Income tax: Return of capital: Centro Properties Group
Please note that the PDF version is the authorised version of this ruling.
|What this Ruling is about|
|Date of effect|
|NOT LEGALLY BINDING SECTION:|
|Appendix 1: Explanation|
|Appendix 2: Detailed contents list|
This publication provides you with the following level of protection:
This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953.
A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes.
If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.
What this Ruling is about
1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.
- section 99B of the Income Tax Assessment Act 1936 (ITAA 1936);
- section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997);
- section 104-70 of the ITAA 1997; and
- Subdivision 115-A of the ITAA 1997.
All subsequent legislative references are to the ITAA 1997 unless otherwise indicated.
Class of entities
- participated in the Scheme that is the subject of this Ruling;
- were residents of Australia within the meaning of subsection 6(1) of the ITAA 1936 on 14 December 2011 (Implementation Date);
- held their CNP stapled securities on capital account; and
- are not subject to the taxation of financial arrangement rules in Division 230 in relation to gains and losses on their CNP stapled securities.
(Note: Division 230 will generally not apply to individuals, unless they have made an election for it to apply to them.)
In this Ruling, a person belonging to this class of entities is referred to as a 'CNP security holder'.
5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 17 of this Ruling.
- this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and
- this Ruling may be withdrawn or modified.
7. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:
- Commonwealth Copyright Administration
- Copyright and Classification Policy Branch
- Attorney-General's Department
- 3-5 National Circuit
- Barton ACT 2600
- or posted at: http://www.ag.gov.au/cca
Date of effect
8. This Ruling applies from 1 July 2011 to 30 June 2012. The Ruling continues to apply after 30 June 2012 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).
- Class Ruling application dated 17 October 2011;
- Implementation Agreement as modified on 17 November 2011;
- Senior Facilities Continuation Agreement dated 15 January 2009;
- Escrow Deed dated 8 August 2011;
- Junior Stakeholder Allowance Agreement dated 29 July 2011; and
- Senior Lenders Scheme Booklet dated 5 October 2011.
Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation.
11. CNP is listed (on a suspended basis) on the Australian Securities Exchange (ASX) as a stapled security. Each stapled security consists of one separate CNPR Limited (CNPR) ordinary share and one separate Centro Property Trust (CPT) unit. The effect of the stapling is that the CNPR shares and CPT units can only be dealt with as one security on the ASX.
13. On 28 February 2011, CNP entered into a binding purchase agreement to sell all of its assets in the USA for US$9.4 billion. The sale was completed on 29 June 2011. An amount of $170 million from the sale proceeds was retained and paid into an escrow account pursuant to the Junior Stakeholder Allowance Agreement and the Escrow Deed (Escrow Amount).
14. On 9 August 2011, CNP entered into an Implementation Agreement by way of which the Australian assets of CNP, Centro Retail Group (CER), Centro Australia Wholesale Fund (CAWF), and the Centro DPF Holding Trust (DHT) were to be aggregated together to form a newly listed Australian retail property group called Centro Retail Australia (CRA).
16. Upon approval of the restructure, pursuant to clause 12.3 of the Implementation Agreement, part of the Escrow Amount was available for distribution by CNP to its security holders and unsecured creditors (Junior Stakeholder Amount).
17. On 22 December 2011, CNP paid an amount of $48,925,082 out of the Junior Stakeholder Amount to CNP security holders. An amount of $0.0503 was paid to CNP security holders in respect of each of their CPT units. No amount was paid to CNP security holders in respect of their CNPR shares.
Return of capital by CPT
CGT Event E4
21. A CNP security holder will make a capital gain when CGT event E4 happens if the sum of all the non-assessable parts of payments made by the trustee during the income year in respect of the CPT unit exceeds the cost base of the unit (subsection 104-70(4)). A CNP security holder cannot make a capital loss when CGT event E4 happens to their CPT units.
23. However, if the sum of all the non-assessable parts of payments made by the trustee during the income year is less than or equal to the cost base of the CPT unit, the cost base and reduced cost base of that CPT unit will be reduced (but not below nil) by the non-assessable payments (subsection 104-70(6)). The non-assessable payments will include the amount of the capital return ($0.0503).
24. A CNP security holder who makes a capital gain when CGT event E4 happens may be eligible to treat the gain as a 'discount capital gain' provided that they satisfy the requirements of Subdivision 115-A.
Commissioner of Taxation
1 February 2012
Appendix 1 - Explanation
|This Appendix is provided as information to help you understand how the Commissioner's view has been reached. It does not form part of the binding public ruling.|
Return of capital by CPT
25. Division 6 of Part III of the ITAA 1936 is the primary scheme for including distributions from trusts in the assessable income of beneficiaries. Subsection 99B(1) of the ITAA 1936 provides that an amount, being property of a trust estate, paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income, is assessable income of the beneficiary, subject to the exceptions in subsection 99B(2) of the ITAA 1936.
Whether or not a particular receipt is income depends upon its quality in the hands of the recipient
29. The High Court of Australia in GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation (1990) 170 CLR 124 at page 138 unanimously stated that the following factors were important in determining the nature of receipt:
To determine whether a receipt is of an income or of a capital nature, various factors may be relevant. Sometimes, the character of receipts will be revealed most clearly by their periodicity, regularity or recurrence; sometimes, by the character of a right or thing disposed of in exchange for the receipt; sometimes, by the scope of the transaction, venture or business in or by reason of which money is received and by the recipient's purpose in engaging in the transaction, venture or business.
CGT event E4
31. Under section 104-70, CGT event E4 happens if the trustee of a trust makes a payment to a unit holder in respect of their unit in the trust, and some or all of the payment is not included in the unit holder's assessable income (the non-assessable payment).
32. The total amount of the capital distribution by CPT to CNP security holders will be $0.0503 per unit. No part of this amount will be included in the assessable income of CNP security holders. Therefore, CGT event E4 will happen to each CPT unit as a result of the capital distribution by CPT.
34. A CNP security holder will make a capital gain when CGT event E4 happens to the extent (if any) that the sum of all the non-assessable parts of payments made by the trustee during the income year in respect of a CPT unit exceeds the cost base of the unit (subsection 104-70(4)).
36. However, if the sum of all the non-assessable parts of payments made by the trustee during the income year is less than or equal to the cost base of the CPT unit, the cost base and reduced cost base of that CPT unit will be reduced (but not below nil) by the non-assessable payments (subsections 104-70(6)). The non-assessable payments will include the amount of the capital return ($0.0503).
37. A CNP security holder who makes a capital gain when CGT event E4 happens may be eligible to treat the gain as a 'discount capital gain' provided that they satisfy the requirements of Subdivision 115-A. The time when CGT event E4 happens to each CPT unit is determined in accordance with subsection 104-70(3).
Appendix 2 - Detailed contents list
|What this Ruling is about||1|
|Class of entities||3|
|Date of effect||8|
|Return of capital by CPT||18|
|CGT Event E4||20|
|Appendix 1 - Explanation||25|
|Return of capital by CPT||25|
|CGT Event E4||31|
|Appendix 2 - Detailed contents list||38|
Not previously issued as a draft
CGT cost base
Scott v. Federal Commissioner of Taxation
(1966) 117 CLR 514
GP International Pipecoaters Pty Ltd v. Federal Commissioner of Taxation
(1990) 170 CLR 124
 HCA 25
170 CLR 124
21 ATR 1
90 ATC 4413