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  • Demergers CGT rollover for shareholders and unit holders

    When a corporate group demerges, you can choose to rollover (defer) the capital gain or loss you make as a shareholder.

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    How a demerger affects shareholders

    A demerger involves the restructuring of a corporate or fixed trust group by splitting its operations into 2 or more entities or groups.

    The shareholders or unit holders in the head entity of the group acquire a direct interest in an entity that was formerly part of the group (the demerged entity).

    If you choose a rollover:

    • you disregard any capital gain or loss made under the demerger
    • your new interests in the demerged entity are acquired on the date of the demerger. However, if a proportion of your original interests was acquired before 20 September 1985 (pre-CGT), the same proportion of your new interests in the demerged entity is treated as pre-CGT assets.

    If you do not choose a rollover:

    • you can't disregard any capital gain or loss made under the demerger
    • all your new interests in the demerged entity are acquired on the date of the demerger.

    Whether or not you choose a rollover, you must recalculate the cost base of your remaining original interests in the head entity and your new interests in the demerged entity.

    A foreign resident can only choose a rollover if the new interest acquired under the demerger is taxable Australian property as soon as they acquire it.

    A dividend paid under a demerger is generally not subject to tax if at least 50% of the CGT assets (by market value) owned by the demerged entity or its demerger subsidiaries are used by them in carrying on a business. This concession is automatic unless the head entity elects that it not apply.

    What you should do

    Usually the head company or trust of the group that is demerging will advise shareholders or unit holders if a CGT rollover is available.

    Check the information you have received from the head entity to find out about your rollover options and what you should do.

    When a corporate group restructures, we often publish a class ruling or fact sheet setting out the tax consequences for shareholders.

    For certain large demergers, you can use the demergers calculator to:

    • recalculate your cost base
    • work out your capital gain or loss if you dispose of your shares.

    Using the CGT discount after a demerger

    If you sell your new interests in the demerged entity after the demerger, you must have owned the corresponding original interests in the head entity for at least 12 months to be eligible for the CGT discount.

    Example: CGT discount eligibility for new interests

    You received BHP Steel Ltd shares under the demerger on 22 July 2002. These related to shares you acquired in BHP Billiton Ltd on 15 August 2001.

    You meet the 12-month ownership requirement for the CGT discount if you dispose of the shares after 15 August 2002 – that is, 12 months or more after the date you acquired the BHP Billiton shares.

    End of example

    However, you calculate the 12 months from the date of demerger if you either:

    • did not choose the rollover and you received new interests in the demerged entity that relate to pre-CGT interests in the head entity
    • acquired your new interests without a CGT event happening to your original interests.

    Example: CGT discount eligibility for pre-CGT shares

    You received BHP Steel Ltd shares under the demerger on 22 July 2002.

    The shares related to pre-CGT shares you owned in BHP Billiton Ltd and you did not choose a rollover.

    You meet the 12-month ownership requirement for the CGT discount if you dispose of the shares after 22 July 2003 – that is, 12 months or more after the demerger.

    End of example
    Last modified: 04 Aug 2021QC 66051