Issue
Does a CGT event in Division 104 of the Income Tax Assessment Act 1997 (ITAA 1997) happen to a member of a foreign mutual entity under the demutualisation of that entity?
Decision
Yes. CGT event C2 (about cancellation, surrender and similar endings) in section 104-25 of the ITAA 1997 happens as the member's rights in the foreign mutual entity end.
Facts
The taxpayer took out a number of pension policies with a foreign mutual assurance entity (foreign mutual) on different dates before 20 September 1985. The taxpayer acquired membership rights in the foreign mutual at the time the first policy issued.
The foreign mutual demutualised in 2000. As a result, the taxpayer received an amount of money for the membership rights ending.
Reasons for Decision
CGT event C2 happens if ownership of an intangible CGT asset ends by the asset: • being redeemed or cancelled (paragraph 104-25(1)(a) of the ITAA 1997); • being released, discharged or satisfied (paragraph 104-25(1)(b) of the ITAA 1997); • expiring (paragraph 104-25(1)(c) of the ITAA 1997); or • being abandoned, surrendered or forfeited (paragraph 104-25(1)(d) of the ITAA 1997).
In this case, the membership rights in the foreign mutual ended by being redeemed or cancelled when the foreign mutual demutualised.
The taxpayer will make a capital gain or capital loss from the CGT event equal to the difference between the cost base of the membership rights and the capital proceeds received. Payments made by the taxpayer to the foreign mutual only relate to the policies, and are not part of the cost base of the membership rights.
As the membership rights were acquired prior to 20 September 1985 the capital gain or capital loss is be disregarded.