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Edited version of private advice
Authorisation Number: 1051799804397
Date of advice: 9 February 2021
Ruling
Subject: Demerger
Question 1
Will any capital gain or capital loss arising from the disposal by Company A of the shares it holds in its wholly owned subsidiary Company B in the proposed demerger arrangement be disregarded under section 125-155 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Question 2
Will the Commissioner confirm that all or any part of the distribution of Company B shares to Company A shareholders that is a dividend will constitute a demerger dividend, and therefore be neither assessable income nor exempt income pursuant to subsections 44(3) and 44(4) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
Yes.
Question 3
Will the Commissioner make a determination under subsection 45B(3) of the ITAA 1936 that section 45BA or section 45C of the ITAA 1936 will apply to the whole, or any part, of any benefit provided to the shareholders of Company A under the proposed arrangement?
Answer
No.
This ruling applies for the following period:
Income year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
Company A is an Australian proprietary company.
All the shareholders of Company A acquired their shares after 19 September 1985.
Company A owns all of the shares on issue in its subsidiary Company B.
Company A will demerge all its interests in Company B to Company A shareholders in proportion to their current shareholding.
There are no preliminary steps or proposed transactions that will form part of the restructuring.
A number of commercial reasons were provided as the reason for undertaking a demerger.
Company A will not make an election under subsection 44(2) of the ITAA 1936.
There is no intention or proposal for the sale or later disposal of the shares in Company B or Company A by the Company A shareholders following the demerger.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 6
Income Tax Assessment Act 1936 section 44
Income Tax Assessment Act 1936 section 45B
Income Tax Assessment Act 1936 section 45BA
Income Tax Assessment Act 1936 section 45C
Income Tax Assessment Act 1936 Part IVA
Income Tax Assessment Act 1936 section 177A
Income Tax Assessment Act 1936 section 177D
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 Division 125
Income Tax Assessment Act 1997 section 125-65
Income Tax Assessment Act 1997 section 125-70
Income Tax Assessment Act 1997 section 125-155
Reasons for decision
Question 1
Any capital gain or capital loss arising from the disposal by Company A of the shares it holds in its wholly owned subsidiary Company B in the proposed demerger arrangement will be disregarded under section 125-155 of the ITAA 1997.
Question 2
All or any part of the distribution of Company B shares to Company A shareholders that is a dividend will constitute a demerger dividend, and therefore be neither assessable income nor exempt income pursuant to subsections 44(3) and 44(4) of the ITAA 1936.
Question 3
The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45BA or section 45C of the ITAA 1936 will apply to the whole, or any part, of any benefit provided to the shareholders of Company A under the proposed arrangement.
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