Step 1. Subtract the amount allowable under subsection 92(2) as a deduction to the partner for partnership losses incurred by the partnership in the year of income from the amount worked out using the method statement in subsection 92(2AA).
Step 2. If the amount worked out under step 1 is greater than or equal to the outstanding subsection 92(2AA) amount for the year of income, the amount of the deduction allowable under this section is the outstanding subsection 92(2AA) amount.
Step 3. If the amount worked out under step 1 is less than the outstanding subsection 92(2AA) amount for the year of income, the amount of the deduction allowable under this section is the amount worked out under step 1.
(a) it has the result of assessing beneficiaries on a share of the net income of the trust estate based on their present entitlement to a share of the income of the trust estate; and
(b) it has the result of assessing the trustee directly on any residual net income; and
(c) as a collection mechanism, it has the result of assessing the trustee in respect of some beneficiaries, such as non - residents or those under a legal disability.
If the trust estate has capital gains, franked distributions or franking credits, this basic treatment is modified as described below.
Division 6E modifies the operation of this Division for the purpose of excluding amounts relevant to capital gains, franked distributions and franking credits from the calculations of assessable amounts under sections 97, 98, 99, 99A and 100.
Division 6E does not modify the operation of this Division (or any other provision of this Act) for any other purpose. For example:
(a) it does not modify the operation of this Division for the purposes of applying section 100A; and
(b) it does not modify amounts taxed in the hands of the trustee under Subdivisions 115 - C and 207 - B of the Income Tax Assessment Act 1997 .
(a) Subdivision 115 - C of that Act has the effect that an amount corresponding to each of those capital gains is taxed in the hands of the beneficiaries of the trust (as a capital gain) and, if necessary, assessed to the trustee.
(b) Subdivision 207 - B of that Act has the effect that an amount corresponding to each of those franked distributions is taxed in the hands of the beneficiaries of the trust and, if necessary, the trustee. It also has the effect that the entity in whose hands those distributions are taxed can take advantage of the relevant amount of related franking credits.
This Division treats 3 kinds of amounts as dividends paid by a private company:
• amounts paid by the company to a shareholder or shareholder's associate (see section 109C);
• amounts lent by the company to a shareholder or shareholder's associate (see sections 109D and 109E);
• amounts of debts owed by a shareholder or shareholder's associate to the company that the company forgives (see section 109F).
This treatment makes the amounts assessable income of the shareholder or associate (under section 44).
However, some payments, loans and forgiven debts are not treated as dividends. (See Subdivisions C and D.) Also, this Division does not apply to demerger dividends. (See Subdivision DA.)
An amount may be treated as a dividend even if it is paid or lent by the company to the shareholder or associate through one or more interposed entities. (See Subdivision E.)
An amount may also be included in the assessable income of a shareholder or shareholder's associate if:
(a) a company has an unpaid present entitlement to income of a trust; and
(b) the trustee makes a payment or loan to, or forgives a debt of, the shareholder or associate.
(See Subdivisions EA and EB.)
If the total of the amounts is more than the company's distributable surplus, only the part of the total equal to the distributable surplus is treated as dividends. (See section 109Y.)
This Division applies to non - share equity interests and non - share dividends in the same way it applies to shares and dividends.
This Subdivision sets out rules about payments and loans that are not treated as dividends.
The following sorts of payments are not treated as dividends:
• payments of genuine debts (section 109J);
• payments to other companies (section 109K);
• payments that are otherwise assessable or that are specifically excluded from assessable income (section 109L).
The following sorts of loans are not treated as dividends:
• loans to other companies (section 109K);
• loans that are otherwise assessable (section 109L);
• loans made in the ordinary course of business on ordinary commercial terms (section 109M);
• loans that meet criteria for minimum interest rate and maximum term (section 109N);
• certain loans and distributions by liquidators (section 109NA);
• loans that are for the purpose of funding the purchase of certain ESS interests under an employee share scheme (section 109NB).
An amalgamated loan may not be treated as a dividend if the Commissioner is satisfied that doing so would cause undue hardship. (See section 109Q.)
This Subdivision also provides for some loan repayments and interest payments to private companies to be disregarded if they are made with the intention of borrowing a similar amount from a private company later. (See section 109R.)
This Subdivision allows a private company to be taken under Subdivision B to pay a dividend to an entity (the target entity ) if an entity interposed between the private company and the target entity makes a payment or loan to the target entity under an arrangement involving the private company.
This result is achieved by treating the private company as making a payment or loan of an amount determined by the Commissioner to the target entity (according to whether the interposed entity made a payment or loan to the target entity). (See sections 109V (for payments) and 109W (for loans).)
The arrangement must involve the private company and one or more interposed entities in making payments or loans or giving loan guarantees for the purpose of the target entity receiving a payment or loan from an interposed entity. (See sections 109T, 109U and 109UA.)
If the target entity repays a fraction of the loan made by the interposed entity, the target entity is treated as repaying the same fraction of the loan taken to have been made by the private company. (See subsection 109W(3).)
Some provisions that prevent payments or loans from giving rise to dividends do not apply to payments or loans this Subdivision treats a private company as making. (See section 109X.)
Payments and loans
This Subdivision allows an amount to be included in an entity's (the target entity's ) assessable income under Subdivision EA if an entity interposed between a trustee and the target entity makes a payment or loan to the target entity under an arrangement involving the trustee.
This result is achieved by treating the trustee as making a payment or loan of an amount determined by the Commissioner to the target entity.
The arrangement must involve the trustee and one or more interposed entities in making payments or loans for the purpose of the target entity receiving a payment or loan from an interposed entity.
If the target entity repays a fraction of the loan made by the interposed entity, the target entity is treated as repaying the same fraction of the loan taken to have been made by the trustee.
Some provisions that prevent payments or loans from giving rise to assessable income do not apply to payments or loans this Subdivision treats a trustee as making.
Present entitlements
This Subdivision similarly allows an amount to be included in an entity's assessable income under Subdivision EA if a private company is or becomes presently entitled to an amount from the net income of a trust estate interposed between the private company and another trust estate (the target trust ) under an arrangement involving the target trust.
Basically, if an insurance company demutualises and its policyholders or members dispose of their listed shares in the company, for tax purposes the acquisition cost of the shares is based on the lesser of:
(a) the embedded value or net tangible asset value of the company; and
(b) the value of the company based on the total first trading day price of all shares in the company.
Other tax consequences result from disposals of other interests and from other events in connection with the demutualisation.
TABLE 1--MODIFICATIONS OF CGT RULES | |
Item Event | Modifications |
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1 Any demutualisation method: Extinguishment of membership rights as mentioned in paragraph (1)(a) of sections 121AF to 121AL. |
A capital gain or capital loss arising from a CGT event constituted by the extinguishment is disregarded. |
2 Demutualisation method 6: The whole of the life insurance business of the life insurance company is transferred to the other company as mentioned in paragraph 121AK(1)(b). |
Subdivision 126 - B of the Income Tax Assessment Act 1997 as in force immediately before 21 October 1999 (about roll - overs for transfers) applies as if the life insurance company and the other company were members of the same wholly - owned group within the meaning of that Act. |
3 Any demutualisation method: A person (the disposer ) in the policyholder/ member group disposes of a right to have ordinary shares issued or distributed to the person, or the proceeds of sale of ordinary shares distributed to the person, as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d). |
1. A capital loss that the disposer makes from the disposal is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. For the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, he or she is taken: (a) to have paid, as consideration for the acquisition of the right disposed of, an amount worked out using the following formula:
(b) to have paid the amount in paragraph (a), and to have acquired the right disposed of, on the demutualisation resolution day. |
4 Demutualisation method 2, 4, 5, 6 or 7: A person (the disposer ) in the policyholder/member group disposes of an asset consisting of all or part of the person's interest in the trust property of the trustee mentioned in paragraph 121AG(1)(b) or (c), 121AI(1)(c) or (e), 121AJ(1)(c), 121AK(1)(c) or 121AL(1)(c). |
1. A capital loss that the disposer makes from the disposal is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. For the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, he or she is taken: (a) to have paid, as consideration for the acquisition of the interest disposed of, an amount worked out using the following formula:
(b) to have paid the amount in paragraph (a), and to have acquired the interest disposed of, on the demutualisation resolution day. |
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5 Demutualisation method 3, 4 or 5: After the issue of the shares (each of which is a demutualisation share ) in the mutual insurance company as mentioned in paragraph 121AH(1)(b), 121AI(1)(b) or 121AJ(1)(b), the holding company (the disposer ) disposes of an asset consisting of: (a) a demutualisation share, or an interest in such a share; or (b) another share (a non - demutualisation bonus share) in the mutual insurance company, or an interest in such a share, where the share is a bonus share mentioned in Division 8 of former Part IIIA and any of the demutualisation shares are the original shares mentioned in that Division. |
1. A capital loss that the disposer makes from the disposal of the demutualisation share or interest in such a share is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. If the disposal is of a demutualisation share (other than a demutualisation original share) or an interest in such a share then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, the disposer is taken: (a) to have paid as consideration for the acquisition of the share or interest both: (i) the amount worked out using the formula:
(ii) any consideration actually paid or given for the acquisition; and |
(For the purposes of the modifications relating to this item, if any of the original shares mentioned in Division 8 of former Part IIIA is a demutualisation share, it is called a demutualisation original share .) | (b) to have paid the amount in subparagraph (a)(i) on the demutualisation resolution day and the amount in subparagraph (a)(ii) when it was actually paid; and (c) to have acquired the share or interest on the demutualisation resolution day. 3. If the disposal is of either: (a) a demutualisation original share, or an interest in such a share; or (b) a non - demutualisation bonus share, or an interest in such a share; then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal: (c) for the purposes of applying section 130 - 20 (about bonus shares) of the Income Tax Assessment Act 1997 , the consideration for the acquisition of all of the demutualisation original shares to be taken into account under that section is taken to consist of both: (i) if the disposal and all previous disposals of the demutualisation original shares and the non - demutualisation bonus shares, or interests in them, take place after the demutualisation listing day--the amount worked out using the formula:
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| (ii) if subparagraph (i) does not apply--the amount worked out using the formula:
(iii) any consideration actually paid or given for the acquisition of the share or interest disposed of; and |
| (d) if the disposal is of a demutualisation original share or an interest in such a share, the disposer is taken: (i) to have paid the amount in subparagraph (c)(i) or (ii) on the demutualisation resolution day and the amount in subparagraph (c)(iii) when it was actually paid; and (ii) to have acquired the share or interest on the demutualisation resolution day. |
6 Demutualisation method 7 : After the issue of the shares (each of which is a demutualisation share ) in the mutual insurance company and the mutual affiliate company as mentioned in paragraph 121AL(1)(b), the holding company (the disposer ) disposes of an asset consisting of: (a) a demutualisation share, or an interest in such a share; or (b) another share (a non - demutualisation bonus share ) in the mutual insurance company or the mutual affiliate company, or an interest in such a share, where the share is a bonus share mentioned in section 130 - 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares are the original shares mentioned in that section. |
1. A capital loss that the disposer makes from the disposal of the demutualisation share or interest in such a share is disregarded if the disposal takes place before the demutualisation listing day (see note 4 to this table). 2. If the disposal is of a demutualisation share (other than a demutualisation original share) or an interest in such a share then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal, the disposer is taken: (a) to have paid as consideration for the acquisition of the share or interest both: (i) the amount worked out using the formula:
(ii) any consideration actually paid or given for the acquisition; and |
(For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) | (b) to have paid the amount in subparagraph (a)(i) on the demutualisation resolution day and the amount in subparagraph (a)(ii) when it was actually paid; and (c) to have acquired the share or interest on the demutualisation resolution day. 3. If the disposal is of either: (a) a demutualisation original share, or an interest in such a share; or (b) a non - demutualisation bonus share, or an interest in such a share; then, for the purpose of working out whether the disposer made a capital gain, or made a capital loss (where modification 1 does not apply), from the disposal: (c) for the purposes of applying section 130 - 20 (about bonus shares) of the Income Tax Assessment Act 1997 , the consideration for the acquisition of all of the demutualisation original shares to be taken into account under that section is taken to consist of both: |
| (i) the amount worked out using the formula:
(ii) any consideration actually paid or given for the acquisition of the share or interest disposed of; and (d) if the disposal is of a share connected with the demutualisation or interest in such a share, the disposer is taken: (i) to have paid the amount in subparagraph (c)(i) on the demutualisation resolution day and the amount in subparagraph (c)(ii) when it was actually paid; and (ii) to have acquired the share or interest on the demutualisation resolution day. |
7 Demutualisation method 3, 4, 5 or 7: After the issue of the shares in the mutual insurance company to the holding company as mentioned in paragraph 121AH(1)(b), 121AI(1)(b), 121AJ(1)(b), or in the mutual insurance company and the mutual affiliate company as mentioned in paragraph 121AL(1)(b): (a) the ultimate holding company (the disposer ) disposes of an asset consisting of either of the following shares in the holding company or an interposed holding company: (i) a share (a demutualisation share ) acquired before the issue of the shares in the mutual insurance company, or an interest in such a share; or |
The same modifications apply as for item 5. |
(ii) another share (a non - demutualisation bonus share ), or an interest in such a share, where the share is a bonus share mentioned in section 130 - 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that section; or (b) the interposed holding company, or any of the interposed holding companies, (the disposer ) disposes of an asset consisting of either of the following shares in the holding company or an interposed holding company: (i) a share (a demutualisation share ) acquired before the issue of the shares in the mutual insurance company, or an interest in such a share; or |
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(ii) another share (a non - demutualisation bonus share ), or an interest in such a share, where the share is a bonus share mentioned in section 130 - 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that section. (For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) (The ultimate holding company and interposed holding company are those mentioned in paragraph 121AH(1)(c), 121AI(1)(c), 121AJ(1)(c) or 121AL(1)(c)). |
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8 Demutualisation method 2 or 4: The rights attaching to the special shares held by the trustee become the same as those attaching to the ordinary shares as mentioned in subparagraph 121AG(1)(b)(ii) or paragraph 121AI(1)(d). |
A capital gain or capital loss arising from a CGT event constituted by the change in the rights is disregarded. |
9 Demutualisation method 2, 4, 5, 6 or 7: The trustee (the disposer ): (a) sells an ordinary share (a demutualisation share ) in the company as mentioned in paragraph 121AG(1)(d), 121AI(1)(f), 121AJ(1)(d), 121AK(1)(d) or 121AL(1)(d); or (b) sells another share (a non - demutualisation bonus share ), where the share is a bonus share mentioned in section 130 - 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not sold at the time) are the original shares mentioned in that section. (For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) |
1. The person in the policyholder/member group, instead of the trustee, is taken: (a) to have sold the demutualisation share or non - demutualisation bonus share; and (b) to have paid, given and received any consideration that was paid, given or received by the trustee in respect of either share; and (c) to have done any other act in relation to either share that was done by the trustee. 2. The modifications in item 5 apply to the sale of the demutualisation share or non - demutualisation bonus share in the same way as they do to the disposal of such shares covered by that item. |
10 Demutualisation method 2, 4, 5, 6 or 7: The trustee distributes an ordinary share as mentioned in paragraph 121AG(1)(d), 121AI(1)(f), 121AJ(1)(d), 121AK(1)(d) or 121AL(1)(d). |
A capital gain or capital loss arising from a CGT event constituted by the distribution is disregarded. |
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11 Any demutualisation method: A person (the disposer ) in the policyholder/member group disposes of an asset consisting of: (a) a share (a demutualisation share ), or an interest in such a share, issued or distributed to the person as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d); or |
The same modifications apply as for item 5. |
(b) another share (a non - demutualisation bonus share ) in the same company, or a n interest in such a share, where the share is a bonus share mentioned in section 130 - 20 (about bonus shares) of the Income Tax Assessment Act 1997 and any of the demutualisation shares (whether or not disposed of at the time) are the original shares mentioned in that section. (For the purposes of the modifications relating to this item, if any of the original shares mentioned in that section is a demutualisation share, it is called a demutualisation original share .) |
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12 Various demutualisation methods: A disposal of an asset takes place before the demutualisation listing day, where: (a) modification 1 of item 3, 4, 5, 6, 7 or 11 of this table applies to the disposal; and (b) a roll - over provision (see note 5 to this table) applies to the disposal. |
1. If the person who is taken to acquire the asset under the roll - over provision disposes of it before the demutualisation listing day, a capital loss that the person makes from the disposal is disregarded. 2. If the person disposes of the asset on or after the demutualisation listing day, then for the purposes of applying the roll - over provision to that disposal, the modifications in the item in this table apply as if modification 1 were not made. |
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Notes:
1. For the purposes of the table, the applicable company valuation amount , in relation to the disposal of an asset or the allocation of an amount to a member in the records of a superannuation fund, is:
(a) if the asset is disposed of, or the amount is allocated, before the demutualisation listing day--the pre - listing day company valuation amount; or
(b) in any other case--the listing day company valuation amount.
2. The pre - listing day company valuation amount is:
(a) in relation to demutualisation methods 1 to 6, where the mutual insurance company is a life insurance company--the embedded value of the company; or
(b) in relation to demutualisation methods 1 to 6, where the mutual insurance company is a general insurance company--the net tangible asset value of the company; or
(c) in relation to demutualisation method 7--the sum of the net tangible asset values of the general insurance company and the mutual affiliate company.
3. The listing day company valuation amount is the lesser of:
(a) the pre - listing day company valuation amount; and
(b) the amount worked out using the formula:
4. The demutualisation listing day is the day on which the ordinary shares mentioned in the demutualisation method concerned are listed.
5. A roll - over provision is:
6. A trustee who gets a
roll - over under Subdivision 124 - M of the
Income Tax Assessment Act 1997 for an original interest consisting of shares
issued as part of a demutualisation may be eligible for a further roll - over
under Subdivision 126 - E of that Act when a beneficiary becomes
absolutely entitled to the replacement shares.
