Edited version of private ruling

Authorisation Number: 1011663785305

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Ruling

Subject: Same Asset Roll-over

Question 1

Will A Co be eligible for the capital gains tax (CGT) same asset roll-over relief pursuant to Subdivision 126-B of the Income Tax Assessment Act 1997 (ITAA 1997) if A Co transfers its ownership of 100% of the issued share capital of B Co to C Co?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

D Co owns 100% of the total issued shares in A Co.

D Co owns 100% of the total issued shares in C Co.

D Co, A Co, C Co and B Co are all foreign resident companies for Australian tax purposes.

A Co intends to transfer legal and beneficial ownership of its shareholding in B Co to C Co for cash consideration. This cash consideration is greater than the original cost base of the shares.

C Co is not an exempt entity in the income year that the transfer of shares takes place.

The B Co shares will not be trading stock of C Co and are not convertible interests.

No person is in a position to affect the rights of A Co and C Co in relation to D Co.

B Co holds 100% of the voting shares in E Co which is the head company of the Australian income tax consolidated group.

E Co's only material asset is a 100% shareholding in F Co. F Co holds interests in real property in Australia.

The principal asset test in section 855-30 of the ITAA 1997 is satisfied in relation to the shares in B Co.

A Co acquired the shares in B Co directly from B Co by way of a new issue of shares after 20 September 1985.

A Co and C Co will both choose to obtain roll-over relief within the timeframe stipulated in Part 3-1 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 126-B

Does Part IVA apply to this ruling?

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 on, 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.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

These reasons for decision accompany the Notice of private ruling for A Co and C Co.

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

Summary

A Co will satisfy the requirements in Subdivision 126-B of the ITAA 1997 and will therefore be eligible for the same asset roll-over relief.

Detailed reasoning

Eligibility for CGT roll-over in respect of the transfer of shares in B Co from A Co to C Co is governed by the provisions of Subdivision 126-B of the ITAA 1997. Section 126-45 of the ITAA 1997 provides that there may be a roll-over if a CGT event happens involving an originating company and a recipient company in the circumstances set out in section 126-50 of the ITAA 1997 unless if the exclusion in 126-55 applies.

In a disposal case, such as this case, where A Co is disposing of its shares in B Co to C Co the CGT events that are relevant under paragraph 126-45(2)(a) are CGT events A1 and B1. In this case, CGT Event A1 occurs when A Co transfers its shares in B Co to C Co.

The requirements for roll-over under section 126-50 will now be considered.

§ Subsection 126-50(1) of the ITAA 1997 requires the originating company and recipient company to be members of the same wholly-owned group at the time of the trigger event. Paragraph 975-500(b) of the ITAA 1997 specifies that two companies are members of the same wholly-owned group if each of the companies is a 100% subsidiary of the same third company. In addition, subsection 975-505(1) of the ITAA 1997 provides that a subsidiary company is a 100% subsidiary of another company (the holding company) if all the shares in the subsidiary company are beneficially owned by:

a) The holding company

b) One or more 100% subsidiaries of the holding company; or

c) The holding company and one or more subsidiaries of the holding company.

§ In this case A Co is 100% indirectly beneficially owned by D Co and C Co is 100% directly beneficially owned by D Co, the requirements in subsection 975-505(1) are satisfied as A Co and C Co are both 100% subsidiaries of D Co. Therefore, C Co and A Co are part of the same wholly-owned group pursuant to paragraph 975-500(b) of the ITAA 1997.

§ Further, no person is in, or will be in a position to affect the rights of A Co and C Co in relation to D Co. Thus the exclusions in subsections 975-505(2) and (3) of the ITAA 1997 will not apply. Hence, subsection 126-50(1) of the ITAA 1997 is satisfied as A Co and C Co are both members of the same wholly-owned group at the time that A Co transfers its shares in B Co to C Co.

§ Subsection 125-50(2) of the ITAA 1997 requires that the roll-over asset must not be trading stock of the recipient company just after the time of the trigger event. Based on the facts provided B Co shares will not be trading stock of C Co.

§ As the shares in B Co (the roll-over asset) is not a right or convertible interest referred to in Division 130, or an option referred to in Division 134, or an exchangeable interest, subsection 126-50(3) of the ITAA 1997 has no application.

§ Subsection 125-50(4) of the ITAA 1997 requires that the recipient company not be an exempt entity for the income year of the trigger event. As C Co is not an exempt entity for Australian income tax purposes subsection 126-50(4) of the ITAA 1997 does not apply to this transaction.

§ Subsection 126-50(5) of the ITAA 1997 states that there is a requirement to satisfy one of the items in the table provided. In this case item 1 of the table in section 150-50(5) is relevant. The proposed transaction involves the transfer of the B Co shares from an originating foreign resident company (A Co) to a recipient foreign resident company (C Co). Item 1 requires that the roll-over asset must be taxable Australian property just before and just after the trigger event, which, pursuant to section 104-10 of the ITAA 1997, will be when A Co and C Co enter into a contract for the disposal of the shares in B Co.

Section 855-15 of the ITAA 1997 outlines the 5 categories of CGT assets that are taxable Australian property. Item 2 in the table provided in section 855-15 states that a CGT asset that is a taxable Australian property is a CGT asset that is an indirect Australian real property interest (as defined in section 855-25 of ITAA 1997) and is not covered by item 5 in the table. Item 5 of the table in section 855-15 involves a CGT asset that is covered by subsection 104-165(3) which deals with CGT event I1 which happens when the taxpayer stops being an Australian resident. In this case, A Co does not cease to become an Australian resident, thus Item 5 of the table in section 855-15 has no application.

Section 855-25 requires that the non-portfolio interest test in section 960-195 of the ITAA 1997 and the principal asset test in section 855-30 of the ITAA 1997 to be passed. As A Co holds 100% of the voting shares in B Co the interest will pass the non-portfolio interest test pursuant to section 960-195 of the ITAA 1997.

In this case, the principal asset test in section 855-30 of the ITAA 1997 is satisfied.

Thus, the shares in B Co will be taxable Australian property just before and just after the trigger time. The conditions in item 1 of subsection 126-50(5) of the ITAA 1997 will be satisfied in regards to the disposal.

§ As C Co and A Co are not Australian resident companies, subsection 126-50(6) of the ITAA 1997 has no application as it requires the originating company or recipient company to be an Australian resident.

§ As A Co originally acquired the shares in B Co directly from B Co by way of issue of new shares, subsections 126-50(7), (8) and (9) of the ITAA 1997 do not apply as it requires the CGT asset to be previously subject to a roll-over.

Therefore, all of the requirements set out in section 126-50 of the ITAA 1997 are satisfied and the roll-over will be available pursuant to subsection 126-45(1) of the ITAA 1997, unless it is precluded by the operation of section 126-55 of the ITAA 1997. Section 126-55 requires the originating company to make a capital gain and for the originating company and the recipient company to choose to obtain roll-over.

In this arrangement, A Co will dispose of the shares in B Co to C Co and will derive a capital gain in transferring B Co's shares. A Co and C Co will both choose to obtain the roll-over within the timeframe stipulated in Part 3-1 of the ITAA 1997.

Accordingly, A Co will satisfy the requirements in Subdivision 126-B of the ITAA 1997 and will therefore be eligible for the same asset roll-over relief.

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