ATO Interpretative Decision
ATO ID 2005/239 (Withdrawn)
Income Tax
Capital Gains Tax: demerger - original interests in the head entity of a demerger groupFOI status: may be released
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This ATO ID is withdrawn as a result of paragraph 125-70(1)(f) of the Income Tax Assessment Act 1997 being repealed by Act 168 of 2006 which is applicable to CGT events that happen on or after 12 December 2006.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does the reference in paragraph 125-70(1)(f) of the Income Tax Assessment Act 1997 (ITAA 1997) to 50% of original interests allow the head entity to take into account the sum of interests in subparagraphs 125-70(1)(f)(i) and 125-70(1)(f)(ii) of the ITAA 1997?
Decision
Yes. The 50% of original interests in the head entity referred to in paragraph 125-70(1)(f) of the ITAA 1997 takes into account the sum of interests in subparagraphs 125-70(1)(f)(i) and 125-70(1)(f)(ii) of the ITAA 1997.
Facts
Company X is the head entity of a demerger group. Just before restructuring, 45% of its original interests are owned by Australian residents and 15% of its original interests are owned by foreign residents whose new interests have the necessary connection with Australia just after they acquire those new interests.
Reasons for Decision
Paragraph 125-70(1)(f) of the ITAA 1997 requires that, just before the restructuring, it is reasonable for the head entity to assume that more than 50% of original interests in the head entity of the demerger group are owned by:
- (i)
- Australian residents, or
- (ii)
- foreign residents whose new interests have the necessary connection with Australia just after they acquire them.
The requirement of holding more than 50% of original interests in the head entity is satisfied if the sum of the interests held by the above two interest holder groups totals more than 50%.
The test in paragraph 125-70(1)(f) of the ITAA 1997 does not require that either the original interests relating to subparagraph 125-70(1)(f)(i) of the ITAA 1997 must be more than 50% or that the original interests relating to subparagraph 125-70(1)(f)(ii) of the ITAA 1997 must be more than 50%. This interpretation is also consistent with the explanations provided in paragraphs 15.14 and 15.27 of the Explanatory Memorandum for the New Business Tax System (Consolidation, Value Shifting, Demergers and other Measures) Bill 2002.
Date of decision: 12 August 2005Year of income: Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1997
paragraph 125-70(1)(f)
subparagraph 125-70(1)(f)(i)
subparagraph 125-70(1)(f)(ii)
Keywords
Capital gains tax
CGT assets
Company restructuring
Demerger
Demerger group
Demerger roll-over
Equitable interests
Non resident companies
Proportionate test
Residence in Australia
ISSN: 1445-2782
| Date: | Version: | |
| 12 August 2005 | Original statement | |
| You are here | 15 January 2010 | Archived |