Commonwealth Consolidated Acts Commonwealth Consolidated ActsObject
(1) Because intra‑group * membership interests in the joining entity are disregarded under subsection 701‑1(1) (the single entity rule), the object of this section is to provide a mechanism to ensure that the benefit of the pre‑CGT status of those interests is not lost. That mechanism involves working out a factor by which the pre‑CGT status can be attached to the joining entity’s assets and then recognised in membership interests held in an entity that owns the assets on ceasing to be a * subsidiary member of the joined group.
Pre‑CGT factor to be worked out for certain assets
(2) A pre‑CGT factor is worked out under this section for each asset of the joining entity at the joining time, other than one that, in accordance with * accounting standards, is a current asset.
Note: A pre‑CGT factor is not worked out for current assets because they would, in the ordinary course of operations of the joining entity, be consumed or disposed of within 12 months.
How to work out pre‑CGT factor
(3) The pre‑CGT factor is the amount (not exceeding 1) worked out by dividing:
(a) the sum of:
(i) for each * membership interest in the joining entity held by the * head company that is a * pre‑CGT asset of the head company—the interest’s * market value at the joining time; and
(ii) for each membership interest in the joining entity held by a * subsidiary member that has a pre‑CGT factor—the interest’s market value at the joining time multiplied by its pre‑CGT factor;
by:
(b) the sum of the market values, at the joining time, of all the joining entity’s assets for which a pre‑CGT factor is to be worked out.
Note: The treatment of membership interests in an entity ceasing to be a member of the joined group as pre‑CGT assets of members of the group could be manipulated to produce too many pre‑CGT assets if the pre‑CGT factor of an asset were not limited to 1 by the above subsection.
[The next Division is Division 707.]
Table of Subdivisions
707‑A Transfer of previously unutilised losses to head company
707‑B Can a transferred loss be utilised?
707‑C Amount of transferred losses that can be utilised
707‑D Special rules about losses