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Edited version of your private ruling
Authorisation Number: 1012522368014
Ruling
Subject: Disposal of shares in 100% subsidiary that leases plant
Question 1
Does section 45-15 of the ITAA 1997 apply to deem a disposal and acquisition by the consolidated group's subAll of the membership interests in CGS are acquired by another subsidiary member of the consolidated group;
and
· The time that the beneficial ownership of the membership interests in CGS were acquired by the consolidated group is the same as the transfer time that applies in subparagraph 703-33(1)(a)(i) of the ITAA 1997?
Answer
No.
Question 2
If the answer to Question 1 is yes, and section 45-15 does apply to deem a disposal and acquisition by CGS, should the balancing adjustment in section 40-295 required by Division 45 be calculated by reference to the tax cost base of the leased assets after re-setting the tax costs of those assets under the tax cost setting provisions in Subdivision 705 of the ITAA 1997?
Answer
Not applicable.
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.
In their ruling application (the application) the applicant provided the following information:
A foreign group (FG) and a consortium of investors (CI) entered into an Agreement for the Sale and Purchase (SPA) of the former subsidiary.
FG and CI dealt with each other at arm's length in relation to the SPA, and they were not associates of one another at any time during the period when the SPA was entered into to the time at which the shares in the former subsidiary were transferred.
Under the SPA, FG agreed to sell 100% of the shares in the former subsidiary to IC. The SPA set out the steps required for Completion, including that certain conditions had to be satisfied prior to the Completion Date.
Payment of the consideration under a clause of the SPA and delivery of transfers in respect of the former subsidiary's shares under the SPA occurred on the same date (the Completion Date).
IC established two Australian resident companies through a single entry point into Australia to effect the acquisition of the former subsidiary and to conduct the future operation of the leasing business in Australia. The two companies were wholly owned subsidiaries of IC.
The two companies formed an income tax consolidated group prior to the Completion Date.
IC assigned to one of the companies in the income tax consolidated group its rights to acquire the shares in the former subsidiary in accordance with a clause of the SPA, prior to Completion of the contract.
At the Completion Date, one of the group companies became the owner of 100% of the issued shares of the former subsidiary, and it joined the tax consolidated group.
The former subsidiary was not a member of an income tax consolidated group at the time of its acquisition.
The tax written down value of the leased assets of the former subsidiary at the time of acquisition was less than their market value at the time.
Following acquisition the former subsidiary changed its name to CGS.
Relevant legislative provisions
Income Tax Assessment Act 1997, section 40-295
Income Tax Assessment Act 1997, Division 45
Income Tax Assessment Act 1997, section 45-15
Income Tax Assessment Act 1997, subsection 45-15(1)
Income Tax Assessment Act 1997, subsection 45-15(1)(a)
Income Tax Assessment Act 1997, subsection 45-15(1)(b)
Income Tax Assessment Act 1997, subsection 45-15(1)(c)
Income Tax Assessment Act 1997, subsection 45-15(1)(d)
Income Tax Assessment Act 1997, subsection 45-15(1)(e)
Income Tax Assessment Act 1997, subsection 45-15(1)(f)
Income Tax Assessment Act 1997, subsection 45-15(1)(g)
Income Tax Assessment Act 1997, subparagraph 703-33(1)(a)(i)
Income Tax Assessment Act 1997, Subdivision 705
Income Tax Assessment Act 1997, Part 3-90
Income Tax Assessment Act 1997, Subdivision 705
Reasons for decision
Question 1
Detailed reasoning
The Guide to Division 45 of the ITAA 1997 states the following:
This Division is designed to prevent tax being avoided through: (a) the disposal of leased plant, or an interest in leased plant; or (b) the disposal of a partnership interest in a partnership that leased plant; or (c) the disposal of shares in a 100% subsidiary that leased plant; where amounts have been deducted for the decline in value of the plant. It includes amounts in assessable income. Any benefit received, and any reduction in a liability, is taken into account in calculating the amounts included. Where the disposal of shares in a 100% subsidiary is involved, the companies in the former wholly-owned group may be made jointly and severally liable for tax that the former subsidiary does not pay. |
Section 45-15 of the ITAA 1997, 'Disposal of shares in 100% subsidiary that leases plant', states the following:
45-15(1) |
A company (the former subsidiary) is treated as if it had disposed of *plant, received its *market value for that disposal and immediately reacquired it for the same amount if:
(a) the former subsidiary has deducted or can deduct an amount for the decline in value of the plant; and |
(b) the former subsidiary was a *100% subsidiary of another company in a *wholly-owned group at a time when it *held the plant; and |
(c) for most of the time when the former subsidiary held the plant, the plant was leased to another entity; and |
(d) the main *business of the former subsidiary was to lease assets; and
(e) all or part of the lease period occurred on or after 22 February 1999; and
(f) on or after that day, the direct or indirect beneficial ownership of more than 50% of the *shares in the former subsidiary is acquired by an entity or entities none of which is a member of the wholly-owned group; and
(g) the plant's *written down value at the time of that acquisition is less than its market value at that time.
As the cited legislation makes clear in both the wording of section 45-15 and the Guide to Division 45, in the context of the facts provided, the former subsidiary is the relevant taxpayer.
In view of the above, section 45-15 of the ITAA 1997 does not apply to CGS.
Question 2
Summary
As stated in answer to Question 1, in the context of the facts provided, Division 45 of the ITAA 1997 applies to the former subsidiary.