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Tax Laws Amendment (2008 Measures No. 2) Bill 2008

Schedule 3 CGT market value substitution rule for interests in widely held entities

   

Income Tax Assessment Act 1997

1  After subsection 116-30(2A)

Insert:

          (2B)  Despite paragraph (2)(b), subsection (2) does not apply if the * CGT event is * CGT event C2 (about cancellation, surrender and similar endings) and the * CGT asset that is the subject of the event is:

                     (a)  a * share in a company that has at least 300 * members and is not a company that is covered by section 116-35; or

                     (b)  a unit in a unit trust that has at least 300 unit holders and is not a trust that is covered by section 116-35.

Note:          So, for one of these assets, the capital proceeds for the cancellation will be what you actually received.

2  After section 116-30

Insert:

116-35   Companies and trusts that are not widely held

Coverage

             (1)  A company is covered by this section if subsection (3) or (5) applies to the company.

             (2)  A unit trust is covered by this section if subsection (4) or (5) applies to the trust.

Concentrated ownership

             (3)  This subsection applies to a company if an individual owns, or up to 20 individuals own between them, directly or indirectly (through one or more interposed entities) and for their own benefit, * shares in the company:

                     (a)  carrying * fixed entitlements to at least 75% of the company’s income or at least 75% of the company’s capital; or

                     (b)  carrying at least 75% of the voting power in the company.

             (4)  This subsection applies to a trust if an individual owns, or up to 20 individuals own between them, directly or indirectly (through one or more interposed entities) and for their own benefit, units in the trust:

                     (a)  carrying * fixed entitlements to at least 75% of the trust’s income or at least 75% of the trust’s capital; or

                     (b)  if unit holders of the trust have a right to vote in respect of activities of the trust—carrying at least 75% of the voting power in the trust.

Possible variation of rights

             (5)  This subsection applies to a company or trust if, because of:

                     (a)  any provision in the entity’s constituent document, or in any contract, agreement or instrument:

                              (i)  authorising the variation or abrogation of rights attaching to any of the * shares or units in the entity; or

                             (ii)  relating to the conversion, cancellation, extinguishment or redemption of any of those shares or units; or

                     (b)  any contract, * arrangement, option or instrument under which a person has power to acquire any of those shares or units; or

                     (c)  any power, authority or discretion in a person in relation to the rights attaching to any of those shares or units;

it is reasonable to conclude that the rights attaching to any of those shares or units are capable of being varied or abrogated in such a way (even if they are not in fact varied or abrogated in that way) that, directly or indirectly, subsection (3) or (4) would apply to the entity.

Single individual

             (6)  For the purposes of subsections (3) and (4), all of the following are taken to be a single individual:

                     (a)  an individual, whether or not the individual holds * shares or units in the entity concerned;

                     (b)  the individual’s * associates;

                     (c)  for any shares or units in respect of which other individuals are nominees of the individual or of the individual’s associates—those other individuals.

3  Application

The amendments made by this Schedule apply to CGT events happening after the start of the 2006-07 income year.