ATO Interpretative Decision
ATO ID 2003/913
Income Tax
Capital gains tax: Demergers - Chess Unit of Foreign Security (CUFS) issued under a demergerFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a Chess Unit of Foreign Security (CUFS) an ownership interest in a company, for the purposes of the demerger provisions in Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. A CUFS is an ownership interest in a company, for the purposes of the demerger provisions in Division 125 of ITAA 1997.
Facts
A CUFS is a type of depositary interest developed by the Australian Stock Exchange to facilitate the transferring and holding of a foreign security. A CUFS is a unit of beneficial ownership in a foreign security. Legal title in the security is held by an Australian depositary entity on behalf of, and for the benefit of, the CUFS holder.
In the demerger under consideration, the head entity was listed on the Australian Stock Exchange, but the demerged entity was a company listed on a foreign stock exchange. Shareholders in the head entity were not issued with shares in the demerged entity. Instead, they were issued with CUFS.
Reasons for Decision
Paragraph 125-60(1)(a) of ITAA 1997 defines an ownership interest in a company as being either a share in the company or an 'option, right or similar interest issued by the company that gives the owner an entitlement to acquire a share in the company'.
Under a demerger, a CUFS is created over a share in the demerged entity and issued to the shareholder in the head entity. The owner of a CUFS is absolutely entitled to the security covered by the CUFS. The consequences of dealing in the share in the demerged entity are attributed to the shareholder (section 106-50 of ITAA 1997).
[Note: The treatment of a CUFS as an ownership interest is relevant to the maintenance of ownership test (subsection 125-70(2) of ITAA 1997) in the definition of a demerger (subsection 125-70(1) of ITAA 1997).]
Date of decision: 17 July 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
section 106-50
Division 125
paragraph 125-60(1)(a)
subsection 125-70(1)
subsection 125-70(2)
Keywords
Capital gains tax
CGT assets
Demerger
Demerger roll-over
ISSN: 1445-2782