Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-3 - CAPITAL GAINS AND LOSSES: SPECIAL TOPICS  

Division 125 - Demerger relief  

Subdivision 125-B - Consequences for owners of interests  

Operative provisions

SECTION 125-75   Exceptions to subsection 125-70(2)  

Employee share schemes

125-75(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.

125-75(2)    

An *ownership interest, in a company, that is owned by an entity is disregarded under subsection (1) if:

(a) the entity acquired a beneficial interest in the ownership interest under an *employee share scheme; and

(b) these provisions apply to the beneficial interest:

(i) Subdivision 83A-B and the provisions referred to in paragraphs 83A-33(1)(a) to (c); or

(ii) Subdivision 83A-B and the provisions referred to in paragraphs 83A-35(1)(a) and (b); or

(iii) Subdivision 83A-C ; and

(c) the ownership interest is not a fully-paid ordinary *share.

125-75(3)    

An *ownership interest, in a trust, that is owned by an entity is disregarded under subsection (1) if:

(a) both of the following would apply if Division 83A (about employee share schemes) applied to ownership interests in trusts in the same way as it applies to *shares:

(i) the entity acquired a beneficial interest in the ownership interest under an *employee share scheme;

(ii) the provisions referred to in subparagraph (2)(b)(i), (ii) or (iii) apply to the beneficial interest; and

(b) the ownership interest is not a fully-paid unit.

Adjusting instruments

125-75(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.

125-75(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:

• convertible preference shares, including reset preference shares;

• convertible notes;

• partly paid shares where the paid-up amount is adjusted to reflect a capital reduction.

Additional exceptions

125-75(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.

125-75(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.