Edited version of private advice

Authorisation Number: 5010077151885

Date of advice: 7 July 2021

Ruling

Subject: Income tax - capital gains tax - rollovers - business restructures - division 615

Question

Does the Division 615 business restructure rollover apply to disregard any capital gain from the disposal of shares in a private company operating a business?

Answer

Yes

This ruling applies for the following periods:

1 July X0XX - 30 June X0XX

1 July X0XX - 30 June X0XX

The scheme commences on:

30 July X0XX

Relevant facts and circumstances

1.    A is a private company limited by shares.

2.    A has two directors and shareholders, being B and C. Between them, they own all the shares in A.

3.    B owns X00 management shares and Y6 ordinary shares in the A. These shares were acquired in 1P7P.

4.    C owns Q ordinary shares in the A, which were acquired in 19PP.

5.    The management shares have a par value of $Q and have voting rights only. They are not entitled to dividends or distributions from the A.

6.    The ordinary shares have voting rights, and are entitled to dividends and distributions.

7.    Both B and C are Australian residents for tax purposes.

Proposed business restructure

8.    A business restructure is being planned because B (the main shareholder) has advised that he wishes to expand the business and also for asset protection purposes.

9.    A is the current head entity of a consolidated group and is planning to introduce D to dispose of all its current shares to.

10.  The D will be placed above A in the current structure and will not be part of the consolidated group. The D will be a shelf company (that is, a non-operating holding company).

11.  The consolidated group that A is the head company of will otherwise continue operating as is.

12.  This transaction is limited to the interposition of a new company (D) and is not part of a wider scheme or broader arrangement involving subsequent or antecedent steps not directly related to the interposition of this new company.

Disposal of A shares

13.  The business restructure will occur as follows:

a)    the existing two shareholders in A (B and C) will dispose of all their shares in A to D;

b)    at the same time, D will issue identical shares to B and C (being X00 management shares and Y7 ordinary shares to held by these two shareholders in the same proportions).

14.  B and C will be the only two shareholders in D and will own all the shares in D.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 615-5(1)

Income Tax Assessment Act 1997 section 615-15

Income Tax Assessment Act 1997 section 615-20

Income Tax Assessment Act 1997 section 615-25

Income Tax Assessment Act 1997 section 615-30

Income Tax Assessment Act 1997 section 615-40

Income Tax Assessment Act 1997 section 615-65

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

Reasons for decision

Restructure by disposal of shares

1.    The business restructure rollover has been chosen in accordance with section 615-5 of the ITAA 1997 as:

a)    B and C own all the shares in A

b)    B and C are the only two shareholders in A

c)    B and C disposed all their shares in the A to D

d)    D then issued B and C shares which were identical in type and number to those they held in A (and nothing else).

Requirements for D

2.    In relation to D, the following requirements in Subdivision 615-B of the ITAA 1997 have been satisfied:

a)    D owned all the shares in A after their disposal by B and C

b)    B and C owned a whole number of share in D

c)    the percentage of the shares in D that were issued to B and C is equal to the percentage of the shares or units in A that were:

(i) owned by B and C; and

(ii) were disposed of by B and C

d)    the ratios in subsection 615-20(2) of the ITAA 1997 are both equal

e)    B and C are both Australian residents for tax purposes when their shares in A were disposed of

f)     the shares which were issued by D were not redeemable shares

g)    B and C owned all the shares in D from the time they were disposed of by A and issued by D

h)    As B and C have chosen that section 615-65 of the ITAA 1997 apply, this choice must be notified to the Commissioner within two months after the shares in A are disposed of.

CGT consequences

3.    The CGT consequences of this business restructure rollover are generally outlined in section 615-40 of the ITAA1997 as follows:

a)    any capital gain or loss that arises from the disposal of shares in A is disregarded

b)    the cost bases of the new shares issued by D is calculated by reference to the cost bases in the A and calculated as outlined in section 615-65 of the ITAA 1997.

Cost base of D shares

4.    According to subsection 615-65(2) of the ITAA 1997, if some of A's shares that are disposed were pre-CGT, these same number of shares issued by D are treated as retaining their pre-CGT status.

5.    For those A shares which are disposed of that are not pre-CGT, their new cost bases are calculated by D according to subsection 615-65(4) of the ITAA 1997.