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Edited version of private advice
Authorisation Number: 1051582630030
Date of advice: 20 September 2019
Ruling
Subject: Demerger
Question 1
Will the Commissioner confirm that the Company X shareholders are entitled to choose demerger roll-over under section 125-55 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
Question 2
Will the Commissioner confirm that any capital gain or capital loss that arises to Company X under CGT event A1 from the disposal of its shares in Company Y under the proposed demerger is disregarded under section 125-155 of the ITAA 1997?
Answer
Yes
Question 3
Will the Commissioner confirm that all, or any part, of the distribution of Company Y shares to Company X shareholders that is a dividend will constitute a demerger dividend, and therefore be neither assessable income nor exempt income pursuant to subsections 44(3) to 44(5) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
Yes
Question 4
Will the Commissioner make a determination under section 45A of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of any capital benefit provided to the Company X shareholders under the proposed demerger?
Answer
No
Question 5
Will the Commissioner make a determination under subsection 45B(3) of the ITAA 1936 that section 45BA or section 45C of the ITAA 1936 applies to the whole, or any part, of the demerger benefit or capital benefit provided to the Company X shareholders under the proposed demerger?
Answer
No
Question 6
Will the Commissioner confirm that Division 7A of the ITAA 1936 will not apply to any distributions under the demerger?
Answer
Yes
This ruling applies for the following period:
Income year ended 30 June 2020
The scheme commences on:
1 July 2019
Relevant facts and circumstances
Company X
Company X is an Australian private company.
All the shareholders of Company X acquired their shares after 20 September 1985.
Company Y
Company Y is an Australian private company.
Company Y has fully paid ordinary shares on issue.
Proposed restructure
Company X will demerge all its interests in Company Y to Company X shareholders in proportion to their current shareholding.
There are no preliminary steps or proposed transactions that will form part of the restructuring.
Reasons for the Proposed demerger
A number of commercial reasons were provided as the reason for undertaking a demerger.
Other matters
Company X will not make an election under subsection 44(2) of the ITAA 1936.
There is no intention or proposal for the sale or later disposal of the shares in Company Y or Company X by the Company X shareholders following the demerger.
The share capital account of Company X is not tainted within the meaning of Division 197 of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 6
Income Tax Assessment Act 1936 section 44
Income Tax Assessment Act 1936 section 45B
Income Tax Assessment Act 1936 section 45BA
Income Tax Assessment Act 1936 section 45C
Income Tax Assessment Act 1936 section 177D
Income Tax Assessment Act 1997 section 104-10
Income Tax Assessment Act 1997 section 104-135
Income Tax Assessment Act 1997 Division 125
Income Tax Assessment Act 1997 subdivision 125-B
Income Tax Assessment Act 1997 section 125-55
Income Tax Assessment Act 1997 section 125-65
Income Tax Assessment Act 1997 section 125-70
Income Tax Assessment Act 1997 section 125-155
Reasons for decision
Question 1
Company X shareholders can choose to obtain roll-over relief under Subdivision 125-B of the ITAA 1997 upon the demerger of Company Y by Company X.
Question 2
Company X can disregard under section 125-155 of the ITAA 1997 any capital gain or capital loss arising from CGT event A1 happening to its ownership interests in Company Y upon the demerger of Company Y by Company X.
Question 3
All or any part of the distribution of Company Y shares to Company X shareholders that is a dividend will constitute a demerger dividend, and therefore be neither assessable income nor exempt income pursuant to subsections 44(3) and 44(4) of the ITAA 1936.
Question 4
The Commissioner will not make a determination under section 45A of the ITAA 1936 that section 45C of the ITAA 1936 will apply to the whole, or any part, of any capital benefit provided to the Company X shareholders under the proposed arrangement.
Question 5
The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45BA or section 45C will apply to the whole, or any part, of any benefit provided to the Company X shareholders under the proposed arrangement.
Question 6
Division 7A of the ITAA 1936 will not apply to the distributions made to Company X shareholders under the proposed demerger.