Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) This section applies in relation to each qualifying interest in the original entity:
(a) * acquired by an acquiring entity under an * arrangement to which section 124 - 784A applies; and
(b) for which the first element of the * cost base of the acquiring entity is not worked out under section 124 - 782.
Note: Section 124 - 782 applies when an original interest holder is a significant stakeholder or a common stakeholder.
First element of cost base--qualifying interests acquired in exchange for replacement interests only
(2) The first element of the * cost base of the acquiring entity for the qualifying interest in the original entity is worked out as follows:
Method statement
Step 1. Add up:
(a) the * market value, at the completion time, of the original entity's * pre - CGT assets (except * trading stock); and
(b) the * cost bases, at the completion time, of the original entity's * post - CGT assets (except trading stock); and
(c) for the original entity's * CGT assets (except trading stock) that had no cost base--the maximum amount of consideration the original entity would need to receive if it were to dispose, at the completion time, of those assets without an amount being assessable income of, or deductible to, the original entity; and
(d) the amount worked out under steps 2 and 3.
Step 2. For the original entity's * trading stock, add up:
(a) the * value of the trading stock at the start of the income year containing the completion time; and
(b) for * live stock acquired by natural increase during that income year but before the completion time--the * cost of that live stock; and
(c) the amount of any outgoing incurred in connection with acquiring an item of trading stock during that income year but before the completion time (except live stock acquired by natural increase); and
(d) the amount of any outgoings forming part of the cost of the trading stock incurred by the entity during its current holding of the trading stock but before the completion time.
Step 3. For any asset of the original entity not covered by steps 1 and 2, work out the amount that would be the asset's * cost base at the completion time if it were a * CGT asset.
Step 4. Subtract from the result of step 1 the original entity's liabilities (if any) at the completion time in respect of those assets.
Step 5. If there is one class of * membership interests in the original entity, divide the result of step 4 by the total number of those membership interests at the completion time.
If there are 2 or more classes of membership interests in the original entity, allocate a portion of the result of step 4 to each class in proportion to the * market value of all the membership interests in that class and divide that result by the total number of membership interests in that class at the completion time.
Note 1: For the purposes of this subsection, Division 701 (Core rules for consolidated groups) is disregarded for an original entity that becomes a subsidiary member of a consolidated group or MEC group under the arrangement (see paragraph 715 - 910(1)(a)).
Note 2: If the original entity is the head company of a consolidated group or MEC group, then subsection 701 - 1(1) (the single entity rule) and section 701 - 5 (the entry history rule) apply in relation to that group when working out steps 1 and 2 (see subsection 715 - 910(2)).
Note 3: For step 5, the replacement entity may choose to use the officially quoted price of the qualifying interests as their market value (see subsection 124 - 784A(3)).
First element of cost base--interests acquired in exchange for replacement interests and cash etc.
(3) However, if the qualifying interest was acquired under the * arrangement partly in exchange for one or more replacement interests and partly for something else, subsection (2) applies only for working out the first element of that part of the * cost base of the qualifying interest that is attributable to the replacement interests.
Note 1: This means that the acquiring entity will have to apportion the cost base amount worked out under subsection (2) according to the relative values of the replacement interests and the other component.
Note 2: The first element of that part of the cost base, and reduced cost base, of the qualifying interest that is attributable to cash etc. is worked out using the general rules about cost base.
(4) For the purposes of step 4 of subsection (2), a liability of the original entity that is not a liability in respect of a specific asset or assets of the entity is taken to be a liability in respect of all the assets of the entity.
(5) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to:
First element of reduced cost base
(6) The first element of the * reduced cost base of the acquiring entity for the qualifying interest in the original entity is worked out similarly.
Rights and options to acquire membership interests
(7) For the purposes of step 5 of subsection (2), if at
the completion time a person holds an option, right or similar interest
(including a contingent option, right or interest), created or issued by the
original entity, to acquire a * membership interest in the original entity,
that option, right or interest is treated as if it were a membership interest
in the original entity.