ATO Interpretative Decision

ATO ID 2004/57

Income Tax

Capital gains tax: Sale of shares in demerged non-resident company by resident shareholder - reduction of capital gain by amount of assessable dividend
FOI status: may be released

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Will the capital gain made by the taxpayer, a resident shareholder, who sold shares in the demerged Danish company, Novozymes A/S, be reduced under section 118-20 of the Income Tax Assessment Act 1997 (ITAA 1997) by the amount of the dividend included in the taxpayer's assessable income at the time of issue of these shares by the Danish company, Novo Nordisk A/S?

Decision

No. The capital gain made by the resident taxpayer from the sale of the Novozymes A/S shares, will not be reduced under section 118-20 of the ITAA 1997 by the amount of the dividend included in the taxpayer's assessable income.

Facts

The taxpayer owns shares in Novo Nordisk A/S. On 13 November 2000, Novo Nordisk A/S demerged by transferring some of its business activities to a new Danish public company, Novozymes A/S. There were no amounts debited to the share capital accounts of Novo Nordisk A/S in respect of the demerger.

The taxpayer received one share in Novozymes A/S for each share owned in Novo Nordisk A/S. The Novozymes A/S share had similar rights, proportion of issued capital, and par value in Novozymes A/S as the equivalent share in Novo Nordisk A/S.

There was no change to the taxpayer's Novo Nordisk A/S shares as a result of the demerger.

The taxpayer sold the shares in Novozymes A/S during the year ended 30 June 2004 and made a capital gain.

Reasons for Decision

Subsection 118-20(1) of the ITAA 1997 allows a reduction of a capital gain where, as a result of a CGT event , an amount will be included in assessable income or be exempt income by virtue of a provision of the ITAA 1936 or the ITAA 1997, outside of the capital gains and losses provisions at Part 3-1 of the ITAA 1997.

The Novozymes A/S shares received by the taxpayer were a dividend. This dividend was included in the taxpayer's assessable income under paragraph 44(1)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) for the year ended 30 June 2001.

When the taxpayer sold the Novozymes A/S shares during the year ended 30 June 2004, this sale was a disposal of a CGT asset. CGT event A1, section 104-10 of the ITAA 1997, happened at this time.

The amount of the dividend from Novo Nordisk A/S, being the issue of the Novozymes A/S shares during the year ended 30 June 2001, did not arise from the CGT event A1 which happened to the Novozymes A/S shares during the year ended 30 June 2004.

Therefore, the capital gain made from the disposal of Novozymes A/S shares will not be reduced by the value of dividend of Novo Nordisk A/S under subsection 118-20(1) of the ITAA 1997.

Date of decision: 12 January 2004

Year of income: Year ending 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   Part 3-1
   section 104-10
   section 118-20
   subsection 118-20(1)

Income Tax Assessment Act 1936
paragraph 44(1)(a)

Related ATO Interpretative Decisions
ATO ID 2002/771
ATO ID 2002/772

Keywords
Acquisition of shares
Capital gains tax
CGT event A1-disposal of a CGT asset
Company restructuring
Dividend income
Non resident companies
Shareholders

Business Line: Losses and Capital Gains Tax Centre of Expertise

Date of publication: 23 January 2004

ISSN: 1445-2782

history

	Date:	Version:
You are here	12 January 2004	Original statement
	15 January 2010	Archived

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