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In applying subsection 115-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997), when is a taxpayer treated as having acquired a new interest in a demerged entity as a replacement for two original interests which were acquired at different times?

The new interest will be treated, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired at the earliest time that either original interest was acquired.

The taxpayer acquired one share in the head entity of a demerger group in August 2000.

An additional share was acquired in September 2002.

In November 2002 the group undertook a demerger. Under the demerger a CGT event happened to each of the two shares and the taxpayer received one new share in the demerged entity.

The demerger qualified for rollover relief in terms of Division 125 of the ITAA 1997.

In January 2003 the taxpayer sold the share in the demerged entity and made a capital gain.

Subsection 115-25(1) of the ITAA 1997 states that a capital gain can only be a discount capital gain where the asset which gave rise to the capital gain was acquired at least twelve months before the relevant CGT event. The replacement asset, acquired in a replacement-asset rollover, will be treated, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired at the time the original asset involved in the roll-over was acquired. The definition of replacement-asset roll-over in section 112-115 of the ITAA 1997 includes demerger rollovers.

As the taxpayer's two original shares have two different acquisition dates, it is reasonable to treat the new share, for the purposes of subsection 115-30(1) of the ITAA 1997, as having been acquired in August 2000 (the earlier of the two acquisition dates).

[Note: the taxpayer's capital gain satisfies the twelve month ownership requirement to be a discount capital gain.]