What a demerger is
A demerger involves the restructuring of a corporate group by splitting its operations into 2 or more entities or groups. When a demerger happens, the shareholders of the head entity of the group acquire a direct interest in the demerged entity.
The demerger provisions offer CGT and income tax relief at both the entity and shareholder level. This tax relief is intended for genuine demergers that offer business benefits through restructuring. Demergers should not be undertaken to achieve a tax benefit.
Demerger situations that attract our attention
Situations that attract our attention include:
- disposing of the demerged entity or business after the demerger event
- shareholders acquiring more than their share of the new interests in the demerged entity
- schemes aiming to inappropriately get CGT rollover concessions through a corporate restructure that doesn't satisfy the demerger requirements
- demergers that appear to have been undertaken to obtain a tax benefit rather than to improve business efficiency
- demergers that remove or significantly reduce assessable capital gains or dividends
- demergers where one of the demerged entities is not wholly owned by the original shareholders, where the proportionate value of their shares can be affected through arrangements enacted prior to the demerger.
Guidance on demergers
For more guidance on demergers and restructuring, refer to:
- Income Tax Assessment Act 1936 – section 45B Schemes to provide certain benefits
- TD 2020/6 What is a 'restructuring' for the purposes of subsection 125-70(1) of the Income Tax Assessment Act 1997?