Please note that the PDF version is the authorised version of this ruling.
|LEGALLY BINDING SECTION:|
|What this Ruling is about|
|Date of effect|
|NOT LEGALLY BINDING SECTION:|
|Appendix 1: Explanation|
|Appendix 2: Detailed contents list|
This publication provides you with the following level of protection:
This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953.
A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes.
If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.
What this Ruling is about
1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.
- subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)
- subsection 44(1) of the ITAA 1936
- section 45 of the ITAA 1936
- section 45A of the ITAA 1936
- section 45B of the ITAA 1936
- section 45BA of the ITAA 1936
- section 45C of the ITAA 1936
- section 104-135 of the Income Tax Assessment Act 1997 (ITAA 1997)
- section 115-30 of the ITAA 1997, and
- Division 125 of the ITAA 1997.
Class of entities
- participated in the scheme that is the subject of this Ruling
- were residents of Australia as defined in subsection 6(1) of the ITAA 1936 on the Implementation Date of the scheme (20 October 2015)
- were listed on the share register of Tamaska on the Record Date of the scheme (8 October 2015)
- owned ordinary shares in Tamaska on the Record Date and held those shares on capital account at the time of the demerger and not as trading stock or revenue assets, and
- are not subject to the taxation of financial arrangements rules in Division 230 of the ITAA 1997 in relation to gains and losses on their ordinary shares in Tamaska .
- (Note: Division 230 will generally not apply to individuals, unless they have made an election for it to apply to them.)
6. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 9 to 31 of this Ruling.
- this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and
- this Ruling may be withdrawn or modified.
Date of effect
8. This Ruling applies from 1 July 2015 to 30 June 2016. The Ruling continues to apply after 30 June 2016 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).
Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation.
- 714,000,000 fully paid ordinary shares
- 180,000,000 unlisted options.
- TMK Montney was wholly-owned by Tamaska
- Tamaska held all the TMK Montney shares on issue
owned shares in TMK Montney that carried between them the right to:
- receive 100% of any distribution of income or capital by TMK Montney, and
- exercise, or control the exercise of, 100% of the voting power of TMK Montney,
- Tamaska held all the TMK Montney shares as a CGT asset on capital account, and
- there were no other ownership interests in TMK Montney, as defined in subsection 125-60(1) of the ITAA 1997.
- undertook a capital reduction, returning 15.68% of the original capital contributed, and
- made an in specie distribution of all the shares in TMK Montney to holders of ordinary shares in Tamaska .
Reasons for the demerger
- The demerger will enable Tamaska to attract investors based on their profile and appetite for risk and investment in their projects without the other projects weighing upon the investor's investment decisions which ultimately constrain the amount of capital each project may attract on a standalone basis.
- Demerging TMK Montney would, as a dedicated corporate vehicle, more likely attract private funding that it needs to take the project through to development.
- TMK Montney will be able to focus existing management and staff as well as secure new skilled management and staff who will more efficiently execute the appraisal and development phase of the MJV. Having a management team with the sole objective to develop TMK Montney's assets should lead the project to being executed in a more timely and efficient manner.
- Becoming an unlisted company will remove the projects continuous disclosure requirements under the ASX Listing Rules. This will allow TMK Montney to keep price sensitive drilling data confidential which will give TMK Montney a commercial advantage in executing land bids, undertaking neighbouring acquisitions and negotiating infrastructure access rights. This drilling data has become necessary as a result of the recent reduction in the price of oil which has reduced drilling activity in the area, reduced the industry's enthusiasm for undrilled lands and made prospective investors more selective and sensitive to opportunities complicated by overseas owners.
25. Tamaska accounted for the capital reduction and the distribution of TMK Montney shares effecting the demerger by reducing the share capital account and removing the net assets of TMK Montney from the consolidated accounts of Tamaska . There were no other accounting entries.
27. Following the demerger, Tamaska will continue to be an ASX listed company, while TMK Montney will continue to be an Australian incorporated unlisted entity. Tamaska does not own any shares in TMK Montney (or vice versa).
Capital gains tax (CGT)
CGT event G1
32. CGT event G1 happened in relation to each Tamaska share owned by a Tamaska shareholder at the time Tamaska made the payment of the capital reduction amount satisfied by the in specie distribution of TMK Montney shares (section 104-135 of the ITAA 1997).
33. A Tamaska shareholder made a capital gain when CGT event G1 happened if the capital reduction amount of each Tamaska share exceeded the cost base of that Tamaska share. The capital gain is equal to the amount of the excess (section 104-135(3) of the ITAA 1997).
Acquisition date of TMK Montney shares
36. However, for the purposes of determining eligibility for a discount capital gain, a TMK Montney share received by a Tamaska shareholder under the demerger is taken to have been acquired on the same date, for CGT purposes, as the corresponding Tamaska share (item 2 in the table in subsection 115-30(1) of the ITAA 1997). This is the case whether or not the demerger roll-over is chosen.
CGT consequences of choosing demerger roll-over
- will disregard any capital gain made when CGT event G1 happened to each of their Tamaska shares under the demerger (subsection 125-80(1) of the ITAA 1997)
- must calculate the first element of the cost base and reduced cost base of their new TMK Montney shares (paragraph 125-80(2)(a) of the ITAA 1997), and
- must recalculate the first element of the cost base and reduced cost base of their remaining Tamaska shares (paragraph 125-80(2)(b) of the ITAA 1997).
- taking the sum of the cost bases of the Tamaska shares (just before the demerger), and
- apportioning that sum over the Tamaska shares and corresponding new TMK Montney shares acquired under the demerger.
42. This apportionment of the sum is done on a reasonable basis having regard to the market values (just after the demerger) of the Tamaska shares and TMK Montney shares or a reasonable approximation of those market values (subsections 125-80(2) and 125-80(3) of the ITAA 1997).
- 37.04% of the summed cost base to the Tamaska shares, and
- 62.96% of the summed cost base to the TMK Montney shares.
CGT consequences of not choosing demerger roll-over
- is not entitled to disregard any capital gain made in respect of CGT event G1 that happened to their Tamaska shares under the demerger, and
- in the same way as described in paragraphs 40 to 43 of this Ruling (section 125-85 of the ITAA 1997).
Application of section 45
Application of section 45A
48. The Commissioner will not make a determination under paragraph 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the capital benefit provided to Tamaska shareholders under the demerger.
Application of section 45B
49. The Commissioner will not make a determination under paragraph 45B(3)(a) of the ITAA 1936 that section 45BA of the ITAA 1936 applies to the whole or any part of any demerger benefit provided to Tamaska shareholders under the demerger.
50. The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole or any part of the capital benefit provided to Tamaska shareholders under the demerger.
Commissioner of Taxation
11 November 2015
Appendix 1 - Explanation
|This Appendix is provided as information to help you understand how the Commissioner's view has been reached. It does not form part of the binding public ruling.|
CGT event G1
52. Subsection 125-80(1) of the ITAA 1997 enables a shareholder to choose demerger roll-over. If a demerger roll-over is chosen then a capital gain made as a result of CGT event G1 happening when a non-assessable payment is made in relation to a share under a demerger is disregarded.
- the entity owns a share in the company (the original interest)
- the company is the head entity of a demerger group
- a demerger happens to the demerger group, and
- under the demerger, a CGT event happens to the original interest and the entity acquires a new or replacement interest (the new interest) in the demerged entity.
54. The conditions for choosing demerger roll-over under Division 125 of the ITAA 1997 were satisfied in respect of the demerger. Accordingly, the demerger concessions in Division 125 are available to Tamaska shareholders.
55. Paragraph 44(1)(a) of the ITAA 1936 operates to include in a shareholder's assessable income any dividends, as defined in subsection 6(1) of the ITAA 1936, paid to the shareholder out of profits derived by the company from any source (if the shareholder is an Australian resident).
57. However, paragraph (d) of the definition of 'dividend' in subsection 6(1) of the ITAA 1936 excludes amounts of moneys paid or credited, or the amount of the value of the property, debited against an amount standing to the credit of the share capital account of the company.
58. The term 'share capital account' is defined in subsection 975-300(1) of the ITAA 1997 as an account which the company keeps of its share capital, or any other account created on or after 1 July 1998 where the first amount credited to the account was an amount of share capital.
60. A share capital account is tainted if an amount to which Division 197 of the ITAA 1997 applies is transferred to the share capital account where the account is not already tainted (section 197-50 of the ITAA 1997).
62. The demerger of TMK Montney was implemented by Tamaska distributing property (TMK Montney shares) to shareholders of Tamaska . The total market value of the TMK Montney shares distributed to the shareholders of Tamaska was debited against an amount standing to the credit of Tamaska's share capital account.
63. As Tamaska's share capital account is not tainted, within the meaning of Division 197 of the ITAA 1997, the exclusion in paragraph (d) of the definition of 'dividend' in subsection 6(1) of the ITAA 1936 applies.
65. Section 45 of the ITAA 1936 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that the shares are received by some shareholders and minimally franked dividends are received by other shareholders (paragraphs 45(1)(a) and 45(1)(b) of the ITAA 1936). Minimally franked dividends are dividends which are franked to less than 10% (subsection 45(3) of the ITAA 1936).
70. Section 45A of the ITAA 1936 applies in certain circumstances where a company streams capital benefits and the payment of dividends to shareholders in such a way that capital benefits are provided to shareholders who would derive a greater benefit from the capital benefit than other shareholders, with it being reasonable to assume that the other shareholders have received, or will receive, dividends.
71. The Commissioner may make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies. The effect of such a determination is that the capital benefit is taken to be an unfranked dividend.
72. The distribution provided by Tamaska to its shareholders, under the demerger, was sourced from its share capital account and therefore constitutes the provision of a capital benefit. However, the capital benefit was provided to all Tamaska shareholders in the same proportion as their shareholdings.
- components of a demerger allocation as between capital and profit do not reflect the circumstances of the demerger, or
- certain payments, allocations and distributions are made in substitution for dividends (subsection 45B(1) of the ITAA 1936).
77. Where the requirements of subsection 45B(2) of the ITAA 1936 are met, the Commissioner may, where applicable, make a determination that the whole, or part, of a demerger benefit is taken not to be a demerger dividend (subsection 45BA(1)) or that the capital benefit is to be treated as an unfranked dividend (subsection 45C(1) of the ITAA 1936).
78. The phrase 'provided with a demerger benefit' is defined in subsection 45B(4) of the ITAA 1936 and includes a company providing a person with ownership interests (such as shares) in that (or another) company.
82. For the purposes of paragraph 45B(2)(c) of the ITAA 1936, in relation to the demerger, the Commissioner is required to consider the relevant circumstances outlined in subsection 45B(8) of the ITAA 1936 to determine whether it could be concluded that entities that entered into or carried out the demerger (or any part of the demerger) did so for a purpose (other than an incidental purpose) of enabling Tamaska shareholders to obtain a tax benefit.
84. Accordingly, section 45B of the ITAA 1936 does not apply to the demerger and the Commissioner will not make a determination under paragraph 45B(3)(a) of the ITAA 1936 that section 45BA of the ITAA 1936 applies to the whole, or any part, of the demerger benefit provided to Tamaska shareholders under the demerger.
85. Similarly, as section 45B of the ITAA 1936 does not apply to the demerger, the Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the capital benefit provided to Tamaska shareholders under the demerger.
Appendix 2 - Detailed contents list
You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
Not previously issued as a draft
ITAA 1936 6(1)
ITAA 1936 44(1)
ITAA 1936 44(1)(a)
ITAA 1936 44(2)
ITAA 1936 45
ITAA 1936 45(1)(a)
ITAA 1936 45(1)(b)
ITAA 1936 45(3)
ITAA 1936 45A
ITAA 1936 45A(2)
ITAA 1936 45B
ITAA 1936 45B(1)
ITAA 1936 45B(2)
ITAA 1936 45B(2)(c)
ITAA 1936 45B(3)(a)
ITAA 1936 45B(3)(b)
ITAA 1936 45B(4)
ITAA 1936 45B(5)
ITAA 1936 45B(8)
ITAA 1936 45B(9)
ITAA 1936 45BA
ITAA 1936 45BA(1)
ITAA 1936 45C
ITAA 1936 45C(1)
ITAA 1997 104-135
ITAA 1997 104-135(3)
ITAA 1997 109-5(2)
ITAA 1997 115-30
ITAA 1997 115-30(1)
ITAA 1997 Div 125
ITAA 1997 125-55(1)
ITAA 1997 125-60(1)
ITAA 1997 125-65(1)
ITAA 1997 125-80(1)
ITAA 1997 125-80(2)
ITAA 1997 125-80(2)(a)
ITAA 1997 125-80(2)(b)
ITAA 1997 125-80(3)
ITAA 1997 125-85
ITAA 1997 Div 197
ITAA 1997 197-50
ITAA 1997 Div 230
ITAA 1997 975-300(1)
ITAA 1997 975-300(3)