Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) A * capital gain a company (the holding company ) makes because * shares in its * 100% subsidiary are cancelled (an example of * CGT event C2: see section 104- 25) on the liquidation of the subsidiary is reduced if the conditions in subsection (2) are satisfied. The reduction is worked out under subsection (3).
(2) These conditions must be satisfied:
(a) there must be a roll-over under this Subdivision for at least one * CGT asset that the subsidiary * acquired on or after 20 September 1985 (the CGT roll-over asset ) being * disposed of by the subsidiary to the holding company in the course of the liquidation of the subsidiary;
(c) the disposals must either:
(i) be part of the liquidator's final distribution in the course of the liquidation; or
(ii) have occurred within 18 months of the dissolution of the subsidiary if they are part of an interim distribution in the course of the liquidation;
(d) the holding company must have beneficially owned all of the shares in the subsidiary for the whole period from the time of the disposal, or the first disposal, of a CGT roll-over asset until the cancellation of the shares;
(e) the * market value of the CGT roll-over asset or assets must comprise at least part of the * capital proceeds for the cancellation of the shares in the subsidiary that are beneficially owned by the holding company;
(f) one or more of the shares that were cancelled (the post-CGT shares ) must have been acquired by the holding company on or after 20 September 1985.
(3) The reduction of the * capital gain is worked out in this way.
Method statement
Step 1. Work out (disregarding this section) the sum of the * capital gains and the sum of the * capital losses the holding company would make on the cancellation of its shares in the subsidiary.
Step 2. Work out (disregarding this Subdivision):
(a) the sum of the * capital gains the subsidiary would make on the * disposal of its CGT roll-over assets to the holding company; and
(b) the sum of the * capital losses it would make except for Subdivision 170-D on the disposal of its * CGT assets to the holding company;
in the course of the liquidation assuming the * capital proceeds were the assets' * market values at the time of the disposal.
Step 3. If, after subtracting the sum of the * capital losses from the sum of the * capital gains, there is an overall capital gain from step 1 and an overall capital gain from step 2, then continue. Otherwise there is no adjustment.
Step 4. Express the number of post-CGT shares as a fraction of the total number of shares the holding company owned in the subsidiary.
Step 5. Multiply the overall * capital gain from Step 2 by the fraction from Step 4.
Step 6. Reduce the overall * capital gain from Step 1 by the amount from Step 5. The result is the * capital gain the holding company makes from the cancellation of its shares in the subsidiary.
Note: This Subdivision is modified in calculating the attributable income of a CFC: see section 419 of the Income Tax Assessment Act 1936 .
Guide to Subdivision 126-C