Class Ruling

CR 2019/76

GARDA Diversified Property Fund - return of trust corpus and formation of a stapled security

Please note that the PDF version is the authorised version of this ruling.

Table of Contents	Paragraph
What this Ruling is about	1
Who this Ruling applies to	4
When this Ruling applies	6
Ruling	7
Scheme	13
Appendix 1 - Explanation	23
Appendix 2 - Legislative provisions	34

Relying on this Ruling:

This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953.

If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.

Further, if we think that this Ruling disadvantages you, we may apply the law in a way that is more favourable to you.

What this Ruling is about

1. This Ruling sets out the tax consequences for the unitholders of GARDA Diversified Property Fund (GDF) when GDF distributed all of the shares in its newly incorporated, wholly-owned subsidiary, GARDA Holdings Limited (GHL) to its unitholders.

2. Full details of this scheme are set out in paragraphs 13 to 22 of this Ruling.

3. Legislative references in this Ruling are to provisions of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 (as detailed in the table in Appendix 2 of this Ruling).

Who this Ruling applies to

4. This Ruling applies to you if you are an Australian resident for income tax purposes and you:

•: were the registered holder of units in GDF on 21 November 2019 (the Record Date)
•: held your units in GDF on capital account. That is, you did not hold your units in GDF as revenue assets (as defined by section 977-50) or as trading stock (as defined in subsection 995-1(1)) on the Record Date, and
•: received the shares in GHL on 21 November 2019 (the Payment Date).

5. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 of the Income Tax Assessment Act 1997 in relation to the scheme outlined in paragraphs 13 to 22 of this Ruling.

Note: Division 230 will not apply to individuals, unless they have made an election for it to apply.

When this Ruling applies

6. This Ruling applies from 1 July 2019 to 30 June 2020.

Ruling

Distribution of corpus is a non-assessable return of corpus

7. The distribution of trust capital in the form of shares in GHL is not ordinary income for you under subsection 6-5(1) and will not be included in your assessable income pursuant to subsection 99B(2).

Adjustment to cost base of GDF units

8. The distribution of shares in GHL is property that you had a right to receive (and received) in respect of your units during the financial year ending 30 June 2020 and formed part of the attribution managed investment trust (AMIT) cost base reduction amount for you for that year.

9. If the cost base of your interests in GDF is reduced to nil, any further negative net amount results in a capital gain under CGT event E10 (section 104-107A).

Cost base of shares in GHL

10. The Cost base / reduced cost base of the shares in GHL was their market value on the Payment Date. At the time that the shares in GHL were distributed they had a nominal value of $0.0001 per share, which was equivalent to the value of the return of capital.

Acquisition date of shares in GHL

11. You are taken to have acquired the shares in GHL on the Payment Date.

No CGT event upon stapling

12. No CGT event in Division 104 happened as a consequence of the stapling of each GHL share to each GDF unit.

Scheme

13. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon.

Background

14. GDF is an Australian unit trust.

15. GDF is an AMIT which validly made the deemed Managed Investment Trust capital treatment election.

16. GDF has been listed on the Australian Securities Exchange since 2 July 2015.

17. GARDA Capital Limited (GCL) is the responsible entity for GDF.

The incorporation and distribution of GHL

18. GDF incorporated GHL on 20 September 2019.

19. GHL was incorporated with the same number of shares as there are units in GDF and with a nominal value of $0.0001 per share.

20. GHL incorporated a wholly-owned subsidiary company, GDF Sub Co, and elected to form a consolidated group for the purposes of Part 3-90 with GDF Sub Co as the sole subsidiary member.

21. On the Payment Date, GDF distributed all of the shares in GHL to its unitholders as a return of capital, having resolved that the distribution of the shares in GHL would be a distribution of trust capital for the financial year ending 30 June 2020. As such, each unitholder received one share in GHL for each unit held in GDF on the Payment Date.

22. The units in GDF and the shares in GHL were subsequently stapled together on a 1:1 basis.

Commissioner of Taxation
4 December 2019

Appendix - Explanation

This Explanation is provided as information to help you understand how the Commissioner's view has been reached. It does not form part of the binding public ruling.

Table of Contents	Paragraph
Distribution of corpus is a non-assessable return of corpus	23
Adjustment to cost base of GDF units	25
Cost base of shares in GHL	31
Acquisition date of shares in GHL	32
No CGT event upon stapling	33
Appendix 2 - Legislative provisions	34

Distribution of corpus is a non-assessable return of corpus

23. The distribution in the form of shares in GHL (nominal value of $0.0001 per share) for each unit in GDF was a distribution of trust capital for the year ending 30 June 2020 (being a payment of corpus). This distribution is not considered ordinary income for you under subsection 6-5(1).

24. On the basis that GDF resolved that the distribution of the shares in GHL was a distribution of trust capital for the year ending 30 June 2020, the receipt of the shares in GHL did not result in you being presently entitled to a share of the income of GDF. Therefore, no amount will be included in your assessable income pursuant to subsection 99B(2).

Adjustment to cost base of GDF units

25. Sections 104-107A to 104-107H apply to members of AMITs to annually adjust the cost base of the members' units or interests for CGT purposes.

26. Under section 104-107B a member makes an annual adjustment to the cost base of their unit or interest in an AMIT. The adjustment is to be made just before the end of the income year, or just before the time of a relevant CGT event.

27. The amount by which the cost base is actually adjusted under section 104-107B is the net difference between the AMIT cost base reduction amount and the AMIT cost base increase amount as worked out under section 104-107E. This is called the AMIT cost base net amount, and it is worked out under section 104-107C.

28. Under section 104-107D, the cost base of a member's interest or unit in an AMIT is effectively reduced by the AMIT cost base reduction amount for the income year, being the total of:

•: money, and the market value of any property, attributable to the interest or unit, that they start to have a right to receive in that year, and
•: the amounts of all tax offsets attributable to the member's interests or units

to the extent that the receipt is not as a result of CGT events A1, C2, E1, E6 or E7.

29. The distribution of shares in GHL is property that you had a right to receive (and received) in respect of your units during the year ending 30 June 2020 and will, therefore, form part of the AMIT cost base reduction amount for you for that year.

30. If the cost base of the units in GDF is reduced to nil, any further negative net amount results in a capital gain under CGT event E10 in accordance with section 104-107A.

Cost base of shares in GHL

31. You acquired shares in GHL without incurring any expenditure. As the requirements in subsection 112-20(1) are satisfied, it applies to modify the first element of the Cost base / reduced cost base of the shares in GHL to be their market value. At the time that the shares in GHL were distributed they had a nominal value of $0.0001 per share. This value was equivalent to the value of the return of capital and is their market value.

Acquisition date of shares in GHL

32. CGT event A1 occurred for GDF under section 104-10 when it disposed of the shares in GHL to you. No contract was entered into between the parties to effect the transaction. Therefore, you are taken to have acquired the shares in GHL at the time when GDF stops being the owner of the shares in GHL (being the Payment Date).

No CGT event upon stapling

33. No CGT event in Division 104 happened as a consequence of the stapling of each GHL share to each GDF unit. Equally, no income tax consequences arose for you from the stapling.

Appendix 2 - Legislative provisions

34. This paragraph sets out the details of the provisions ruled upon or referenced in this Ruling.

Income Tax Assessment Act 1936	subsection 99B(2)
Income Tax Assessment Act 1997	Part 3-90
Income Tax Assessment Act 1997	subsection 6-5(1)
Income Tax Assessment Act 1997	Division 104
Income Tax Assessment Act 1997	section 104-10
Income Tax Assessment Act 1997	section 104-107A
Income Tax Assessment Act 1997	section 104-107B
Income Tax Assessment Act 1997	section 104-107C
Income Tax Assessment Act 1997	section 104-107D
Income Tax Assessment Act 1997	section 104-107E
Income Tax Assessment Act 1997	section 104-107F
Income Tax Assessment Act 1997	section 104-107G
Income Tax Assessment Act 1997	section 104-107H
Income Tax Assessment Act 1997	subsection 112-20(1)
Income Tax Assessment Act 1997	Division 230
Income Tax Assessment Act 1997	section 977-50
Income Tax Assessment Act 1997	subsection 995-1(1)

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Not previously issued as a draft

References

ATO references:
NO 1-IW6U28I

ISSN: 2205-5517

Business Line: PGI

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