Edited version of private advice

Authorisation Number: 1051997953939

Date of advice: 23 June 2022

Ruling

Subject: CGT - rollovers

Question

Will you be eligible to choose roll-over relief pursuant to Division 615 of the ITAA 1997 in respect of the proposed disposal of your shares in Company A in exchange for shares in Company B?

Answer

Yes.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Company A

Company A operates a business.

Company A is the head company of an income tax consolidated group which was formed on 1 July 20XX.

Company A is an Australian tax resident.

All shareholders in Company A hold their shares on capital account.

All Company A shares were acquired post 20 September 1985 (post-CGT).

All shareholders in Company A are Australian tax residents.

Company B

Company B was incorporated as a shelf company in 20XX with Shareholder X owning one fully paid $1 share (the Incorporation Share).

The Proposed Restructure

Company A proposes to interpose Company B between Company A and its shareholders (the Proposed Restructure).

Following the interposition of Company B, an internal restructure will also take place to align the subsidiaries under Company B within their business areas.

The exchange

Under the Proposed Restructure, the shareholders of Company A will dispose of all of their Company A shares for the issue of equivalent interests in Company B on the following basis:

•         the equivalent interests will be issued on a one for one basis and will correlate with the type of shares exchanged i.e. ordinary shares will be exchanged for ordinary shares

•         the shares issued in Company B to the shareholders will be non-redeemable and will carry the same rights to capital, voting and dividends as those currently held in Company A, and

•         each of the shareholders will receive a whole number of shares in Company B and nothing else.

The Incorporation Share that Shareholder X owns in Company B will not form part of the shares received in this exchange and will be cancelled as part of the Proposed Restructure.

Immediately after the time that the shareholders have disposed of their shares in Company A under the Proposed Restructure, Company B (the interposed entity) will own 100% of the shares in Company A (the original entity).

The shares held by the shareholders in Company B will be held in the same proportion as originally held in Company A and will carry the same rights as those originally held in Company A. Given this, the market value of the shareholders' shares in Company B immediately after the Proposed Restructure is considered to equal the market value of their shares in Company A immediately before the Proposed Restructure.

Company A is the head entity of the Company A tax consolidated group. Under the Proposed Restructure, Company B will choose, under subsection 615-30(2) of the ITAA 1997, that the consolidated group continues in existence with Company B as the head company of the tax consolidated group immediately after the completion time.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 615

Income Tax Assessment Act 1997 section 615-5

Income Tax Assessment Act 1997 section 615-15

Income Tax Assessment Act 1997 section 615-20

Income Tax Assessment Act 1997 section 615-25

Income Tax Assessment Act 1997 section 960-130

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

Reasons for decision Summary

You will be eligible to choose roll-over relief pursuant to Division 615 of the ITAA 1997 in respect of the proposed disposal of your shares in Company A in exchange for shares in Company B.

Detailed Reasoning

Division 615 of the ITAA 1997 provides that you can choose for transactions under a scheme to restructure a company's business to be tax neutral if, under the scheme you cease to own shares in the company and, in exchange, you become the owner of new shares in another company.

Subsection 615-5(1) of the ITAA 1997 states that you can choose to obtain the roll-over if:

(a)  you are a *member of a company or a unit trust (the original entity); and

(b)  you and at least one other entity (the exchanging members) own all the *shares or units in it; and

(c)   under a *scheme for reorganising its affairs, the exchanging members *dispose of all their shares or units in it to a company (the interposed company) in exchange for shares in the interposed company (and nothing else); and

(d)  the requirements in Subdivision 615-B of the ITAA 1997 are satisfied.

In this case, the shareholders are members of Company A (the original entity) pursuant to section 960-130 of the ITAA 1997, and together (as the exchanging members) own all the shares in Company A, thereby satisfying the requirements in paragraphs 615-5(1)(a) and (b) of the ITAA 1997.

Under the Proposed Restructure (being a scheme for reorganising the affairs of Company A), the shareholders will transfer (dispose of) all their shares in Company A to Company B (the interposed company) in exchange for Company B shares (and nothing else), thereby satisfying the requirement in paragraph 615-5(1)(c) of the ITAA 1997.

The relevant requirements under Subdivision 615-B of the ITAA 1997 are spread across sections 615-15 to 61530 of the ITAA 1997. They provide as follows:

SECTION 615-15 Interposed company must own all the original interests

The interposed company must own all the *shares or units in the original entity immediately after the time (the completion time) all the exchanging members have had their shares or units in the original entity disposed of, redeemed or cancelled under the *scheme.

Under the Proposed Restructure, Company B will own all the shares in Company A immediately after the shareholders dispose of their shares in Company A (the completion time), thereby satisfying the requirement in section 615-15 of the ITAA 1997.

SECTION 615-20 Requirements relating to your interests in the original entity

615-20(1) Immediately after the completion time, each exchanging member must own:

(a)          a whole number of *shares in the interposed company; and

(b)          a percentage of the shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares or units in the original entity that were:

i       owned by the member; and

ii      disposed of, redeemed or cancelled under the *scheme.

In this case, immediately after the completion time, each of the shareholders will own a whole number of shares in Company B and a percentage of shares in Company B that is equal to the percentage of the shares in Company A that they originally owned and disposed of under the Proposed Restructure, thereby satisfying the requirements in subsection 615-20(1) of the ITAA 1997.

615-20(2) The following ratios must be equal:

(a)  the ratio of:

i    the *market value of each exchanging member's *shares in the interposed company; to

ii   the market value of the shares in the interposed company issued to all the exchanging members (worked out immediately after the completion time);

(b)  the ratio of:

i    the market value of that member's shares or units in the original entity that were disposed of, redeemed or cancelled under the *scheme; to

ii   the market value of all the shares or units in the original entity that were disposed of, redeemed or cancelled under the scheme (worked out immediately before the first disposal, redemption or cancellation).

Under the Proposed Restructure, the shares in Company B issued to the shareholders will be held in the same proportion and carry the same rights as the shares originally held in Company A. Given this, the market value of the shareholders' shares in Company B immediately after the Proposed Restructure is considered to equal the market value of their Company A shares immediately before the Proposed Restructure such that the requirements in subsection 615-20(2) of the ITAA 1997 are met.

In considering the requirements in subsections 615-20(1) and 615-20(2) of the ITAA 1997, it is relevant to note in the current circumstances that the Incorporation Share will not form part of the consideration received by

Shareholder X in exchange for its Company A shares and will be cancelled as part of the Proposed Restructure.

This feature of the Proposed Restructure will therefore not adversely affect the satisfaction of these requirements.

615-20(3) Either:

(a) you are an Australian resident at the time your *shares or units in the original entity are disposed of, redeemed or cancelled under the *scheme; or

...

In this case, the shareholders are Australian residents (and will be at the time their Company A shares will be disposed of under the Proposed Restructure), therefore the requirement in subsection 615-20(3) of the ITAA 1997 will be satisfied.

SECTION 615-25 Requirements relating to the interposed company

615-25(1) The *shares issued in the interposed company must not be *redeemable shares.

615-25(2) Each exchanging member who is issued *shares in the interposed company must own the shares from the time they are issued until at least the completion time.

615-25(3) Immediately after the completion time:

(a) the exchanging members must own all the *shares in the interposed company; or

...

On the basis of the facts provided:

•       the shares issued in Company B will not be redeemable shares

•       each shareholder will own the shares in Company B issued to them from the time they are issued until at least the completion time, and

•       immediately after the completion time, the shareholders will own all the shares in Company B.

SECTION 615-30 Interposed company must make a particular choice

615-30(1) Unless subsection (2) applies, the interposed company must choose that section 615-65 applies.

(2) The interposed company must choose that a *consolidated group continues in existence at and after the completion time with the interposed company as its *head company, if:

(a)  Immediately before the completion time, the consolidated group consisted of the original entity as head company and one or more other members (the other group members); and

(b)  immediately after the completion time, the interposed company is the head company of a *consolidatable group consisting only of itself and the other group members.

In this case, immediately before the completion time, Company A is the head entity of the Company A tax consolidated group. Under the Proposed Restructure, Company B will make the choice under subsection 61530(2) of the ITAA 1997, that the consolidated group continues in existence with Company B as the head company of the tax consolidated group immediately after the completion time. As a result, the conditions in section 615-30 of the ITAA 1997 will be satisfied.

Conclusion

As the requirements in subsection 615-5(1) of the ITAA 1997 will be satisfied, you will be eligible for roll-over relief in relation to the disposal of your Company A shares under the Proposed Restructure.

In accordance with subsection 615-5(2) of the ITAA 1997, you will be taken to have chosen to obtain the roll-over given that under the Proposed Restructure:

(a)  immediately before the completion time, Company A is the head company of a consolidated group, and

(b)  immediately after the completion time, Company B is the head company of the group.

CGT consequences of the rollover

The CGT consequences of the Division 615 rollover for you are generally outlined in section 615-40 of the ITAA 1997 and are as follows:

(a)  any capital gain or capital loss that arises from the disposal of the Company A shares will be disregarded, and

(b)  the cost bases of the new shares issued by Company B will be calculated by reference to the cost bases of the Company A shares.

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