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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051265770700

Date of advice: 15 August 2017

Ruling

Subject: Income Tax - Restructure

Question 1

Is the trustee of the Trust entitled to choose to obtain a rollover pursuant to Subdivision 122-A of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the proposed transfer of shares held by the Trust in various related entities to either Company A or Company B?

Answer

Yes

Question 2

Will the proposed amendments to the trust deeds cause CGT event E1 under section 104-55 of the ITAA 1997 to happen due to either a termination of the relevant trust and the creation of a new trust for trust law purposes (a trust resettlement), or alternatively, due to the settling of certain trust property on the terms of a new trust?

Answer

No

Question 3

Will the proposed amendments to the trust deeds cause CGT event E2 under section 104-60 of the ITAA 1997 to happen due to the transfer of a CGT asset to an existing trust?

Answer

No

Question 4

Following Stages One and Two of the proposed Internal Restructure, will Company A, as the proposed 'head company’, be entitled to make a choice to consolidate 'Group A’ pursuant to section 703-50 of the ITAA 1997?

Answer

Yes

Question 5

Following Stages One and Two of the proposed Internal Restructure, will Company B, as the proposed 'head company’, be entitled to make a choice to consolidate 'Group B’ pursuant to section 703-50 of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

1 July 2017 to 30 June 2018

The scheme commences on:

During the income year ended 30 June 2018

Relevant facts and circumstances

The Taxpayer’s Group comprises numerous business interests and investments.

The Taxpayer’s Group can be split into two divisions: 'Group A’ and 'Group B’ both of which comprise a combination of companies and discretionary trusts.

The Trust is the sole shareholder of the companies and corporate trustees of Group A.

The Trust is the sole shareholder of the companies of Group B

The trustee for the Trust is a company incorporated in Australia and is a resident of Australia pursuant to subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

Internal Restructure

The Taxpayer’s Group has proposed an internal restructure to create two consolidated groups as follows:

The creation of 'Group A' will comprise the following steps:

Stage One: Internal Share Restructure

The trustee for the Trust will:

Following the internal share restructure:

Company A is incorporated in Australia and a resident of Australia pursuant to subsection 6(1) of the ITAA 1936.

Stage Two: Trust Deed Amendments

The trustees for the trusts in Group A will amend the trust deeds for those trusts to ensure the trusts in Group A are eligible to become a member of a consolidated group.

Stage Three: Consolidation

Once Stages One and Two have been completed, Company A, as the head company of Group A, will, pursuant to section 703-50 of the ITAA 1997, make an election to form a consolidated group with the entities in Group A as subsidiary members of the consolidated group.

The creation of Group B will comprise the following steps:

Stage One: Internal Share Restructure

The trustee of the Trust will:

Following the internal share restructure:

Company B is incorporated in Australia and a resident of Australia pursuant to subsection 6(1) of the ITAA 1936.

Stage Two: Trust Deed Amendments

The trustees for the trusts in Group B (other than the Trust) will amend the trust deeds for those trusts to ensure the trusts in Group B are eligible to become a member of a consolidated group.

Stage Three: Consolidation

Once Stages One and Two have been completed, Company B, as the head company of Group B, will, pursuant to section 703-50 of the ITAA 1997, make an election to form a consolidated group with the entities in Group B (other than the Trust) as subsidiary members of the consolidated group.

Outcome of the Internal Restructure

The ultimate economic ownership of the Taxpayer’s Group will remain unchanged

Assumptions

1. If Company A provides consideration to the trustee of the Trust for the shares disposed of by the Trust to Company A, as per Stage One of the Internal Restructure, then such consideration will be limited to:

2. The market value of the shares the Trust receives (as referred to in Assumption 1 above) will be substantially the same as the market value of the shares disposed of by the Trust, less any liabilities that Company A undertakes to discharge in respect of those shares.

3. If Company B provides consideration to the trustee of the Trust for the shares disposed of by the Trust to Company B, as per Stage One of the Internal Restructure, then such consideration will be limited to:

4. The market value of the shares the Trust receives (as referred to in Assumption 3 above) will be substantially the same as the market value of the shares disposed of by the Trust, less any liabilities that Company B undertakes to discharge in respect of those shares.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-55

Income Tax Assessment Act 1997 subsection 104-55(1)

Income Tax Assessment Act 1997 section 104-60

Income Tax Assessment Act 1997 subsection 104-60(1)

Income Tax Assessment Act 1997 Subdivision 122-A

Income Tax Assessment Act 1997 section 122-15

Income Tax Assessment Act 1997 section 122-20

Income Tax Assessment Act 1997 subsection 122-20(1)

Income Tax Assessment Act 1997 subsection 122-20(2)

Income Tax Assessment Act 1997 paragraph 122-20(3)(a)

Income Tax Assessment Act 1997 section 122-25

Income Tax Assessment Act 1997 subsection 122-25(1)

Income Tax Assessment Act 1997 subsection 122-25(2)

Income Tax Assessment Act 1997 subsection 122-25(4)

Income Tax Assessment Act 1997 subsection 122-25(5)

Income Tax Assessment Act 1997 subsection 122-25(7)

Income Tax Assessment Act 1997 section 122-35

Income Tax Assessment Act 1997 section 703-10

Income Tax Assessment Act 1997 subsection 703-15(2)

Income Tax Assessment Act 1997 section 703-50

Income Tax Assessment Act 1997 subsection 703-50(2)

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Question 1

Summary

The trustee of the Trust will be entitled to choose to obtain a rollover pursuant to Subdivision 122-A of the ITAA 1997 in relation to the proposed transfer of shares held by the Trust in various related entities to either Company A or Company B.

Detailed reasoning

Section 122-15 of the ITAA 1997 provides that where a trustee disposes of a CGT asset, or all of the assets of a business, to a company (and a CGT event A1 happens to the trustee as a result), the trustee can choose to obtain a roll-over in the circumstances set out in sections 122-20 to 122-35 of the ITAA 1997.

If the trustee receives consideration for the disposal of the asset (or assets) to the company that consideration must be shares in the company, or shares in the company and that company undertaking to discharge one or more liabilities in respect of the shares (subsection 122-20(1) of the ITAA 1997).

The shares received as consideration cannot be redeemable shares (subsection 122-20(2) of the ITAA 1997) and must be substantially the same market value as those disposed of, less any liabilities the company undertakes to discharge in respect of the shares (paragraph 122-20(3)(a) of the ITAA 1997).

Pursuant to section 122-25 of the ITAA 1997:

The Trust will be entitled to choose to obtain a rollover pursuant to Subdivision 122-A of the ITAA 1997 in relation to the proposed share transfers identified in this question as:

Question 2

Summary

The proposed amendments to the trust deeds will not cause CGT event E1 under section 104-55 of the ITAA 1997 to happen due to either a termination of the relevant trust and the creation of a new trust for trust law purposes (a trust resettlement), or alternatively, due to the settling of certain trust property on the terms of a new trust.

Detailed reasoning

Subsection 104-55(1) of the ITAA 1997 provides that CGT event E1 happens if you create a trust over a CGT asset by declaration or settlement.

CGT event E1 happen where changes made to a trust alter the nature and character of the trust relationship such that the original trust ceases to exist and a new trust is created.

Consistent with the principles upon which the decision in Commissioner of Taxation v Clark [2011] FCAFC 5 (Clark’s case) was made, a trust will not be terminated provided that there is some continuity of property and membership of the trust, and any amendment to the trust is made in accordance with a power of amendment afforded to the trustee.

In Taxation Determination TD 2012/21, the Commissioner acknowledges (at paragraph 24) that the principles established by Clark’s case are relevant to the question of the circumstances in which CGT event E1 and E2 may happen as a result of changes being made to the terms of an existing trust pursuant to a valid exercise of power in a deed (including a power to amend). In light of these principles, the ATO accepts that a valid amendment to a trust pursuant to an existing power (including an amendment to the deed of a trust) will not result in a termination of the trust and therefore will not result in CGT event E1 happening.

It is evident on the facts that each of the trustees of the relevant trusts to which this question relates has a power of amendment in their respective trust deed to revoke, add to or vary the trust deed. The proposed amendments in accordance with Stage Two of the proposed Internal Restructure do not go beyond the scope of this power of amendment and will not cause there to be a break in the continuity of any of these trusts, resulting in a trust resettlement.

The proposed amendments of the trust deeds will also not cause the respective trustees to begin to hold a particular asset on the terms of a new trust.

As such, CGT event E1 under section 104-55 of the ITAA 1997 will not happen as a result of the proposed amendments to the trust deeds.

Question 3

Summary

The proposed amendments to the trust deeds will not cause CGT event E2 under section 104-60 of the ITAA 1997 to happen due to the transfer of a CGT asset to an existing trust.

Detailed reasoning

Subsection 104-60(1) of the ITAA 1997 provides that CGT event E2 happens if you transfer a CGT asset to an existing trust.

The proposed amendment of the trust deed for each of the relevant trusts to which this question relates, in accordance with Stage Two of the proposed Internal Restructure:

As such, CGT event E2 under section 104-60 of the ITAA 1997 will not happen as a result of the proposed amendments to the trust deeds.

Question 4

Summary

Following implementation of Stages One and Two of the proposed Internal Restructure, Company A, as the proposed 'head company’, will be entitled to make a choice to consolidate 'Group A’ pursuant to section 703-50 of the ITAA 1997.

Detailed reasoning

Section 703-50 of the ITAA 1997 provides that a company may make a choice in writing that a consolidatable group is taken to be consolidated on and after the day that is specified in the choice if the company was the head company of the group on the day specified. The choice is irrevocable pursuant to subsection 703-50(2) of the ITAA 1997.

As:

Company A will be entitled to make a choice to consolidate 'Group A’ pursuant to section 703-50 of the ITAA 1997.

Question 5

Summary

Following implementation of Stages One and Two of the proposed Internal Restructure, Company B, as the proposed 'head company’, will be entitled to make a choice to consolidate 'Group B’ pursuant to section 703-50 of the ITAA 1997.

Detailed reasoning

As:

Company B will be entitled to make a choice to consolidate 'Group B’ pursuant to section 703-50 of the ITAA 1997.


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