Edited version of private ruling

Authorisation Number: 95062

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Ruling

QUESTIONS

1. Should 'Transaction Bonuses' you received be included in the capital proceeds received from the disposal of your shares in Company A?

2 Are you eligible to choose scrip for scrip roll-over under Subdivision 124-M of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that the consideration for the sale of your shares in Company A was redeemable preference and ordinary shares in Company D?

3. Did you make a discount capital gain for the purposes of Division 115 of the ITAA 1997?

ANSWERS

1. Should 'Transaction Bonuses' you received be included in the capital proceeds received from the disposal of your shares in Company A?

Yes.

2 Are you eligible to choose scrip for scrip roll-over under Subdivision 124-M of the ITAA 1997 to the extent that the consideration for the sale of your shares in Company A was redeemable preference and ordinary shares in Company D?

No.

3. Did you make a discount capital gain for the purposes of Division 115 of the ITAA 1997?

Yes.

[All subsequent legislative references are to the ITAA 1997 unless otherwise indicated.]

This ruling applies for the following period(s):

Year ended 30 June 2008

The scheme commences on:

Year commencing 1 July 2007

Relevant facts and circumstances

Company A is an Australian resident company.

Company B was the majority shareholder of Company A.

The remaining interests in Company A were held by minority shareholders. The minority shareholders consisted of two classes of shareholders:

· Shareholders Class X; and

· Shareholders Class Y.

The rulee is a member of the Shareholders Class X.

Under a takeover arrangement, Company C (Bidder) acquired 100% of the shares in Company A (Target).

The Company A shareholders received an amount as consideration for each Company A share, payable either in cash or in cash and shares issued by the Bidder's holding company.

Under the terms of the offer, the shareholders could elect to receive as their consideration either:

· cash per ordinary Company A share; or

· ordinary shares and redeemable preference shares in Company D (Bidder's holding company); or a

· combination of cash and shares.

If a shareholder elected to receive shares in Company D as part of their consideration, the value of their elected shares must have had a minimum aggregate value.

The offer was also subject to the limitation that all Company A shareholders could only acquire between them a non-controlling interest in Company D.

Company B opted for all cash, while the minority shareholders elected to take shares and cash for their consideration.

Each redeemable preference shares provided the shareholder with an entitlement to receive, in respect of each dividend period, one non-cumulative dividend payment and the right to vote at any meeting as if it were an ordinary share.

In accordance with a share sale agreement between the Bidder and the Company A shareholders (Share Sale Agreement), the purchase price (which was subject to adjustment) for all the shares in Company A was made up of:

· a 'completion payment'; and

· an adjusted amount which reflected the change in the company's net working capital from the most recent quarterly balance date to the eventual settlement date.

In addition to the purchase price, 'Transaction Bonuses' were paid to facilitate the sale process and provide an incentive for Company A shareholders to give up their rights in relation to their Company A shares. These payments were made to the minority shareholders (Transaction Bonuses).

There were two separate Transaction Bonuses paid to the minority shareholders.

The First Transaction Bonus was paid by the Company B bonus pool for the Shareholders Class X; this was to be divided amongst the Shareholders Class X. According to the Applicant, the Transaction Bonus was divided according to their 'perceived contribution to the value of Company A'. The applicant has provided a letter from Company B to the Bidder, which specifically directs the Bidder to pay part of Company B's total sales proceeds directly to the Shareholders Class X in accordance with their Transaction Bonus entitlement.

The rulee received the Shareholder Class X Transaction Bonus.

The Second Transaction Bonus was paid to certain Shareholders Class Y. The Share Sale Agreement specifically stipulated that an amount be divided between specified Class Y Shareholders, but it did not stipulate how much each individual shareholder was entitled to receive. The Applicant states that the 'split' between the respective Class Y Shareholders was determined by the Board of Company A in association with its majority shareholder; Company B.

To ensure that Company A was able to pay the second Transaction Bonus, the Share Sale Agreement stated that at completion:

· the Bidder had to provide Company A with funds to assist the company to pay the Transaction Bonus and the Transaction Costs; and

· the shareholders (the Sellers) and the Bidder must procure that Company A pays the Transaction Bonus and Transaction Costs; and

· Company B had to 'procure' that Company A had cash equal to at least the aggregate of the Transaction Bonus and the Transaction Costs less the 'capped contribution'.

There is no provision in the Share Sale Agreement, that is, an ordering rule, such that, either the Transaction Bonus, or the Transaction Costs, or any combination of either, is specifically identified as being payable (or not) out of the capped contribution which the Bidder is liable to pay to Company A.

Company B was not required to make a payment to Company A as part of its obligations because Company A's working capital was sufficient to cover the payment of the Class Y Transaction Bonus and the Transaction Costs (and had in fact grown since the Reference Day so that an additional payment had to be made by the Bidder to the Sellers).

The Transactions Costs which Company A was obligated to pay were already partly paid at Completion. Consequently, Company A directed the Bidder to satisfy its obligation to Company A by paying the capped contribution, the outstanding Transaction Costs and the remaining amount to recipients of the Class Y Transaction Bonus.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 115-10.

Income Tax Assessment Act 1997 Section 115-25.

Income Tax Assessment Act 1997 Section 104-10.

Income Tax Assessment Act 1997 Subsection 104-10(1).

Income Tax Assessment Act 1997 Subsection 104-10(2).

Income Tax Assessment Act 1997 Subsection 104-10(4).

Income Tax Assessment Act 1997 Section 116-20.

Income Tax Assessment Act 1997 Subsection 116-20(1).

Income Tax Assessment Act 1997 Section 118-20.

Income Tax Assessment Act 1997 Section 104-25.

Income Tax Assessment Act 1997 Subsection 104-25(1).

Income Tax Assessment Act 1997 Section 124-780.

Income Tax Assessment Act 1997 Subsection 124-780(1).

Income Tax Assessment Act 1997 Paragraph 124-780(1)(a).

Income Tax Assessment Act 1997 Paragraph 124-780(2)(b).

Income Tax Assessment Act 1997 Paragraph 124-780(2)(c).

Corporations Act 2001 Subsection 619(2).

Corporations Act 2001 Subsection 619(3).

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If part IVA applies, the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule or, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

QUESTION 1

Capital proceeds

Subsection 104-10(1) states that CGT event A1 happens if you dispose of a CGT asset and according to subsection 104-10(2), you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.

In the current circumstances, the shares that you owned in Company A are CGT assets and CGT event A1 happened when you sold these shares to the Bidder.

A capital gain is made from CGT event A1 if the capital proceeds from the disposal are more than the asset's cost base (subsection 104-10(4)). A capital loss is made if the capital proceeds are less than the asset's reduced cost base.

According to subsection 116-20(1), the capital proceeds from a CGT event are the total of the money received, or entitled to receive in respect of the event happening; and the market value of any other property received, or entitled to receive, in respect of the CGT event happening (worked out as at the time of the event).

The Share Sale Agreement states that the consideration for the sale of the Shares is the Purchase Price. A Clause of the Share Sale Agreement stipulates how the Purchase Price is to be calculated. It is therefore clear from the relevant clause of the Share Sale Agreement that the capital proceeds that each shareholder received from the sale of their shares will include the following:

· the cash amount (paragraph 116-20(1)(a)) and the market value of shares issued in Company D (paragraph 116-20(1)(b)); and

· the cash amount paid by the purchaser to the seller calculated with reference to the amount by which the Completion Working Capital is greater than the Reference Working Capital.

Shareholder Class X Transaction Bonus

In the letter from Company A to its shareholders, the company advised that Company B would pay a transaction bonus to the Shareholders Class X or their entities. The Share Sale Agreement makes no reference to this Transaction Bonus.

The letter states:

This letter sets out the terms and conditions for payment of transaction bonuses and other bonuses to certain shareholders in Company A (Company) in connection with the process for the sale of all of the shares in the Company (Sale Process) to Company C (Purchaser) under the share sale agreement entered into on or about the date of this letter (SSA). It also deals with the arrangements for payment of transaction cost incurred by the Company and shareholders in the course of the Sale Process and contains certain consents and waivers necessary to facilitate the Sale Process.

The next two paragraphs address the Shareholder Class X Transaction Bonus. These paragraphs state that Company will pay a transaction bonus to Shareholders Class X 'in consideration of the Shareholders Class X facilitating the sale process and giving up rights they hold in relation to their shares in the Company, including waiving their pre-emptive rights under the Shareholders Agreement (as defined in the SSA) and the Constitution of the Company.'

The terms of the letter (especially those extracts cited above) would indicate that the Transaction Bonus paid by Company A to the Shareholders Class X is directly connected to the disposal of their shares in Company A to the Bidder. It is therefore considered that any amount received by the Shareholders Class X attributable to the Transaction Bonus will be included in the capital proceeds from CGT event A1.

CGT event C2

According to subsection 104-25(1), CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset:

(a) being redeemed or cancelled; or

(b) being released, discharged or satisfied; or

(c) expiring; or

(d) being abandoned, surrendered or forfeited; or

(e) if the asset is an option - being exercised; or

(f) if the asset is a *convertible interest - being converted.

The Share Sale Agreement states that 'each Seller waives any pre-emptive or similar right it has under the Shareholders Agreement, the Constitution or otherwise with respect to the sale and transfer of Shares under this Agreement.' It is therefore possible that CGT event C2 will apply in the current circumstances as rights stemming from their shareholding in Company A are waived by the Seller as part of the agreement.

Taxation Ruling TR 94/30 examines the capital gains tax implications of varying rights attaching to shares. Paragraphs 32 and 33 of TR 94/30 consider whether a right attaching to a share is a separate CGT asset from the share itself. In this regard, these paragraphs state:

32. In considering the nature of a share, it has been the prevailing view of the courts that the rights attaching to shares cannot be dealt with separately from the share itself. It is clear that these rights were not assets under the definition of 'asset' in section 160A as it existed before being amended by the TLAA (No 4) 1992.

33. We also consider that the current extended definition of 'asset' in section 160A, which applies to the construction or creation of assets after 25 June 1992, does not alter this position. The expression 'any other right' is a general provision which, under the rules of statutory interpretation, does not take precedence over a more specific provision. As a share is a chose in action, subparagraph 160A(a)(iii) takes precedence over subparagraph 160A(a)(iv) to the effect that a share itself is the asset and not its constituent rights. The concept of a share as a whole being the relevant asset is also supported by other provisions in Part IIIA: see, for example, paragraphs 160M(5)(a), 160T(1)(c) and 160T(1)(j).

As noted in TR 94/30, these rights which relate to each Seller's shareholding in Company A are not considered to be a separate CGT asset from the shares themselves.

Consequently, CGT event C2 is not considered to have occurred when each shareholder waived these rights as per the Share Sale Agreement.

QUESTION 2

Eligibility for 'scrip for scrip rollover'

To be eligible for scrip for scrip roll-over contained in Subdivision 124-M, a number of conditions must be satisfied. In this regard, subsection 124-780(1) initially states:

There is a roll-over if:

(a) an entity (the original interest holder) exchanges:

(i) a *share (the entity's original interest) in a company (the original entity) for a share (the holder's replacement interest) in another company; or


(ii) an option, right or similar interest (also the holder's original interest) issued by the original entity that gives the holder an entitlement to acquire a share in the original entity for a similar interest (also the holder's replacement interest) in another company; and


(b) the exchange is in consequence of a single *arrangement that satisfies subsection (2); and


(c) the conditions in subsection (3) are satisfied; and


(d) if subsection (4) applies, the conditions in subsection (5) are satisfied.

Subparagraph 124-780(1)(a)(i) requires an entity to exchange a share in a company (the 'original entity') for a share in another company. The shareholders of Company A will satisfy this requirement to the extent that they received either redeemable preference shares or ordinary shares in Company D.

Paragraphs 124-780(1)(b) and 124-780(2)(a) require that the exchange of shares is in consequence of a single arrangement that results in an acquiring entity (the Bidder) becoming the owner of 80% or more of the voting shares in the original entity (Company A). The arrangement resulted in the Bidder becoming the owner of 100% of the voting shares in Company A and as such this condition is met.

Paragraphs 124-780(1)(b) and 124-780(2)(b) require that the exchange of shares is in consequence of a single arrangement in which at least all owners of voting shares in the original entity (Company A) could participate. This requirement was satisfied as all the owners of voting shares in Company A were able to participate.

Paragraphs 124-780(1)(b) and 124-780(2)(c) require that the exchange of shares is in consequence of a single arrangement in which participation was available on substantially the same terms for all owners of interests of a particular type in the original entity (Company A). This raises the question whether the Transaction Bonuses are part of the 'single arrangement' for the purposes of section 124-780.

Paragraph 124-780(2)(c) requires that an arrangement be one in which participation was available on substantially the same terms for all of the owners of interests of a particular type in the original entity. This requires giving consideration as to whether the payment of the First Transaction Bonus and/or the Second Transaction Bonus form part of the 'arrangement' for the purposes of subsections 124-780(1) and 124-780(2).

The term 'arrangement' is defined broadly in section 995-1 to mean any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings.

Paragraph 11.23 of the Explanatory Memorandum pertaining to section 124-780 makes the following comments in relation to the meaning of 'arrangement' (see also Taxation Ruling TR 2005/19 paragraph 32):

What constitutes a single arrangement is a question of fact. Relevant factors in determining whether what takes place is part of a single arrangement would include, but not be limited to, whether there is more than one offer or transaction, whether aspects of an overall transaction occur contemporaneously, and the intention of the parties in all the circumstances as evidenced by objective facts.

Shareholder Class X Transaction Bonus

Company B provided a bonus pool for the Shareholders Class X. According to the Applicant, this was divided between the Shareholders Class X 'as they saw fit' and as detailed in the Schedule, which accompanied the 'Sign Off letter' from Company A to its shareholders.

The Applicant has advised that the Company B utilised their part of its total sale proceeds to pay the Transaction Bonus. This is confirmed in a further letter from Company B to the Bidder, which specifically directs the Bidder to pay part of Company B's total sales proceeds directly to the Shareholders Class X in accordance with their Transaction Bonus entitlement. As previously noted, the entitlement to and payment of the Transaction Bonus was not addressed in the Share Sale Agreement, however the Sign Off letter from Company A to its shareholders stated that Company B will pay the Transaction Bonus in consideration of the Shareholders Class X facilitating the sale process and giving up rights they hold in relation to their shares in the Company, including waiving their pre-emptive rights under the Shareholders Agreement and the Constitution of the Company. It stated further that subject to completion occurring under the Share Sale Agreement (Completion), Company B would pay the Transaction Bonus to the Shareholders Class X at Completion in the amounts set out in a Schedule to the SSA.

It would appear from the above (and absence of any mention in the Share Sale Agreement or any other relevant documentation) that the decision to pay the Shareholder Class X Transaction Bonus was one taken by the Company B; it could be expected that this would have been in consultation with the shareholders of Company A.

The Applicant has not suggested that the Bidder was involved either directly or indirectly with the decision to pay the Shareholder Class X Transaction Bonus; it seems that the level of awareness or even involvement of the Bidder is either unknown to the Applicant or they are unable to ascertain what the facts were around this issue. The Applicant has advised that Company B decided that a more constructive way, of trying to encourage the minority shareholders to unanimously accept the offer (so they could all make some money), was to offer them some of the sale proceeds the majority shareholder would receive, if the deal went ahead.

It is noted that the Applicant's claim that the agreement to include payment of the Shareholder Class X Transaction Bonus was a tactic employed by the Company B to bring about the sale, has some symmetry or the same common purpose as the Shareholder Class Y Transaction Bonus stipulated in the share sale agreement, that is, to encourage the sale of the shares by certain minority shareholders.

Although the Bidder may have had limited or no involvement in the agreement to pay the Shareholder Class X Transaction Bonus, it would seem that this 'side' agreement played a central role in facilitating the exchange of shares between the Company A shareholders and the Bidder. This is evidenced by the fact that:

· the agreement to pay the Shareholder Class X Transaction Bonus occurred contemporaneously with the Share Sale Agreement; and

· objectively, it would have substantially changed the attractiveness of the offer¹ by the Bidder to the Shareholders Class X (who collectively held a significant portion of the shares in Company A) thus leading this 'group' of minority shareholders to accept the sale of their shares and in turn facilitate the overall transaction.

Taking the above points into consideration, it would seem appropriate, for the purposes of paragraphs 124-780(1)(b) and 124-780(2)(c), to include the agreement to pay the Shareholder Class X Transaction Bonus as part of the 'single arrangement' between all the Company A shareholders and the Bidder to sell their shares.

Shareholder Class Y Transaction Bonus

The Shareholder Class Y was included specifically within the terms of the Share Sale Agreement for three of the Shareholders Class Y and reaffirmed in the Sign Off letter. However no evidentiary support has been provided that details or records contemporaneously the decision making (and approval) process by Company B or Company A surrounding this amount. The Shareholder Class Y Transaction Bonus was paid by Company A via its direction to the Bidder to pay the Shareholder Class Y transaction Bonus directly to the Shareholders Class Y.

Importantly, payment of the Shareholder Class Y Transaction Bonus by Company A was agreed to by Company A and its shareholders in the Sign Off letter to shareholders.

It is plainly evident from the Shareholder Sale Agreement that entitlement to and payment of the Shareholder Class Y Transaction Bonus is part of the contractual terms of the Share Sale Agreement; between Company B, the shareholders of Company A and the Bidder. When the requirements of the Share Sale Agreement are considered in the context of the negotiations that seemingly culminated in striking the Agreement between the parties, then it is reasonable to consider whether the Shareholder Class Y Transaction Bonus should be treated as part of the deal struck between the contracting parties for the disposal of the shares, especially given the fact that Company A specifically sought agreement from its shareholders in the Sign Off letter.

The Bonus in this instance is a contractual element that the parties to the Share Sale Agreement agreed to as part of the 'deal' offered by the Bidder to acquire all the shares in the company. Whilst the ultimate funding of the Bonus could be seen merely as an obligation that was 'underwritten' by Company B or arguable a 'cost' indirectly borne by all shareholders² rather than a direct payment from the Bidder, it is our view that this does not in itself result in that part of the deal being excised from the overall transaction. The Share Sale Agreement stipulated that the Bidder would be liable to Company A to 'assist' paying the Transaction Costs and Transaction Bonus, albeit to a capped contribution. The Bidder (and the Sellers) then also agreed to 'procure' that Company A pays the Bonus on completion. Arguably then the Bidder has 'bargained' for the inclusion or otherwise of the Shareholder Class Y Transaction Bonus in the terms of the Share Sale Agreement. As noted in the Facts, the Share Sale Agreement requires the Bidder to provide a capped contribution to cover both the Transaction Bonus and the Transaction Costs. It is arguable that the first amount is to pay the Transaction Bonus; the alternative applies equally, in the absence of any ordering rule in the Share Sale Agreement.

The mechanism used to 'fund' the Shareholder Class Y Transaction Bonus and Transaction Costs, by capping the Bidder's contribution and recouping any excess cost primarily through a reduction in each seller's Purchase Price (via the Working Capital Adjustment) and potential further contributions by Company B, does not counter the argument that the Shareholder Class Y Transaction Bonus is a key contractual element that all parties to the Share Sale Agreement agreed to as part of the 'deal' offered by the Bidder to acquire all the shares in Company A.

The Applicants' representative has argued that the final amount of the working capital adjustment is reflective of the fact that all the shareholders ultimately paid for the Shareholder Class Y Transaction Bonus. This they argue is because the Shareholder Class Y bonus was deducted from the final working capital amount resulting in a lower working capital adjustment figure payable by the Bidder. Whilst reflective of the calculation of the working capital adjustment, it is still relevant to note that specifically named Shareholders Class Y were paid by Company A, in accordance with the Sign Off letter and the terms of the Share Sale Agreement.

As stated above, the obligation on Company A to pay the Shareholder Class Y Transaction Bonus was highlighted in the terms of the Sign Off letter, (as was the Shareholder Class X Transaction Bonus); and would have provided a significant inducement, this time for the Shareholders Class Y to accept the offer to sell their shares to the Bidder.

It is considered appropriate to include the terms of the Shareholder Class Y Transaction Bonus (as contained in the Share Sale Agreement) as part of the single arrangement relating to the exchange of the Company A shares for shares in Company D. This conclusion is consistent with the underlying intention of subdivision 124-M.

Substantially the same terms

In the current circumstances, it is then questionable whether the single arrangement which encompasses the sale of shares was 'on substantially the same terms' for all shareholders of Company A. This uncertainty primarily relates to the different consideration (stemming from the both Transaction Bonuses) that was offered and received by the respective shareholders for the disposal of their shares. It is noted that all shareholders in Company A held the same type of share in Company A.

It is highlighted that the consideration represented by the 'purchase price' of the Share Sale Agreement offered by the Bidder to each Company A shareholder was the same for all shareholders. As highlighted in paragraph 81 of CR 2007/114, the availability of alternative forms of consideration (for example, the maximum scrip or the maximum cash or a combination of both) does not prevent the arrangement from being on substantially the same terms.

However, as discussed above, the minority shareholders were treated differently, both collectively and individually. Shareholders Class X were offered (by Company B) and received a cash incentive, the Shareholder Class X Transaction Bonus, in return for selling their shares in Company A, whilst the Shareholders Class Y were contractually entitled to (offered) and received a separate cash incentive in the form of the Shareholder Class Y Transaction Bonus paid by Company A

Both Transaction Bonuses are considered to be 'terms' of the single arrangement relating to the exchange of shares in Company A for those in Company D.

Only those Company A shareholders linked to Shareholder Class X were entitled to the Shareholder Class X Transaction Bonus. Whilst, entitlement to the Shareholder Class Y Transaction Bonus was confined to the specified shareholders of Company A, that is, being the majority of the Shareholders Class Y. The majority shareholder, Company B was not, contractually or otherwise, entitled to any further amounts for the disposal of their shares other than the purchase price (per share) and the working capital adjustment.

Prima facie, the entitlement as to the Transaction Bonuses varied as between the specified shareholder groups, that is, Shareholders Class X and some (but not all) Shareholders Class Y. Because no methodology has been provided by the Applicant for determining the ultimate payment received by each shareholder, this aspect is currently undetermined. Examination of the 'Schedule' of payments provided, has not clarified this aspect except to confirm that entitlements were not simply based upon proportional shareholding. It is clear however that none of the named Shareholders Class Y (nor the Shareholders Class Y who did not receive any transaction Bonus whatsoever) were eligible to receive any portion of the Shareholder Class X transaction bonus and a Class X shareholder could not receive any portion of the Shareholder Class Y Transaction Bonus. The way that each respective type of Bonus was distributed seems to have differed significantly based upon the distribution statements. According to the Applicant, the Company A Board decided how to allocate the Shareholder Class Y Transaction Bonus, whilst the Shareholders Class X decided amongst themselves how to divide their bonus (the Applicant states that they based their allocation on perceived contribution). As reiterated above, no evidence has been provided which details or describes the basis of entitlement to either Bonus. However, this lack of detail in respect of the calculation or methodology is not considered to have a material impact on the underlying arguments as to whether the Bonuses were part of the single arrangement.

In light of the conclusion that both the Transaction Bonuses were part of the single arrangement, it is submitted that the terms of the arrangement, relating to the sale of shares in Company A to the Bidder and exchange for shares in Company D were not the same for all shareholders. Whether this also means that they were not 'substantially' the same for purposes of paragraph 124-780(2)(c) is of course the question to be determined.

The Applicant has been able to clarify precisely how the entitlement of each shareholder to the Working Capital Adjustment was determined. The respective entitlement to a portion of the amount seemingly equates to each shareholder's proportional ownership (represented by their shares) in Company A. The applicant's submission suggests, through the use of the words 'amount paid per advice from purchaser/payer' that the entitlement is based on the specific amount paid or receivable by each shareholder. If this were accepted as being the case, the basis of this entitlement would appear to be the same for all Company A shareholders.

The legislation does not elaborate on the extent that 'terms' can differ and still be considered 'substantially' the same, for the purposes paragraph 124-780(2)(c). However, given that it has been concluded in these Reasons that the entitlement to the Transaction Bonuses are part and parcel of the single arrangement, and the respective Bonuses resulted in differing entitlements to Bonus amounts - both as between the Shareholders Class X, the Shareholders Class Y and all other shareholders, and then inconsistently as between themselves as Shareholders Class X and Shareholders Class Y - there is an arguable case that the offer was not on substantially the same terms for all shareholders.

Examining the amount of each bonus paid, relative to the total sale proceeds, may also provide a view as to the substantiality of the bonus payments on an arithmetic basis. It is evident from this calculation that the Transaction Bonus received by the Shareholders Class Y was significant compared to the base consideration offered by the Bidder. Applying a similar calculation to the Shareholders Class X³ who received the greatest share of the Shareholder Class X Transaction Bonus also confirms (and strengthens the view) that the Bonus was, based on this measure, substantial.

It is noted that certain circumstances are excluded from the 'substantially the same terms' requirement of 124-780(2)(c), specifically where the differing treatment of some shareholders is due to:

· differing share classes (reference in paragraph 124-780(2)(c) to 'interests of a particular type');

· other similar circumstances regarding characteristics of the securities under subsection 619(2) of the Corporation Act 2001 (Note 2 to subsection 124-780(2)); or

· circumstances relating to foreign holders under subsection 619(3) of the Corporations Act 2001 (Note 2 to subsection 124-780(2)).

None of these exclusions are applicable in the current circumstances.

Conclusion

In summary, the entitlement to and eventual payment of the Shareholders Class X and Shareholders Class Y Transaction Bonuses were terms/benefits that were only available to particular groups of Company A's shareholders. These 'terms' are considered not to be an insignificant part of the single arrangement as identified. Consequently, it is considered that participation in the current arrangement was not on 'substantially the same terms' for all shareholders in Company A and therefore does not meet the requirements of paragraph 124-780(2)(c).

Given the above conclusion, no comment has been made upon the other requirements of subdivision 124-M.

However, it would seem that the relevant provisions are satisfied.

QUESTION 3

Eligibility for the CGT discount

As you acquired the Company A shares at least 12 months before the shares were sold, you are entitled to the discount capital gain of 50 per cent: sections 115-10 and 115-25.

Note: the exceptions to section 115-10 do not apply to you.

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