PS&C Limited - return of capital by way of in specie distribution
Please note that the PDF version is the authorised version of this ruling.
|Table of Contents||Paragraph|
|What this Ruling is about|
|Who this Ruling applies to|
|When this Ruling applies|
|Appendix 1 - Explanation|
|Appendix 2 - Legislative provisions|
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 shareholders of PS&C Limited (PS&C) who received a return of share capital from PS&C on 29 January 2020 (Payment Date) by way of an in specie distribution of shares in Tesserent Limited (TNT).
3. All legislative references 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) unless otherwise indicated.
Who this Ruling applies to
- were a PS&C shareholder on 22 January 2020 (the Record Date) for the in specie distribution, and you continued to hold your PS&C shares on 29 January 2020 (Payment Date)
- held your PS&C shares on capital account, that is, you did not hold your PS&C shares as revenue assets (as defined in section 977-50) or as trading stock (as defined in subsection 995-1(1)), and
- were a resident of Australia as defined in subsection 6(1) at all relevant times.
Note: Division 230 will not apply to individuals, unless they have made an election for it to apply.
When this Ruling applies
Return of capital not a dividend
Application of sections 45A, 45B and 45C
8. The Commissioner will not make a determination under either subsection 45A(2) or paragraph 45B(3)(b) that section 45C applies to any part of the return of share capital made to you as a PS&C shareholder.
Demerger relief not available
Capital gains tax (CGT) consequences
CGT event G1 happened to your PS&C shares
10. CGT event G1 happened to you when PS&C paid an amount to you by way of an in specie distribution in respect to the PS&C shares you owned on the Record Date and continued to own on the Payment Date (section 104-135).
11. You made a capital gain from CGT event G1 happening to your PS&C shares if the amount of the return of capital of $0.05 per TNT share received (multiplied by the number of TNT shares received) under the in specie distribution is more than the cost base of your PS&C shares. The capital gain is equal to the difference, and the cost base and reduced cost base of your PS&C shares are reduced to nil (subsection 104-135(3)). You cannot make a capital loss from CGT event G1 happening (Note 1 to subsection 104-135(3)).
12. If you made a capital gain when CGT event G1 happened to your PS&C shares, you are entitled to treat the capital gain as a discount capital gain under Subdivision 115-A provided you acquired your PS&C shares on or before 29 January 2019 (subsection 115-25(1)) and the other conditions in that Subdivision are satisfied.
13. If the amount of the return of capital of $0.05 per TNT share received (multiplied by the number of TNT shares received) is not more than the cost base of your PS&C shares, the cost base and reduced cost base of your PS&C shares are reduced by the total amount of the return of capital you received (subsection 104-135(4)).
Cost base and reduced cost base of TNT shares
- Discovery + Insights - provision of services associated with shaping digital ambition, strategy and business cases based on insights.
- Design + Process - sourcing and providing specialist contractors to customers for medium and long-term information and communications technology projects.
- Delivery + Cloud - consulting and implementation of services around unified communications, conferencing and messaging, contact centre solutions and secure voice technologies.
- Defend + Secure - services and consulting around reducing operational, financial, reputational risk and digital security matters.
18. As at 22 January 2020, PS&C had issued capital of $94,280,229. As disclosed in its Annual Report for the year ended 30 June 2019, PS&C had reserves of $593,769 and accumulated losses of $58,357,552.
Disposal of security subsidiaries
- $9 million in cash, and
- 100 million fully paid ordinary shares in TNT (equivalent to an agreed price of $5 million based on the transaction share price of $0.05 per share), payable on completion.
22. Under the terms of the SPA, PS&C was obliged to make an in specie distribution of all the TNT shares it received to PS&C shareholders who held their PS&C shares within 10 days of the issue and allotment of the TNT shares.
Return of capital
25. PS&C distributed 100 million shares in TNT on 29 January 2020 to its shareholders on a pro rata basis. PS&C shareholders received one TNT share for every 3.511 PS&C shares held on the Record Date, with any fractional entitlements rounded down to the nearest whole number.
PS&C's share capital account
Commissioner of Taxation
25 March 2020
Appendix 1 - 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|
|Return of capital not a dividend||31|
|Example - cost base of PS&C and TNT shares after the in specie distribution||39|
Return of capital not a dividend
33. Section 45A generally applies when a company streams the provision of capital benefits to shareholders who would derive a greater benefit from the capital benefits than other shareholders while those other shareholders have received, or will receive, dividends.
34. As all PS&C shareholders received the in specie distribution of one TNT share for every 3.511 PS&C shares, there was no streaming of capital benefits to some shareholders, and accordingly, section 45A does not apply.
35. Section 45B applies where certain capital benefits are, having regard to the relevant circumstances of the scheme set out in subsection 45B(8), considered to have been provided to shareholders by a company for a more than incidental purpose of enabling a taxpayer to obtain a tax benefit.
36. Having regard to the relevant circumstances of the scheme, the Commissioner considers the scheme was not entered into or carried out for a more than incidental purpose of enabling PS&C shareholders to obtain a tax benefit. Accordingly, section 45B does not apply.
Example - cost base of PS&C and TNT shares after the in specie distribution
42. Veruca did not make a capital gain when CGT event G1 happened because the amount of $142.40 she received being 2,848 TNT shares × $0.05 per share), did not exceed the cost base of her PS&C shares, which was $800. Therefore, she is required to reduce the cost base and reduced cost base of her PS&C shares by $142.40 to $657.60 or $0.0675 per share.
Appendix 2 - Legislative provisions
|Income Tax Assessment Act 1936||subsection 6(1)|
|Income Tax Assessment Act 1936||section 45A|
|Income Tax Assessment Act 1936||section 45A(2)|
|Income Tax Assessment Act 1936||section 45B|
|Income Tax Assessment Act 1936||section 45B(3)(b)|
|Income Tax Assessment Act 1936||section 45C|
|Income Tax Assessment Act 1997||section 104-135|
|Income Tax Assessment Act 1997||section 104-135(1)|
|Income Tax Assessment Act 1997||section 104-135(2)|
|Income Tax Assessment Act 1997||section 104-135(3)|
|Income Tax Assessment Act 1997||section 109-5|
|Income Tax Assessment Act 1997||section 109-5(2)|
|Income Tax Assessment Act 1997||Subdivision 115-A|
|Income Tax Assessment Act 1997||Division 125|
|Income Tax Assessment Act 1997||Division 197|
|Income Tax Assessment Act 1997||Division 230|
|Income Tax Assessment Act 1997||section 975-300|
|Income Tax Assessment Act 1997||section 977-50|
|Income Tax Assessment Act 1997||subsection 995-1(1)|
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