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Edited version of private ruling

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Ruling

Subject: Subdivision 124-M of the Income Tax Assessment Act 1997

Question 1

Is scrip for scrip roll-over available to Company A under Subdivision 124-M of the Income Tax Assessment Act 1007 (ITAA 1997) in the event that Company A transfers all of the shares in Company B to Company C?

Advice

Yes

This ruling applies for the following period

1 July 20xx to 30 June 20xx

The scheme commenced on

1 July 20xx

Relevant facts

Company A is an Australian resident company and head of the tax consolidated group. Company A owns an Australian resident subsidiary, Company B which is a member of the tax consolidated group. The shares in Company B are ordinary shares such that they have proportionate rights to vote, to any return of capital and to any dividends paid.

Company A will enter into an arrangement for Company C, a foreign resident, to acquire the shares in Company B. In exchange, Company C will issue consideration shares in itself to Company A.

Reasons for decision

Subdivision 124-M of the ITAA 1997 allows a taxpayer to choose roll-over where the taxpayer's post-CGT shares or trust interests are replaced with other shares or trust interest. A taxpayer can choose to obtain roll-over when interests held in one entity (the original interests in the original entity) are exchanged by the taxpayer for replacement interests in another entity (the acquiring entity). This roll-over defers recognition of any capital gain (but not a capital loss) until a CGT event happens to the replacement interests.

Scrip for scrip roll-over is available if the taxpayer owns a post-CGT share (or interest in a share). The taxpayer must generally be an Australian resident and roll-over is only available if, apart from the roll-over, the taxpayer would make a capital gain (not a capital loss).

The primary conditions which must be satisfied to qualify for roll-over where post CGT shares are replaced with other shares are outlined in section 124-780 of the ITAA 1997. Under the proposed arrangement, the requirements of section 124-780 of the ITAA 1997 will be satisfied.

Section 124-795 of the ITAA 1997 sets out the exceptions in which scrip for scrip roll-over is not available under Subdivision 124-M of the ITAA 1997. Under the proposed arrangement, the exceptions in section 124-795 of the ITAA 1997 will not apply. Accordingly, roll-over is available to Company A under Subdivision 124-M of the ITAA 1997.


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