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Edited version of private ruling
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Ruling
Subject: Pre-interposition Rulings
Question 1
Does section 703-75 of the Income Tax Assessment Act 1997 (ITAA 1997) extend to all Pre-interposition Rulings that deal with income tax related provisions issued to the head company of the consolidated group, such that those Pre-interposition Rulings remain valid and continue to bind the Commissioner once the new head company has replaced the current head company of the consolidated group?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 2011 and all subsequent income years to which the Pre-interposition Rulings apply.
The scheme commences on:
7 January 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The precise arrangement which is relevant for the purposes of this Application will comprise the following two steps (the Exchange):
a) All of the ordinary shares in the current head company owned by the Shareholders will be disposed of to new head company.
b) In consideration for the ordinary shares, the new head company will issue to the Shareholders one new share for each share transferred.
Other matters
All Pre-interposition Rulings to be applied to new head company do not relate to situations where the application of the entry history rule would need to be modified by other provisions or where the history is not inherited upon consolidation.
Assumptions
A valid choice will be made under subsection 124-380(5) of the ITAA 1997 within the time specified in subsection 124-380(7). The tax consolidated group will continue in existence after the scheme is implemented.
The relevant facts or character of the schemes in the Pre-interposition rulings have not changed either by reason of consolidation or otherwise.
Reasons for decision
Sections 703-65 to 703-80 of the ITAA 1997 deal with the effects of choice to continue a (tax consolidated) group after a shelf company becomes the new head company. Section 703-65 indicates that sections 703-70 to 703-80 apply where a company chooses under subsection 124-380(5) that a consolidated group is to continue in existence at and after the time referred to in that subsection as the completion time. The new head company is making such a choice.
Subsection 703-75(1) of the ITAA 1997 states:
Everything that happened in relation to the original company before the completion time:
(a) is taken to have happened in relation to the interposed company instead of in relation to the original company; and
(b) is taken to have happened in relation to the interposed company instead of what would (apart from this section) be taken to have happened in relation to the interposed company before that time; just as if, at all times before the completion time:
(c) the interposed company had been the original company; and
(d) the original company had been the interposed company.
Subsection 703-75(2) of the ITAA 1997 goes on to state:
To avoid doubt, subsection (1) also covers everything that, immediately before the completion time, was taken, because of:
(a) section 701-1 (Single entity rule); or
(b) section 701-5 (Entry history rule); or
(c) one or more previous applications of this section; or
(d) section 719-90 (about the effects of a change of head company of a MEC
group);
(e) section 719-125 (about the effects of a group conversion involving a MEC group);
to have happened in relation to the original company.
Paragraph 703-75(3)(b) of the ITAA 1997 then states that in respect of subsections (1) and (2) they have effect for the head company core purposes in relation to an income year after the completion time.
Subsection 703-75(2) of the ITAA 1997 refers to the entry history rule. In discussing the entry history rule and more generally the inherited history rules within Division 701, the Explanatory Memorandum of the New Business Tax System (Consolidation) Bill (No1) 2002 paragraph 2.47 states in part:
Private income tax rulings issued to an entity before it becomes a member of a consolidated group will apply to the head company insofar as the relevant facts have not changed either by reason of consolidation (e.g. because they relate to intra group transactions, which are ignored), or otherwise.
In accordance with section 703-75 of the ITAA 1997, as noted above, if the intended new head company chooses that the consolidated group will continue in existence then, where relevant, all Private Binding Rulings issued to the previous head company before the completion time are taken to have been issued to the new head company for head company core purposes at and after the completion time. Head company core purposes are defined at subsection 701-1(2) of the ITAA 1997.