Edited version of private ruling

Authorisation Number: 1011792288728

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Ruling

Subject: Group restructure

Question 1

Will any of the replacement-asset roll-overs in Division 124 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to you as a result of the restructure?

Answer

No.

Question 2

If any of the replacement-asset roll-overs in Division 124 of the ITAA 1997 will apply to you, will you be required to make any elections or choices in relation to the relevant roll-overs?

Answer

As no replacement-asset roll-overs will apply to you as a result of the restructure, it is not necessary to answer this question.

Question 3

Will there be any implications for you under Division 40 of the ITAA 1997 in relation to the transfer of depreciable assets as part of the restructure?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You form part of a group which carries on a business. The current structure is as shown in the following diagram:

Trusts A, B, C and D are all discretionary trusts holding the stated percentage of either units or shares as indicated. The percentage equates to both the percentage of units/shares and the percentage of market value, as all shares and units are of a single class of general or ordinary units. None of the units or shares are held as trading stock.

It is proposed that a restructure will occur in four stages, all of which will occur on the same day.

Stage 1 - Unit Trust A to roll into new company

A new company is to be established with ordinary shares issued to Trusts A, B, C and D in the same proportion as their current unit holdings in Unit Trust A. The shares will be issued with a par value equal to the market value of all assets held by Unit Trust A as consideration for those same assets.

Unit Trust A will then wind up, and all existing units will be cancelled.

Stage 2 - Unit Trust B to roll into Company

Company is currently a trustee company, and it has never performed any activities except in this capacity. Its assets are limited to a small amount of cash which relate to the ordinary shares issued at $X each, currently held 25% each by Trusts A, B, C and D.

It is proposed that Company will issue additional ordinary shares at $X to Trusts A, B, C and D in the same proportion as their current unit holdings in Unit Trust B. The additional shares will be issued at a value equal to the market value of all assets (including depreciable plant and equipment) held by Unit Trust B as consideration for those same assets.

Unit Trust B will then wind up, and all existing units will be cancelled.

Stage 3 - Company to acquire shares in you

Company will acquire all shares in you at market value. As consideration it will issue $X ordinary shares in itself to the existing owners, Trusts A, B, C and D in the same proportion as their current shareholdings in you.

Stage 4 - Company to acquire shares in the new company

Company will acquire all shares in the new company at market value. As consideration it will issue $X ordinary shares in itself to the existing owners, Trusts A, B, C and D in the same proportion as their current shareholdings in you.

The final structure after completion of all stages will look as follows:

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 40

Income Tax Assessment Act 1997 Division 124

Income Tax Assessment Act 1997 Subsection 100-20(1)

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, 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

Question 1

Division 124 of the ITAA 1997 provides replacement-asset roll-overs which allow you, in special cases, to defer the making of a capital gain or loss from one CGT event until a later CGT event happens. It involves your ownership of one CGT asset ending and you acquiring another one.

You make a capital gain or loss only if a CGT event happens (subsection 100-20(1) of the ITAA 1997).

In your case, the result of the group restructure will be that your shares will be disposed of by Trusts A, B, C and D to Company at market value. As consideration, Company will issue $X ordinary shares in itself to Trusts A, B, C and D in the same proportion as their current shareholdings in you.

In the above circumstances, no CGT event will happen in your case as a result of the disposal of your shares, and the replacement-asset roll-overs in Division 124 of the ITAA 1997 will therefore not apply to you as a result of the group restructure.

Question 2

As no replacement-asset roll-overs will apply to you as a result of the group restructure, it is not necessary to answer this question.

Question 3

Division 40 of the ITAA 1997 provides a deduction for the decline in value of a depreciating asset. Subdivision 40-D of the ITAA 1997 contains general balancing adjustment rules which apply if your stop holding a depreciating asset.

As you will not be transferring or acquiring any depreciable assets as part of the restructure, there will be no implications for you under Division 40 of the ITAA 1997 as a result of the restructure.