1011414602331 | Legal database

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Edited version of private ruling

Authorisation Number: 1011414602331

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Ruling

Subject: Merge of company

Question 1

Is Company A as head entity of the A tax consolidated group, entitled to choose the rollover available under subdivision 124-M of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the transfer of its 100% interests in Company B in return for ordinary shares in New Company (NewCo)?

Advice/Answers

Yes.

Question 2

Will the Commissioner apply Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) to make a determination under section 177F of the ITAA 1936, excluding a consideration of section 177E of the ITAA 1936, in relation to the rollover obtained by Company A under subdivision 124-M of the ITAA 1997 on exchange of its 100% interest in Company B for NewCo shares?

Advice/Answers

No.

Relevant facts

The proposed transaction is to merge two existing companies, (Company B and Company Y), which will ultimately be held by newly incorporated company, NewCo.

The proposed transaction is to be achieved by two acquisitions (Acquisition 1 and Acquisition 2).

This ruling deals with Acquisition 1.

Acquisition 1 has 2 steps as follows:

Step 1

The incorporation of NewCo

Step 2

A number of transactions between Company A and certain of its subsidiaries will occur with the effect that certain of these subsidiaries' assets will not be transferred to NewCo.

Relevant legislative provisions

Section 124-780 of the Income Tax Assessment Act 1997 (ITAA 1997)

Subsection 124-782(1) of the ITAA 1997

Section 124-783 of the ITAA 1997

Section 124-785 of the ITAA 1997

Section 124-795 of the ITAA 1997

Section 177A of the Income Tax Assessment Act 1936 (ITAA 1936)

Section 177B of the ITAA 1936

Section 177C of the ITAA 1936

Section 177D of the ITAA 1936

Subsection 177D(b) of the ITAA 1936

Section 177F of the ITAA 1936

Reasons for decision

Question 1

Summary

The Commissioner confirms that Company A as head entity of the A tax consolidated group is entitled to choose the rollover available under subdivision 124-M of the ITAA 1997 in relation to the transfer of its 100% interests in Company B in return for ordinary shares in NewCo.

The requirement in subparagraph 124-780(1)(a)(i) of the ITAA 1997 will be satisfied as Company A (the original interest holder) will exchange its shares (its original interests) in Company B (the original entity) for shares (Company A's replacement interests) in another company (NewCo).

The paragraphs in 124-780(2) of the ITAA 1997 are satisfied.

Conditions for roll-over

The conditions for rollover under subsection 124-780(3) of the ITAA 1997 are satisfied.

Further roll-over conditions in certain cases

The Commissioner considers the market values to be at least substantially the same.

As such, even if subsection 124-780(4) of the ITAA 1997 applies, the conditions in subsection 124-780(5) of the ITAA 1997 will be satisfied.

Exceptions

Subsection 124-795(1) of the ITAA 1997 does not apply as Company A, as head entity of the A tax consolidated group is not a foreign resident for Australian tax purposes.

Any capital gain made by Company A group from the NewCo shares would not be disregarded (except because of a rollover), and accordingly paragraph 124-795(2)(a) of the ITAA 1997 should not prevent the rollover relief.

Further, the exclusion in paragraph 124-795(2)(b) of the ITAA 1997 will not apply as Company A and NewCo are not part of a wholly-owned group, and NewCo is not a foreign resident.

Subsection 124-795(3) of the ITAA 1997 is not applicable as Company A will not be eligible to choose roll-over relief under Division 122 or subdivision 124-G of the ITAA 1997.

Subsection 124-795(4) of the ITAA 1997 is not applicable as NewCo will not make a choice under 124-795(4).

Conclusion

Company A, as head entity of the A tax consolidated group, is entitled to choose the rollover available under subdivision 124-M of the ITAA 1997 in relation to the transfer of its 100% interest in Company B's ordinary shares in return for ordinary shares in NewCo.

Question 2

Summary

The Commissioner confirms that he will not apply Part IVA of the ITAA 1936 to make a determination under section 177F of the ITAA 1936, excluding a consideration of section 177E of the ITAA 1936, in relation to the rollover obtained by Company A under subdivision 124-M of the ITAA 1997 on exchange of its 100% interest in Company B for NewCo shares.

Detailed reasoning

Part IVA of the ITAA 1936 does not apply.

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