ATO Interpretative Decision

ATO ID 2003/1054 (Withdrawn)

Income Tax

Capital gains tax: demergers - proportional ownership requirements
FOI status: may be released

This ATO ID is withdrawn from the database as it is a straight application of the law and does not contain an interpretative decision.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

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.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the proportionate ownership test in paragraph 125-70(2)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) satisfied, if shareholders' entitlements to new shares in a demerged company are rounded up or down to a whole number of shares?

Decision

Yes. The proportionate ownership test in paragraph 125-70(2)(a) of the ITAA 1997 is satisfied if shareholders' entitlements to new shares in a demerged company are rounded up or down to a whole number of shares.

Facts

A listed company (the head entity) with several hundred thousand shareholders undertook a demerger.

Under the demerger, the head entity transferred one share in a subsidiary (demerged entity) to the head entity shareholders for every three shares those shareholders owned in the head entity.

The number of shares transferred to head entity shareholders whose number of head entity shares was two more than a multiple of three was rounded up.

The number of shares transferred to head entity shareholders whose number of head entity shares was one more than a multiple of three was rounded down.

Reasons for Decision

Paragraph 125-70(2)(a) of the ITAA 1997 requires, as one of the conditions for a demerger satisfying the conditions of Division 125 of the ITAA 1997, that the shareholders in the head entity acquire as nearly as practicable the same proportion of shares in the demerged entity as they owned in the head entity immediately before the demerger.

If entitlements are rounded up or down, ownership proportions must change. However, in this case, because there are so many shares on issue, the differences are insignificant. Consequently, the proportions are as nearly as practicable the same.

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(2)(a)

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

Business Line: Losses and CGT Centre of Expertise

Date of publication: 21 November 2003

ISSN: 1445-2782

history

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

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