| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011662651615
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Interposition of a Non-Operating Holding Company - Continuity of Ownership Test
The taxpayer is the head company of a tax consolidated group.
The taxpayer is a resident of Australia.
The taxpayer proposes to insert a non-operating holding company (NOHC) as the ultimate holding company of the group's businesses.
The objective of the Reorganisation is to separate the taxpayer's group of companies into principal sub-divisions. This will involve several inter-related transactions.
The interposition of the NOHC between the taxpayer and its ordinary shareholders will be implemented according to the terms of the Scheme of Arrangement.
Following the restructure, the taxpayer will become a subsidiary of the NOHC.
Question 1
Will the non-operating holding company (NOHC) be treated as being a 'widely held company' at all times during the income year in which it is interposed as referred to in subsection 166-5 and 166-220 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Reasons for decision
Whether the NOHC will be a widely held company at all times during the year of interposition relates to its capacity to deduct losses under Division 166 of the ITAA 1997 as modified by Subdivision 165-A, and inturn its capacity to apply net capital losses from earlier income years pursuant to Subdivision 165-CA. The question arises in 'working out the amount of the NOHC's liability (if any) for income tax' and is therefore a head company core purpose pursuant to subsection 701-1(2) of the ITAA 1997.
The definition of 'widely held company' in subsection 995-1(1) of the ITAA 1997 includes:
a company, *shares in which (except shares that carry a right to a fixed rate of *dividend) are listed for quotation in the official list of an *approved stock exchange.
To determine whether or not the NOHC will be a 'widely held company' at all times during the year in which NOHC will be interposed under the proposed NOHC scheme, requires consideration of the NOHC's attributes:
a. before the completion time; and
b. at and immediately after the completion time
The NOHC will be treated as a widely held company at all times during the income year for head company core purposes.
Question 2
Will the interposition of the NOHC be a 'corporate change' as referred to in section 166-175 of the ITAA 1997?
Answer
No.
Reasons for decision
Pursuant to paragraph 166-175(1)(b) of the ITAA 1997, there is a corporate change in a company if:
there is a scheme of arrangement, involving more than 50% of the company's shares, that has been approved by court…
Under subsection 703-75(1), everything that happened to the existing head entity before the completion time is taken to have happened to the NOHC, just as if:
a) the NOHC had been the existing head entity; and
b) the existing head entity had been the NOHC.
Nothing has happened in respect of the shares in the NOHC and no corporate change will occur for the purposes of section 166-175 of the ITAA 1997.
Question 3
Will the interposition of the NOHC result in any change to the existing head company's shareholders' voting, capital and dividend stakes as referred to in section 166-235 of the ITAA 1997?
Answer
No.
Reasons for decision
Section 166-145 of the ITAA 1997 contains the tests for determining whether there has been a substantial continuity of ownership of a company.
Section 166-145 asserts that substantial continuity of ownership in a company is satisfied where:
§ the same persons (not companies or trustees) who had more than 50% of the voting power in a company at the start of the test period, have more than 50% of the voting power immediately after the other time in the test period;
§ the same persons (not companies or trustees) who had more than 50% of the dividends in a company at the start of the test period, have more than 50% of the dividends immediately after the other time in the test period; and
§ the same persons (not companies or trustees) who had more than 50% of the capital distributions in the company at the start of the test period, have more than 50% of the capital distributions immediately after the other time in the test period.
In addition, Subdivision 166-E of the ITAA 1997 contains concessional tracing rules that modify the substantial continuity of ownership test contained in section 166-145.
The concessional tracing rules operate to deem entities to hold voting, dividend and capital stakes in the existing head entity (pursuant to section 166-235 of the ITAA 1997) so that the existing head entity does not have to trace through to the beneficial owners of those stakes where the stakes constitute less than 10% of the existing head entity.
The concessional tracing rules that are relevant to this ruling include:
a) direct stakes of less than 10% in the NOHC;
b) indirect stakes of less than 10% in the NOHC; and
c) stakes held by other entities.
Question 4
As a consequence of the preceding three matters (and assuming that each is confirmed) will interposing the NOHC, of itself, cause the conditions in section 165-12 of the ITAA 1997 not to have been met because of a failure of the Continuity of Ownership Test (COT) for the purposes of subsection 166-5(3) of the ITAA 1997?
Answer
No.
Reasons for decision
For head company core purposes:
a) Division 166 applies to the NOHC;
b) There is no corporate change in the NOHC; and
c) There is no change in the voting stakes, dividend stakes and capital stakes of the exchanging shareholders.
The interposition will not, of itself, change the voting power stakes, dividend stakes and capital distribution stakes of the exchanging shareholders for head company core purposes.
The interposition of the NOHC will not, of itself, result in a failure of the conditions for substantial continuity of ownership for head company core purposes.