Edited version of private advice

Authorisation Number: 1052031762646

Date of advice: 26 September 2022

Ruling

Subject: Demerger

Question 1

Will a capital gain or capital loss made by XXXX from CGT event A1 happening to the shares in XXXX be disregarded under section 125-155 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

As a consequence of the transfer of XXXX's shares in XXXX to the shareholders of XXXX, is XXXX required under subsection 45D(1A) of the Income Tax Assessment Act 1936 (ITAA 1936) to give a copy of the Commissioner's determination to its shareholders?

Answer

No.

Question 3

Will a franking debit to the franking account of XXXX arise under subsection 45C(3) of the ITAA 1936 in relation to any part of the transfer of its shares in XXXX that constitutes a capital benefit as defined in subsection 45B(5) and (6) of the ITAA 1936?

Answer

No.

Question 4

Does XXXX have an obligation to withhold tax on the demerger dividend paid to its non-resident shareholders under section 12-210 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?

Answer

No.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

Relevant facts and circumstances

XXXX is a company incorporated in Australia, and is the head company of an income tax consolidated group whose subsidiary members include XXXX and XXXX.

All the shares in XXXX were held by XXXX.

The shareholders of XXXX approved a resolution for XXXX to undertake a reduction of share capital under section 256B and 256C of the Corporations Act 2001.

XXXX satisfied the capital reduction by directing XXXX to transfer all of the shares in XXXX to the shareholders of XXXX in proportion to their shareholdings.

XXXX accounted for the demerger by debiting its share capital account and another account.

Immediately before the Implementation Date, XXXX's share capital account was not tainted (within the meaning of Division 197 of the ITAA 1997).

XXXX did not elect under subsection 44(2) of the Income Tax Assessment Act 1936 (ITAA 1936) that subsections 44(3) and (4) of the ITAA 1936 will not apply to the demerger dividend for all XXXX shareholders. Just after the demerger, CGT assets owned by XXXX and its demerger subsidiaries representing at least X% by market value of all the CGT assets owned by those entities were used in carrying on a business by those entities.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 125-155

Income Tax Assessment Act 1997 section 701-1

Income Tax Assessment Act 1936 section 45A

Income Tax Assessment Act 1936 section 45B

Income Tax Assessment Act 1936 subsection 45D(1A)

Income Tax Assessment Act 1936 section 128B

Taxation Administration Act 1953 Schedule 1, section 12-210

Reasons for decision

A capital gain or capital loss that is made by XXXX from CGT event A1 happening to the shares in XXXX (through the effect of the single entity rule in section 701-1 of the ITAA 1997) will be disregarded because the requirements of section 125-155 of the ITAA 1997 are satisfied.

As neither section 45A nor section 45B of the ITAA 1936 applies, subsection 45D(1A) of the ITAA 1936 does not apply.

As a determination is not made under section 45B of the ITAA 1936, a franking debit to the franking account of Head Co will not arise under subsection 45C(3) of the ITAA 1936.

XXXX does not have an obligation to withhold tax on the demerger dividend paid to its non-resident shareholders under section 12-210 of Schedule 1 to the TAA 1953, because of the combined effect of subsection 128B(3D) of the ITAA 1936 and section 12-300 of Schedule 1 to the TAA 1953.

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