Commonwealth Consolidated Acts Commonwealth Consolidated ActsIncome Tax Assessment Act 1997
1 After Division 124
Insert:
Division 125 -- Demerger relief
Table of Subdivisions
Guide to Division 125
125 - A Object of this Division
125 - B Consequences for owners of interests
125 - C Consequences for members of demerger group
125 - D Corporate unit trusts and public trading trusts
125 - 1 What this Division is about
Entities can obtain CGT relief for a demerger.
Owners of ownership interests in the head entity of a demerger group can obtain a roll - over to defer CGT consequences for the CGT events that happen to their interests under the demerger (see Subdivision 125 - B).
Capital gains and capital losses made by members of the demerger group from certain CGT events that happen under the demerger are disregarded (see Subdivision 125 - C).
Note: Dividend relief is also available: see section 44 of the Income Tax Assessment Act 1936 .
Subdivision 125 - A -- Object of this Division
Table of sections
125 - 5 Object of this Division
125 - 5 Object of this Division
The object of this Division is to facilitate the demerging of entities by ensuring that capital gains tax considerations are not an impediment to restructuring a * business.
Subdivision 125 - B -- Consequences for owners of interests
125 - 50 Guide to Subdivision 125 - B
You can choose to obtain a roll - over if a CGT event happens to your interests in a company or trust because of a demerger of an entity from the group of which the company or trust is the head entity.
There are cost base adjustments if you receive new interests under a demerger and no CGT event happens to your original interests.
Table of sections
Operative provisions
125 - 55 When a roll - over is available for a demerger
125 - 60 Meaning of ownership interest and related terms
125 - 65 Meanings of demerger group , head entity and demerger subsidiary
125 - 70 Meanings of demerger , demerged entity and demerging entity
125 - 75 Exception: employee share schemes
125 - 80 What is the roll - over?
125 - 85 Cost base adjustments where CGT event happens but no roll - over chosen
125 - 90 Cost base adjustments where no CGT event
125 - 95 No other cost base adjustment after demerger
125 - 100 No further demerger relief in some cases
[This is the end of the Guide.]
125 - 55 When a roll - over is available for a demerger
(1) You can choose to obtain a roll - over if:
(a) you own an * ownership interest in a company or trust (your original interest ); and
(b) the company or trust is the * head entity of a * demerger group; and
(c) a * demerger happens to the demerger group; and
(d) under the demerger, a * CGT event happens to your original interest and you * acquire a new or replacement interest (your new interest ) in the * demerged entity.
Note 1: Section 125 - 80 sets out what the roll - over is.
Note 2: You have to make cost base adjustments even if there is no CGT event: see section 125 - 90.
Example: Peter owns shares (his original interests) in Company A, a public company. Company B is a wholly owned subsidiary of Company A. Company A announces a demerger utilising a proportionate capital reduction and the disposal of all its shares in Company B to its 320,000 shareholders. Following the demerger all of the shareholders in Company A, including Peter, will own all of the shares in Company B (their new interests).
(2) You cannot choose to obtain a roll - over under this Subdivision for an original interest if:
(a) you are a foreign resident; and
(b) the new interest you * acquire under the * demerger in exchange for that original interest does not have the * necessary connection with Australia just after you acquire it.
Note: Section 136 - 25 tells you when an asset has the necessary connection with Australia.
125 - 60 Meaning of ownership interest and related terms
(1) An ownership interest in a company or trust is:
(a) for a company, a * share in the company or an option, right or similar interest issued by the company that gives the owner an entitlement to * acquire a share in the company; and
(b) for a trust, a unit or other interest in the trust or an option, right or similar interest issued by the trustee that gives the owner an entitlement to acquire a unit or other interest in the trust.
(2) However, this Subdivision applies to a * dual listed company voting share in a company as if it were not an ownership interest if there are not more than 5 of those * shares in the company.
(3) A dual listed company voting share is a * share in a company:
(a) issued:
(i) in the * head entity of a * demerger group; and
(ii) as part of a * dual listed company arrangement; and
(iii) mainly for the purpose of ensuring that shareholders of both companies involved in the arrangement vote as a single decision - making body on matters affecting them; and
(b) that does not carry rights to financial entitlements (except the return of the amount paid up on the share and a dividend that is the equivalent of a dividend paid on an ordinary share).
(4) A dual listed company arrangement is an * arrangement under which 2 publicly listed companies, while maintaining their separate legal entity status, shareholdings and listings, align their strategic directions and the economic interests of their respective shareholders through:
(a) the appointment of common (or almost identical) boards of directors; and
(b) management of the operations of the 2 companies on a unified basis; and
(c) the shareholders of both companies voting in effect as a single decision - making body on substantial issues affecting their combined interests; and
(d) equalised distributions to shareholders in accordance with an equalisation ratio applying between the 2 companies, both generally and in the event of a winding up of one or both of the companies; and
(e) cross - guarantees as to, or similar financial support for, each other's substantial obligations or operations, except where the effect of the relevant regulatory requirements prevents those guarantees or that financial support.
(5) However, an arrangement is not a dual listed company arrangement unless one but not both of the companies is an Australian resident.
125 - 65 Meanings of demerger group , head entity and demerger subsidiary
(1) A demerger group comprises the * head entity of the group and one or more * demerger subsidiaries.
Note: An entity may be a member of one or more demerger groups.
(2) A trust cannot be a member of a demerger group unless * CGT event E4 is capable of applying to all of the units and interests in the trust.
Note: A discretionary trust cannot be a member of a demerger group.
(3) A company or trust is the head entity of a * demerger group if no other member of the group owns * ownership interests in the company or trust.
(4) If apart from this subsection, a company or trust would be the * head entity of a * demerger group and the company or trust, and all of its * demerger subsidiaries, are also demerger subsidiaries of another company or trust in another demerger group, the first - mentioned company or trust is not the head entity of a demerger group.
(5) A company or trust (the first company or trust ) that would, apart from this subsection, be a member of a demerger group is not a member of the demerger group if:
(a) the first company or trust owns, either alone or together with another company or trust that would, apart from this subsection, be a member of the * demerger group, more than 20% but less than 80% of the * ownership interests in a * listed public company or * listed widely held trust; and
(b) the listed public company or listed widely held trust chooses that the first company or trust not be a member of the demerger group.
(6) A company is a demerger subsidiary of another company or a trust that is a member of a * demerger group if the other company or the trust, either alone or together with other members of the group, owns, or has the right to * acquire, * ownership interests in the company that carry between them:
(a) the right to receive more than 20% of any distribution of income or capital by the company; or
(b) the right to exercise, or control the exercise of, more than 20% of the voting power of the company.
(7) A trust is a demerger subsidiary of another trust or a company that is a member of a * demerger group if the other trust or the company, either alone or together with other members of the group, owns, or has the right to * acquire, * ownership interests in the trust that carry between them the right to receive more than 20% of any distribution of income or capital by the trustee.
125 - 70 Meanings of demerger , demerged entity and demerging entity
(1) A demerger happens to a * demerger group if:
(a) there is a restructuring of the demerger group; and
(b) under the restructuring:
(i) members of the demerger group * dispose of at least 80% of their total * ownership interests in another member of the demerger group to owners of original interests in the * head entity of the demerger group; or
(ii) at least 80% of the total ownership interests of members of the demerger group in another member of the demerger group end and new interests are issued to owners of original interests in the head entity; or
(iii) the demerged entity issues sufficient new ownership interests in itself with the result that owners of original interests in the head entity own at least 80% of the total ownership interests in the demerged entity; or
(iv) some combination of the processes referred to in subparagraphs ( i), (ii) and (iii) happens with the effect that members of the demerger group stop owning at least 80% of the total ownership interests owned by members of the demerger group in another member of the group; and
Note: CGT event C2 and CGT event C3 are the only relevant CGT events in a subparagraph ( ii) case.
(c) under the restructuring:
(i) a * CGT event happens to an original interest owned by an entity in the head entity of the group and the entity * acquires a new interest and nothing else; or
(ii) no CGT event happens to an original interest owned by an entity in the head entity of the group and the entity acquires a new interest and nothing else; and
(d) the acquisition by entities of new interests happens only because those entities own or owned original interests; and
(e) the new interests acquired are:
(i) if the head entity is a company--ownership interests in a company; or
(ii) if the head entity is a trust--ownership interests in a trust; and
(f) just before the restructuring, it is reasonable for the head entity to assume that more than 50% of original interests in the head entity of the demerger group are owned by:
(i) Australian residents; or
(ii) foreign residents whose new interests have the * necessary connection with Australia just after they acquire them; and
(g) neither the original interests nor the new interests are in a trust that is a * superannuation fund; and
(h) the requirements of subsection ( 2) are met.
Example: To continue the example from subsection 125 - 55(1), Peter owns 400 post - CGT shares in Company A. Companies A and B are both members of a demerger group. Company A is the head entity of the demerger group and Company B is a demerger subsidiary.
Company A proceeds to demerge 100% of its shares in Company B to its shareholders.
Company A enters into a proportionate capital reduction, returning 40 cents per share to its ordinary shareholders. Peter is entitled to $160 (40c times 400 shares) under the capital reduction.
For Peter, the capital reduction amount of $160 is compulsorily applied to acquire Company A's shares in Company B, at $6.75 (a discount of 10% to current market value). Company A rounds up the fractional amounts in calculating the number of whole shares to be distributed to each shareholder. This gives Peter 24 shares in Company B (160 divided by 6.75, rounded up to the nearest whole number).
Note: Acquiring new interests by an owner of original interests may include the allocation of the owner's entitlement to new interests to a nominee:
(2) Each owner (an original owner ) of original interests in the * head entity of the * demerger group must:
(a) * acquire, under the * demerger, the same proportion, or as nearly as practicable the same proportion, of new interests in the * demerged entity as the original owner owned in the head entity just before the demerger; and
(b) just after the demerger, have the same proportionate total * market value of * ownership interests in the head entity and demerged entity as the original owner owned in the head entity just before the demerger.
Note 1: There is an exception: see section 125 - 75.
Note 2: Dual listed company voting shares are not treated as ownership interests: see section 125 - 60.
Note 3: Fractional interests will generally not affect your ability to choose a roll - over.
Example: To continue the example from subsection ( 1), Company A concludes, given the circumstances of the demerger, that the market values of Peter's and the other shareholders' shares in A and B are expected to be in proportion with their original interests in Company A, and advises the shareholders of this position.
(3) In working out whether an original owner complies with subsection ( 2):
(a) disregard * ownership interests that are original interests the owner owns in the * demerged entity; and
(b) an anticipated reasonable approximation of the * market value of ownership interests is sufficient.
Example: An anticipated reasonable approximation of market values of ownership interests may include:
and may be made by reference to long - term value.
Exception: off - market buy - backs
(4) A buy - back of * shares that is an off - market purchase for the purposes of Division 16K of Part III of the Income Tax Assessment Act 1936 is not a * demerger.
Exception: roll - over available under another provision
(5) Circumstances where an owner of original interests can obtain a roll - over under a provision of this Act outside this Division for all of the CGT events that happened to the owner's original interests under the circumstances cannot be a demerger .
Note: An owner might be able to obtain a roll - over for the CGT events under Subdivision 124 - E, 124 - G, 124 - H or 124 - M.
Meaning of demerged entity
(6) An entity that is a former member of a * demerger group is a demerged entity if, under a * demerger that happens to the group, * ownership interests in the entity are acquired by:
(a) shareholders in the * head entity of the group; or
(b) unitholders or holders of interests in the head entity of the group.
Meaning of demerging entity
(7) An entity that is a member of a * demerger group just before the * CGT event referred to in section 125 - 155 happens is a demerging entity if, under a * demerger that happens to the group:
(a) the entity (either alone or together with other members of the demerger group) * dispose of at least 80% of their total * ownership interests in another member of the demerger group to owners of original interests in the * head entity of the demerger group; or
(b) at least 80% of the total ownership interests of that entity and of other members of the demerger group in another member of the demerger group end and new interests are issued to owners of original interests in the head entity; or
Note: CGT event C2 and CGT event C3 are the only relevant CGT events.
(c) the demerged entity issues sufficient new ownership interests in itself with the result that owners of original interests in the head entity own at least 80% of the total ownership interests in the demerged entity; or
(d) some combination of the processes referred to in paragraphs ( a), (b) and (c) happens with the effect that members of the demerger group stop owning at least 80% of the total ownership interests owned by members of the demerger group in another member of the group.
125 - 75 Exceptions to subsection 125 - 70(2)
Employee share schemes
(1) In working out whether the requirements in subsection 125 - 70(2) are met, disregard each of the * ownership interests described in subsections ( 2) and (3) if, just before the * demerger, those interests (taking into account either or both of their number and value) represented not more than 3% of the total * ownership interests in the entity.
(2) An * ownership interest in a company that is owned by an entity is disregarded under subsection ( 1) if the ownership interest:
(a) is:
(i) a * qualifying share or a * qualifying right * acquired under an * employee share scheme; or
(ii) a * share acquired under a * scheme to which section 26AAC of the Income Tax Assessment Act 1936 applies; and
(b) is not a fully - paid ordinary share.
(3) An * ownership interest in a trust that is owned by an entity is disregarded under subsection ( 1) if the ownership interest:
(a) would be a * qualifying share or a * qualifying right * acquired under an * employee share scheme if Division 13A of Part III of the Income Tax Assessment Act 1936 applied to ownership interests in a trust; and
(b) is not a fully - paid unit.
Adjusting instruments
(4) In working out whether the requirements in subsection 125 - 70(2) are met, disregard each of the * ownership interests described in subsection ( 5) ( adjusting instruments ) if, just before the * demerger, those interests represented not more than 10%, or such greater percentage (not exceeding 17%) as is prescribed, of the ownership interests in the entity.
(5) An * ownership interest in a * listed public company or a * listed widely held trust that is the * head entity of a * demerger group is disregarded under subsection ( 4) if:
(a) the adjusting instrument was issued on terms that ensure that its value is not adversely affected by an * arrangement undertaken by the company or trust in relation to other ownership interests in the company or trust; and
(b) if the adjusting instrument can be converted into an ordinary * share in the company or an ordinary unit in the trust, any conversion will occur on a basis:
(i) that is set out in the terms of the issue of the instrument; and
(ii) that is adjusted to take into account a capital reduction or a capital reconstruction; and
(c) before conversion, the owner of the adjusting instrument does not have a right to participate in distributions of profit or capital except as set out in the terms of the issue of the instrument; and
(d) the adjusting instrument deals with the effect of a * demerger that happens to the demerger group on the value of the instrument.
Example: Some examples of adjusting instruments are:
Additional exceptions
(6) The regulations may provide that, in working out whether the requirements in subsection 125 - 70(2) are met, other * ownership interests of a kind specified in the regulations are to be disregarded if, just before the * demerger, those interests represented not more than a prescribed percentage of the ownership interests in the entity.
(7) However, the total percentage of * ownership interests to be disregarded under this section must not exceed 20% of the ownership interests in the entity.
125 - 80 What is the roll - over?
(1) If you choose the roll - over, a * capital gain or * capital loss you make from a * CGT event happening under the * demerger to an original interest you own is disregarded.
(2) If you choose the roll - over, the first element of the * cost base and * reduced cost base of:
(a) each new interest that you are not taken to have * acquired before 20 September 1985; and
(b) if not all of your original interests ended under the * demerger--each of your remaining original interests that you acquired on or after 20 September 1985;
is such proportion of the sum of the cost bases of all your original interests that you acquired on or after 20 September 1985 (worked out just before the demerger) as is reasonable having regard to the matters specified in subsection ( 3).
Note 1: These rules replace the cost base and reduced cost base adjustments in CGT event E4 and CGT event G1.
Note 2: The head entity or the demerging entity may advise you of the proportions.
(3) The matters are:
(a) the * market values of your remaining original interests just after the * demerger, or an anticipated reasonable approximation of those market values; and
(b) the market values of your new interests just after the demerger, or an anticipated reasonable approximation of those market values.
Example: To continue the example from subsection 125 - 70(2), Company A advises its shareholders that Company B at that time represents 5% of the market value of the group as a whole. Peter's cost base for each of his shares in A is $4.60, and Peter recalculates his cost base as follows:
to be spread over 400 shares in A and 24 shares in B.
Pre - CGT interests
(4) The following subsections apply if you choose the roll - over and you * acquired some or all of your original interests before 20 September 1985.
(5) If you * acquired all of your original interests before 20 September 1985, you are taken to have acquired all of your new interests before that day.
(6) If you * acquired some of your original interests before 20 September 1985, you are taken to have acquired a reasonable whole number of your new interests before that day having regard to:
(a) the * market values of your original interests and your remaining original interests just after the * demerger, or an anticipated reasonable approximation of those market values; and
(b) the market values of your new interests just after the demerger, or an anticipated reasonable approximation of those market values.
(7) If a proportion, but not all of, your original interests ends under the * demerger and you * acquired some of your original interests before 20 September 1985, that same proportion of those interests you acquired before that day ends.
Note: CGT event K6 may be relevant if you later dispose your interests that are treated as being pre - CGT.
Example: Bert owned 100 shares in a company of which 50 were acquired pre - CGT. Under a demerger 20 of Bert's 100 shares were cancelled in exchange for new interests. As 20% of his shares were cancelled, 10 of his pre - CGT shares are taken to have been cancelled.
(8) If you choose a roll - over for some but not all of your original interests, you apply the rules in this section as if your original interests for which you chose the roll - over were your only original interests.
125 - 85 Cost base adjustments where CGT event happens but no roll - over chosen
(1) You must adjust the * cost base and * reduced cost base of an * ownership interest you own in a company or trust if:
(a) a * demerger happens to a * demerger group of which the company or trust is a member; and
(b) you owned an original interest in the * head entity of the demerger group just before the demerger; and
(c) a * CGT event happens to the original interest and you * acquire a new interest under the demerger; and
(d) you do not choose a roll - over under this Subdivision for the original interest.
(2) The adjustments you must make are the same as the adjustments you would have to make under section 125 - 80 for the * cost bases and * reduced cost bases of the remaining original interests and new interests just after the * CGT event if you could have chosen a roll - over under this Subdivision for the * demerger and you had done so.
125 - 90 Cost base adjustments where no CGT event
(1) You must adjust the * cost base and * reduced cost base of an * ownership interest you own in a company or trust if:
(a) a * demerger happens to a * demerger group of which the company or trust is a member; and
(b) you owned an original interest in the * head entity of the demerger group just before the demerger; and
(c) no * CGT event happens to the original interest, but you * acquire a new interest under the demerger.
(2) The adjustments you must make are the same as the adjustments you would have to make under section 125 - 80 if you could have chosen a roll - over under this Subdivision for the * demerger and you had done so.
125 - 95 No other cost base adjustment after demerger
If you have to make adjustments to the * cost base and * reduced cost base of your * ownership interests under section 125 - 80, 125 - 85 or 125 - 90 because of a * demerger, no other adjustment can be made under this Act to those cost bases and reduced cost bases because of something that happens under the demerger.
Note: Those sections deal with any value shift that might occur under the demerger and avoid the need for the general value shifting regime to apply.
125 - 100 No further demerger relief in some cases
This Division does not apply to the remaining * ownership interests in a * demerged entity if one or more members of the * demerger group * disposed of or cancelled less than 100% of the total ownership interests of that group in the demerged entity.
Note: After the demerger, a former member of the demerger group can undertake a further demerger to which this Division can apply.
Subdivision 125 - C -- Consequences for members of demerger group
125 - 150 Guide to Subdivision 125 - C
Certain capital gains and capital losses that members of a demerger group make under a demerger are disregarded.
Certain capital losses made under a demerger are reduced where the demerger results in a value shift.
Table of sections
Operative provisions
125 - 155 Certain capital gains or losses disregarded for demerging entity
125 - 160 No CGT event J1
125 - 165 Adjusted capital loss for value shift under a demerger
125 - 170 Reduced cost base reduction if demerger asset subject to roll - over
[This is the end of the Guide.]
125 - 155 Certain capital gains or losses disregarded for demerging entity
Any * capital gain or * capital loss a * demerging entity makes from * CGT event A1, * CGT event C2, * CGT event C3 or * CGT event K6 happening to its * ownership interests in a * demerged entity under a * demerger is disregarded.
Note 1: The full list of CGT events is in section 104 - 5.
Note 2: This section will not apply if section 125 - 100 applies.
* CGT event J1 does not happen to a * demerged entity or a member of a * demerger group under a * demerger.
125 - 165 Adjusted capital loss for value shift under a demerger
A * capital loss made by an entity that was a member of a * demerger group from a * CGT event happening to a * CGT asset under a * demerger or after a demerger is reduced to the extent that the capital loss is reasonably attributable to a reduction in the * market value of the asset because of the demerger.
Example: The market value of equity or loan interests in the demerging entity may be reduced by the disposal, for inadequate value, of ownership interests of another member of the demerger group to owners of original interests in the head entity of the group.
125 - 170 Reduced cost base reduction if demerger asset subject to roll - over
(1) The * reduced cost base of a * CGT asset is reduced if:
(a) the * market value of the asset is reduced because of a * demerger; and
(b) after the demerger the asset is * acquired by an entity from another entity (the transferor ) in a situation where the transferor obtained a roll - over for the disposal; and
(c) the reduction occurred when the transferor owned the asset.
(2) The * reduced cost base of the asset as determined under the roll - over is reduced just after the roll - over to the extent of the reduction in * market value caused by the * demerger.
Note: The rules in section 125 - 165 and this section deal with any value shift that might occur under the demerger and avoid the need for the general value shifting regime to apply.
(3) If the * reduced cost base of a * CGT asset is reduced under this section because of a * demerger, no other adjustment can be made under this Act to that reduced cost base because of something that happens under the demerger.
Subdivision 125 - D -- Corporate unit trusts and public trading trusts
125 - 225 Guide to Subdivision 125 - D
This Division applies to corporate unit trusts and public trading trusts as if they were companies.
Table of sections
Operative provisions
125 - 230 Application of Division to corporate unit trusts and public trading trusts
[This is the end of the Guide.]
125 - 230 Application of Division to corporate unit trusts and public trading trusts
This Division applies to a trust to which section 102K or 102S of the Income Tax Assessment Act 1936 applies for an income year in which a * demerger happens as if:
(a) the trust were a company; and
(b) * ownership interests in it were interests in a company.
Income Tax Assessment Act 1936
2 Subsection 6(1)
Insert:
"demerged entity" has the meaning given by section 125 - 70 of the Income Tax Assessment Act 1997 .
3 Subsection 6(1)
Insert:
"demerger" has the meaning given by section 125 - 70 of the Income Tax Assessment Act 1997 .
3A Subsection 6(1)
Insert:
"demerger allocation" means:
(a) the total market value of the allocation represented by the ownership interests issued by the demerged entity in itself under a demerger to the owners of ownership interests in the head entity of the demerger group; or
(b) the total market value of the allocation represented by the ownership interests disposed of by a member of a demerger group under a demerger to the owners of ownership interests in the head entity; or
(c) the total of both of those market values.
4 Subsection 6(1)
Insert:
"demerger dividend" means that part of a demerger allocation that is assessable as a dividend under subsection 44(1) or that would be so assessable apart from subsections 44(3) and (4).
5 Subsection 6(1)
Insert:
"demerger group" has the meaning given by section 125 - 65 of the Income Tax Assessment Act 1997 .
6 Subsection 6(1)
Insert:
"demerger subsidiary" has the meaning given by section 125 - 65 of the Income Tax Assessment Act 1997 .
7 Subsection 6(1)
Insert:
"demerging entity" has the meaning given by section 125 - 70 of the Income Tax Assessment Act 1997 .
8 Subsection 6(1)
Insert:
"head entity" of a demerger group has the meaning given by section 125 - 65 of the Income Tax Assessment Act 1997 .
9 Subsection 6(1)
Insert:
"ownership interest" has the meaning given by section 125 - 60 of the Income Tax Assessment Act 1997 .
10 At the end of section 44
Add:
(2) Subsections ( 3) and (4) apply to a demerger dividend unless the head entity elects in writing, within one month after it decides which of its shareholders will receive ownership interests in the demerged entity under the demerger, that those subsections do not apply to the total demerger dividend for all shareholders.
(3) This section applies to the demerger dividend as if it had not been paid out of profits.
(4) A demerger dividend is not assessable income or exempt income.
(5) However, subsections ( 3) and (4) do not apply to a demerger dividend unless, just after the demerger, CGT assets owned by the demerged entity or a demerger subsidiary representing at least 50% by market value of all the CGT assets (or a reasonable approximation of market value) owned by the demerged entity and its demerger subsidiaries are used, directly or indirectly, in one or more businesses carried on by one or more of those entities.
(6) In applying subsection ( 5), disregard any assets that are ownership interests in a demerger subsidiary unless they are used in a business referred to in that subsection.
11 Section 45B
Repeal the section, substitute:
45B Schemes to provide certain benefits
Purpose of section
(1) The purpose of this section is to ensure that relevant amounts are treated as dividends for taxation purposes if:
(a) components of a demerger allocation as between capital and profit do not reflect the circumstances of a demerger; or
(b) certain payments, allocations and distributions are made in substitution for dividends.
Application of section
(2) This section applies if:
(a) there is a scheme under which a person is provided with a demerger benefit or a capital benefit by a company; and
(b) under the scheme, a taxpayer (the relevant taxpayer ), who may or may not be the person provided with the demerger benefit or the capital benefit, obtains a tax benefit; and
(c) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the relevant taxpayer ) to obtain a tax benefit.
Commissioner to determine that section 45BA o r 45C applies
(3) The Commissioner may make, in writing, a determination that:
(a) section 45BA applies in relation to the whole, or a part, of the demerger benefit; or
(b) section 45C applies in relation to the whole, or a part, of the capital benefit.
A determination does not form part of an assessment.
Note: If section 45BA applies in relation to the whole, or a part, of a demerger benefit, this benefit may be a capital benefit.
Meaning of provided with a demerger benefit
(4) A person is provided with a demerger benefit if in relation to a demerger:
(a) a company provides the person with ownership interests in that or another company; or
(b) something is done in relation to an ownership interest owned by the person that has the effect of increasing the value of an ownership interest (which may or may not be the same ownership interest) owned by the person.
Meaning of provided with a capital benefit
(5) A reference to a person being provided with a capital benefit is a reference to any of the following:
(a) the provision of ownership interests in a company to the person;
(b) the distribution to the person of share capital or share premium;
(c) something that is done in relation to an ownership interest that has the effect of increasing the value of an ownership interest (which may or may not be the same interest) that is held by the person.
(6) However, a person is not provided with a capital benefit to the extent that the provision of interests, the distribution or the thing done referred to in subsection ( 5) involves the person receiving a demerger dividend.
(7) For the purposes of this section, a non - share distribution to an equity holder is taken to be the distribution to the equity holder of share capital to the extent to which it is a non - share capital return.
Meaning of relevant circumstances of scheme
(8) The relevant circumstances of a scheme include:
(a) the extent to which the demerger benefit or capital benefit is attributable to capital or the extent to which the demerger benefit or capital benefit is attributable to profits (realised and unrealised) of the company or of an associate (within the meaning in section 318) of the company;
(b) the pattern of distributions of dividends, bonus shares and returns of capital or share premium by the company or by an associate (within the meaning in section 318) of the company;
(c) whether the relevant taxpayer has capital losses that, apart from the scheme, would be carried forward to a later year of income;
(d) whether some or all of the ownership interests in the company or in an associate (within the meaning in section 318) of the company held by the relevant taxpayer were acquired, or are taken to have been acquired, by the relevant taxpayer before 20 September 1985;
(e) whether the relevant taxpayer is a non - resident;
(f) whether the cost base (for the purposes of the Income Tax Assessment Act 1997 ) of the relevant ownership interest is not substantially less than the value of the applicable demerger benefit or capital benefit;
(g) whether the relevant taxpayer or an associate (within the meaning in section 318) of the taxpayer is a private company that would not have been entitled to a rebate under section 46F if the taxpayer had been paid an equivalent dividend instead of the demerger benefit or capital benefit;
(h) if the scheme involves the distribution of share capital or share premium--whether the interest held by the relevant taxpayer after the distribution is the same as the interest would have been if an equivalent dividend had been paid instead of the distribution of share capital or share premium;
(i) if the scheme involves the provision of ownership interests and the later disposal of those interests, or an increase in the value of ownership interests and the later disposal of those interests:
(i) the period for which the ownership interests are held by the holder of the interests; and
(ii) when the arrangement for the disposal of the ownership interests was entered into;
(j) for a demerger only:
(i) whether the profits of the demerging entity and demerged entity are attributable to transactions between the entity and an associate (within the meaning in section 318) of the entity; and
(ii) whether the assets of the demerging entity and demerged entity were acquired under transactions between the entity and an associate (within the meaning in section 318) of the entity;
(k) any of the matters referred to in subparagraphs 177D(b)(i) to (viii).
Meaning of obtaining a tax benefit
(9) A relevant taxpayer obtains a tax benefit if an amount of tax payable, or any other amount payable under this Act, by the relevant taxpayer would, apart from this section, be less than the amount that would have been payable, or would be payable at a later time than it would have been payable, if the demerger benefit had been an assessable dividend or the capital benefit had been a dividend.
Expressions to have same meanings as in Part IIIAA
(10) Expressions used in this section that are defined in Part IIIAA have the same meanings as in that Part.
45BA Effect of determinations under section 45B for demerger benefits
(1) If the Commissioner makes a determination under subsection 45B(3), the amount of the demerger benefit, or the part of the benefit, is taken not to be a demerger dividend for the purposes of this Act for the owner of the ownership interest or the relevant taxpayer at the time when the owner or relevant taxpayer is provided with the demerger benefit.
(2) The amount of the demerger benefit is:
(a) if the benefit is the provision of an ownership interest--the market value of the interest at the time that it is provided; or
(b) if the benefit is an increase in the value of an ownership interest--the increase in the market value of the interest as a result of the change; or
(c) if the benefit is a distribution to the shareholder of share capital or share premium--the amount debited to the share capital account or share premium account of the company in connection with the provision of the benefit.
12 Section 45C (heading)
Repeal the heading, substitute:
45C Effect of determinations under sections 45A and 45B for capital benefits
13 Subsection 45C(4)
Before "value" (wherever occurring), insert "market".
14 Paragraphs 45C(4)(a) and (b)
Omit "a share", substitute "an ownership interest".
15 Paragraphs 45C(4)(a) and (b)
Omit "the share", substitute "the interest".
16 Subsection 45D(1)
Repeal the subsection, substitute:
Notice by Commissioner of determination
(1) If the Commissioner makes a determination under section 45A, 45B or 45C, the Commissioner must give a copy of the determination to the company concerned (which, in the case of a demerger benefit referred to in section 45B, is the head entity of the demerger group). The notice may be included in a notice of assessment.
Notice by company of determination
(1A) That company must, in the case of a determination under section 45A or 45B, give a copy of the notice to:
(a) the advantaged shareholder referred to in section 45A; or
(b) the relevant taxpayer referred to in section 45B.
17 Section 109B
After "(See Subdivisions C and D.)", insert "Also, this Division does not apply to demerger dividends. (See Subdivision DA.)".
18 After Subdivision D of Division 7A of Part III
Insert:
Subdivision DA -- Demerger dividends not treated as dividends
109RA Demerger dividends not treated as dividends
This Division does not apply to a demerger dividend to which section 45B does not apply.
19 Subsection 128B(1)
Omit "and (3A)", substitute ", (3A) and (3D)".
20 After subsection 128B(3C)
Insert:
(3D) This section does not apply to a demerger dividend to which section 45B does not apply.
Part 3 -- Consequential amendments
Income Tax Assessment Act 1997
21 At the end of section 102 - 20
Add:
Note 4: The capital loss may be affected if the CGT asset was owned by a member of a demerger group just before a demerger: see section 125 - 170.
22 At the end of subsection 104 - 10(5)
Add:
Note 3: A capital gain or loss made by a demerging entity from CGT event A1 happening as a result of a demerger is also disregarded: see section 125 - 155.
23 At the end of subsection 104 - 25(5)
Add:
Note 5: Cost base adjustments are made only under Subdivision 125 - B if there is a roll - over under that Subdivision for CGT event C2 happening as a result of a demerger.
Note 6: A capital gain or loss made by a demerging entity from CGT event C2 happening as a result of a demerger is also disregarded: see section 125 - 155.
24 At the end of subsection 104 - 70(6)
Add:
Note: Cost base adjustments are made only under Subdivision 125 - B if there is a roll - over under that Subdivision for CGT event E4 happening as a result of a demerger.
25 At the end of subsection 104 - 135(4)
Add:
Note: Cost base adjustments are made only under Subdivision 125 - B if there is a roll - over under that Subdivision for CGT event G1 happening as a result of a demerger.
26 At the end of subsection 104 - 155(5)
Add:
; or (g) a company or a trust that is a member of a * demerger group issues new * ownership interests under a * demerger.
Note: For demergers, see Division 125.
27 At the end of subsection 104 - 175(7)
Add:
Note: CGT event J1 does not happen to a demerged entity or a member of a demerger group if CGT event A1 or C2 happens to a demerging entity under a demerger: see section 125 - 160.
28 At the end of section 104 - 230
Add:
Note: A capital gain or loss made by a demerging entity from CGT event K6 happening as a result of a demerger is also disregarded: see section 125 - 155.
29 After section 112 - 53
Insert:
Demergers | |||
Item | In this situation: | Element affected: | See section: |
1 | There is a roll - over under Subdivision 125 - B after a demerger | First element of cost base and reduced cost base of new interests and remaining original interests | 125 - 80 |
2 | There is a CGT event under a demerger but no roll - over under Subdivision 125 - B | First element of cost base and reduced cost base of new interests and remaining original interests | 125 - 85 |
3 | There is a cost base adjustment under Subdivision 125 - B but no CGT event under a demerger | First element of cost base and reduced cost base of new interests and remaining original interests | 125 - 90 |
30 Subsection 112 - 105(3)
Repeal the subsection, substitute:
(3) All replacement - asset roll - overs are set out in the table in section 112 - 115.
31 At the end of section 112 - 110
Add:
Note 3: The reduced cost base may be further modified if the replacement asset roll - over happens after a demerger: see section 125 - 175.
32 Section 112 - 115 (before table item 15)
Insert:
14C | Demergers | Division 125 |
33 Section 112 - 140
Omit the third sentence, substitute "All same - asset roll - overs are set out in the table in section 112 - 150".
34 Section 112 - 145 (note)
Omit "Note", substitute "Note 1".
35 At the end of section 112 - 145
Add:
Note 2: The reduced cost base may be further modified if the same asset roll - over happens after a demerger: see section 125 - 175.
36 Subsection 122 - 70(2) (note)
Omit "Note", substitute "Note 1".
37 At the end of subsection 122 - 70(2)
Add:
Note 2: The reduced cost base may be modified for a roll - over happening after a demerger: see section 125 - 175.
38 Subsection 122 - 200(1) (note)
Omit "Note", substitute "Note 1".
39 At the end of subsection 122 - 200(1)
Add:
Note 2: The reduced cost base (as determined under this section) may be modified for a roll - over happening after a demerger: see section 125 - 175.
40 At the end of subsection 124 - 10(3)
Add:
Note 5: The reduced cost base may be modified for a roll - over happening after a demerger: see section 125 - 175.
41 At the end of section 126 - 15
Add:
Note: The reduced cost base may be modified for a roll - over happening after a demerger: see section 125 - 175.
42 Subsection 126 - 60(2) (note)
Omit "Note", substitute "Note 1".
43 At the end of subsection 126 - 60(2)
Add:
Note 2: The reduced cost base may be modified for a roll - over happening after a demerger: see section 125 - 175.
43A At the end of section 202 - 45
Add:
; (i) a * demerger dividend.
43B At the end of section 975 - 150
Add:
(3) However, the right, power or option of an owner of * ownership interests in the * head entity of a * demerger group to * acquire, under a * demerger, ownership interests in the * demerged entity is not a right, power or option covered by subsection ( 1).
44 Subsection 995 - 1(1)
Insert:
"demerged entity" has the meaning given by section 125 - 70.
45 Subsection 995 - 1(1)
Insert:
"demerger" has the meaning given by section 125 - 70.
46 Subsection 995 - 1(1)
Insert:
"demerger dividend" has the meaning given by subsection 6(1) of the Income Tax Assessment Act 1936 .
47 Subsection 995 - 1(1)
Insert:
"demerger group" has the meaning given by section 125 - 65.
48 Subsection 995 - 1(1)
Insert:
"demerger subsidiary" has the meaning given by section 125 - 65.
49 Subsection 995 - 1(1)
Insert:
"demerging entity" has the meaning given by section 125 - 70.
50 Subsection 995 - 1(1)
Insert:
"dual listed company arrangement" has the meaning given by section 125 - 60.
51 Subsection 995 - 1(1)
Insert:
"dual listed company voting share" has the meaning given by section 125 - 60.
52 Subsection 995 - 1(1)
Insert:
"head entity" of a demerger group has the meaning given by section 125 - 65.
53 Subsection 995 - 1(1) (definition of ownership interest )
Repeal the definition, substitute:
"ownership interest" : an ownership interest :
(a) in land or a * dwelling--has the meaning given by section 118 - 130; and
(b) in a company or trust--has the meaning given by section 125 - 60.
54 Transitional
A company that makes payments in respect of shares in the company under a demerger that happens on or after 1 July 2002 and before this Act receives the Royal Assent can choose to apply section 45B of the Income Tax Assessment Act 1936 as that section existed before the amendments made by this Act to the demerger rather than that section as amended by this Act if:
(a) the head entity of the demerger group is a listed public company; and
(b) the only CGT events (if any) that happen under the demerger to all original interests in that head entity are CGT event A1, CGT event C2 or CGT event G1.
55 Application
The amendments made by this Schedule apply to demergers happening on or after 1 July 2002.