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Edited version of private advice
Authorisation Number: 1012655509069
Ruling
Subject: Subdivision 124-N Roll-over - disposal of assets by a trust to a company
Question
Will Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) provide rollover relief to the restructure?
Answer
Yes
This ruling applies for the following period(s)
Years ended 30 June 2014 - 2015
The scheme commences on
1 July 2013
Relevant facts and circumstances
Company A is the trustee of a unit trust (the Trust).
The Trust was established by Deed and a copy of the Deed has been provided.
The Trust carries on business activities.
The trustee does not carry on any activities apart from being trustee of the Trust.
The trustee's assets are limited to a small amount of cash which relates to the ordinary shares issued.
A clause of the Trust Deed provides that each unit entitles the holder to an equal share with each other unit holder of a unit in the beneficial interest in the trust as a whole.
The following restructure (with all steps considered to be part of one single arrangement) is proposed:
• The unit holders will appoint a new trustee by passing a special resolution in accordance with the Deed. Therefore, Company A will no longer act as trustee of the Trust.
• The new trustee of the Trust will purchase the shares in Company A.
• The Trust will transfer all its assets and liabilities to Company A.
• In consideration for the transfer, additional shares will be issued by Company A to the Trust.
• The Trust will then immediately be wound up. The shares will be distributed to the unit holders of the Trust in proportion to the number of units held.
All relevant entities will choose to obtain the roll-over.
None of the unit holders hold their units as trading stock, and none of the shares received in exchange will be held as trading stock.
Relevant legislative provisions
Subdivision 124-N of the Income Tax Assessment Act 1997
Section 124-855 of the Income Tax Assessment Act 1997
Section 124-860 of the Income Tax Assessment Act 1997
Section 124-865 of the Income Tax Assessment Act 1997
Section 124-870 of the Income Tax Assessment Act 1997
Reasons for decision
Subdivision 124-N of the Income Tax Assessment Act 1997 (ITAA 1997) provides for roll-overs when there is a disposal of assets by a trust to a company.
In accordance with section 124-855 of the ITAA 1997, a roll-over may be available where a trust disposes of all its CGT assets to a company limited by shares, CGT event E4 is capable of applying to all of the units and interests in the transferor, and the requirements in section 124-860 are met.
Section 124-860 of the ITAA 1997 stipulates the following requirements:
• All of the CGT assets owned by the transferor must be disposed of to the transferee during the restructuring period.
• The transferee must not be an exempt entity.
• The transferee must be a company that has never carried on commercial activities, has no CGT assets other than small amounts of cash, and has no losses of any kind.
• Each entity that owned interests in the a transferor just before the start of the restructuring period must own replacement interests in the transferee in the same proportion as it owned those interests in the transferor.
• The market value of the replacement interests each of those entities owns in the transferee must be at least substantially the same as the market value of the interests it owned in the transferor just before the start of the restructuring period.
Section 124-865 of the ITAA 1997 requires that both the transferor and transferees must choose the roll-over.
Section 124-870 of the ITAA 1997 provides for roll-over for owners of units in a trust if:
• You own units or interests in the transferor; and
• The ownership of all your units or interests ends under a trust restructure for in exchange for shares in the transferee.
• You must make the choice for each of your original interests.
In this situation, the proposed restructure will consist of the Trust disposing of all its CGT assets to Company A, which is a company limited by shares.
CGT event E4 (pursuant to section 104-70 of the ITAA 1997) is capable of applying to all of the units in the Trust.
Company A has no CGT assets (other than cash relating to the issued shares) and, apart from being a trustee, has not carried on commercial activities and has no losses. It is also not an exempt entity.
After the restructure, the unit holders of the Trust will own shares in Company A in the same proportion as they owned units in the Trust before the start of the restructure.
The market value of the shares owned by each shareholder will be at least substantially the same as the market value of the units they owned in the Trust just prior to the restructuring period.
Both the Trust and Company A will choose to obtain the roll-over (as required by section 124-865 of the ITAA 1997).
In accordance with subsection 124-870(5) of the ITAA 1997, none of the unit holders hold their units as trading stock and, likewise, the shares received in exchange will also not be trading stock.
Therefore, the roll-over provisions in subdivision 124-N of the ITAA 1997 can be applied to the proposed restructure.
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