ATO Interpretative Decision

ATO ID 2003/1053

Income Tax

Capital gains tax: Demergers - sale of new interests via a sale facility
FOI status: may be released
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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

If shareholders can sell their new shares in a demerged entity through a sale facility established by the head entity, is the requirement in paragraph 125-70(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) that shareholders only receive ownership interests in the demerged entity under the demerger, satisfied?

Decision

Yes. The requirements of paragraph 125-70(1)(c) of ITAA 1997 will still be satisfied if shareholders are offered the opportunity to sell shares via a sale facility.

Facts

A company (the head entity) undertook a demerger of a subsidiary (the demerged entity) and the shareholders in the head entity were entitled to receive only shares in the demerged entity.

For the convenience of shareholders who intended to sell their new shares in the demerged entity, the head entity established a sale facility. A shareholder in the head entity could, if they chose, have their new shares in the demerged entity sold on their behalf by the trustee of a sale facility trust, who would remit the proceeds of the sale to the shareholder.

Reasons for Decision

In order to be a demerger for the purposes of Division 125 of the ITAA 1997 the conditions of paragraph 125-70(1)(c) of the ITAA 1997 must be satisfied. Paragraph 125-70(1)(c) requires that, under a restructuring:

(i)
a CGT event happens to an original interest owned by an entity in the head entity of the group and the entity acquires a new interest and nothing else; or
(ii)
no CGT event happens to an original interest owned by an entity in the head entity of the group and the entity acquires a new interest and nothing else.

In this case, the establishment of the sale facility was not an integral part of the demerger. Rather, it was ancillary to the demerger, and therefore did not occur under the demerger for the purposes of Division 125 of the ITAA 1997.

Consequently, the opportunity for shareholders to use the sale facility still allowed the requirements in paragraph 125-70(1)(c) of the ITAA 1997 to be satisfied.

Date of decision:  13 November 2003

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   Division 125
   paragraph 125-70(1)(c)

Keywords
Capital gains tax
CGT roll-over relief
Demerger
Demerger roll-over

Business Line:  Losses & CGT Centre of Expertise

Date of publication:  21 November 2003

ISSN: 1445-2782

history
  Date: Version:
You are here 13 November 2003 Original statement
  19 February 2010 Withdrawn