Edited version of private advice

Authorisation Number: 1052195894030

Date of advice: 29 November 2023

Ruling

Subject: CGT - scrip for scrip rollover

Question

Is Company X a foreign hybrid company under section 830-15 of the Income Tax Assessment Act 1997?

Answer

No. Company X passes all but one of the requirements in subsection 830-15(1); it is not a controlled foreign company for the purposes of paragraph 830-15(1)(d).

Question

Is your disposal of the shares in Company A eligible for capital gains tax (CGT) rollover under Subdivision 124-M of the Income Tax Assessment Act 1997 with respect to the part of the capital proceeds received for replacement interests in Company X?

Answer

Yes. You are entitled to capital gains tax roll-over as the arrangement satisfies all of the requirements in subsection 124-780(1) and none of the exceptions in section 124-795 apply. Section 124-790 provides that there is no roll-over for that part of your original interest for which you received ineligible proceeds (cash). The cost base of the ineligible part is so much of the cost base that is reasonably attributable to that part.

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an Australian tax resident.

Company A was incorporated in and tax resident of Country A and is not a tax resident of any other country.

Company A had ordinary shares on issue which carry equal rights to voting, dividends, and capital on wind up.

The shares in Company A were held:

•         X% by you

•         X% by an unrelated party who is a tax resident of Country X

•         X% by Company B incorporated in and tax resident of Country A and is not a tax resident of any other country.

Your ordinary shares in Company A:

•         are held on capital account

•         were acquired after 20 September 1985 and are post CGT assets

•         are not eligible finance shares, nor widely distributed finance shares

•         carried the right to exercise any of the voting power in Company A and there is no arrangement in force to affect that right.

Company A was approached by Company Y, an unrelated party to purchase Company A and Company B.

The acquisition was structured as a purchase via a special purpose vehicle, Company Z (the Buyer). This entity was incorporated in Country A, as a wholly owned subsidiary of Company Y. Company Y is ultimately owned 100% by Company X, a tax resident of Country X and is not a tax resident of any other country.

The Buyer purchased:

(a) your ordinary shares in Company A

(b) the unrelated party's ordinary shares in Company A

(c) 100% of the shares in Company B, indirectly acquiring the remaining ordinary shares in Company A.

The Buyer offered all shareholders of Company A and Company B the ability to receive X% of the total consideration for member interests in the ultimate holding company, Company X and you accepted this offer.

In exchange for the shares in Company A you received cash and member interests in Company X representing X% of the total consideration.

You and the Buyer are unrelated parties, dealing with each other at arm's length and the consideration is market value.

The arrangement was undertaken via a Share Purchase Agreement for the sale of Company A and Company B and a Purchase Agreement for the purchase of member interests in Company X. The two transaction documents which effect the issue of member interests in Company X for the acquisition of shares in Company A were executed on consecutive days and each agreement specifically references the other.

Following completion of the acquisition, your member interests in Company X is X%. The remainder of the member interests in Company X are widely held and there are no other Australian shareholders with an interest (directly or indirectly) in Company X.

Apart from the replacement interest, Company X nor any other entity within its wholly owned group issued any equity, nor did it acquire any new debt interests.

You accept that you are not eligible for capital gains tax roll-over for the part of the capital proceeds that are paid in cash.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 830-15

Income Tax Assessment Act 1997 subsection 830-15(1)

Income Tax Assessment Act 1997 paragraph 830-15(1)(d)

Income Tax Assessment Act 1997 subdivision 124-M

Income Tax Assessment Act 1997 subsection 124-780(1)

Income Tax Assessment Act 1997 subparagraph 124-780(1)(a)(i)

Income Tax Assessment Act 1997 paragraph 124-780(1)(b)

Income Tax Assessment Act 1997 subparagraph 124-780(2)(a)(ii)

Income Tax Assessment Act 1997 paragraph 124-780(2)(b)

Income Tax Assessment Act 1997 paragraph 124-780(2)(c)

Income Tax Assessment Act 1997 paragraph 124-780(1)(c)

Income Tax Assessment Act 1997 paragraph 124-780(3)(a)

Income Tax Assessment Act 1997 paragraph 124-780(3)(b)

Income Tax Assessment Act 1997 subparagraph 124-780(3)(c)(ii)

Income Tax Assessment Act 1997 paragraph 124-780(3)(d)

Income Tax Assessment Act 1997 paragraph 124-780(3)(f)

Income Tax Assessment Act 1997 subsection 124-782(1)

Income Tax Assessment Act 1997 section 124-783

Income Tax Assessment Act 1997 paragraph 124-780(1)(d)

Income Tax Assessment Act 1997 subsection 124-780(4)

Income Tax Assessment Act 1997 section 124-790

Income Tax Assessment Act 1997 section 124-795

Income Tax Assessment Act 1997 subsection 124-795(1)

Income Tax Assessment Act 1997 paragraph 124-795(2)(a)

Income Tax Assessment Act 1997 subsection 124-795(3)

Income Tax Assessment Act 1997 subsection 124-795(4)

Income Tax Assessment Act 1997 section 124-790

Income Tax Assessment Act 1997 subsection 975-500(1)

Income Tax Assessment Act 1997 subsection 995-1(1)