Tax and Superannuation Laws Amendment (2014 Measures No. 6) Act 2014 (133 of 2014)
Schedule 1 Roll-overs for business restructures
Part 1 Main amendments
Income Tax Assessment Act 1997
1 Before Division 620
Insert:
Division 615 Roll-overs for business restructures
Table of Subdivisions
Guide to Division 615
615-A Choosing to obtain roll-overs
615-B Further requirements for choosing to obtain roll-overs
615-C Consequences of roll-overs
615-D Consequences for the interposed company
Guide to Division 615
615-1 What this Division is about
You can choose for transactions under a scheme to restructure a company's or unit trust's business to be tax neutral if, under the scheme:
(a) you cease to own shares in the company or units in the trust; and
(b) in exchange, you become the owner of new shares in another company.
Subdivision 615-A - Choosing to obtain roll-overs
Table of sections
615-5 Disposing of interests in one entity for shares in a company
615-10 Redeeming or cancelling interests in one entity for shares in a company
615-5 Disposing of interests in one entity for shares in a company
(1) You can choose to obtain a roll-over if:
(a) you are a *member of a company or a unit trust (the original entity ); and
(b) you and at least one other entity (the exchanging members ) own all the *shares or units in it; and
(c) under a *scheme for reorganising its affairs, the exchanging members *dispose of all their shares or units in it to a company (the interposed company ) in exchange for shares in the interposed company (and nothing else); and
(d) the requirements in Subdivision 615-B are satisfied.
Note 1: For paragraph (c), see section 124-20 if an exchanging member uses a share sale facility.
Note 2: After the completion of the scheme, later dealings between the interposed company and the original entity may be subject to the rules for consolidated groups (see Part 3-90).
(2) You are taken to have chosen to obtain the roll-over if:
(a) immediately before the completion time (see section 615-15), the original entity is the *head company of a *consolidated group; and
(b) immediately after the completion time, the interposed company is the head company of the group.
Note: The consolidated group continues in existence because of section 703-70.
615-10 Redeeming or cancelling interests in one entity for shares in a company
(1) You can choose to obtain a roll-over if you are a *member of a company or a unit trust (the original entity ), and under a *scheme for reorganising its affairs:
(a) a company (the interposed company ) *acquires no more than 5 *shares or units in the original entity; and
(b) these are the first shares or units that the interposed company acquires in the original entity; and
(c) you and at least one other entity (the exchanging members ) own all the remaining shares or units in the original entity; and
(d) those remaining shares or units are redeemed or cancelled; and
(e) each exchanging member receives shares (and nothing else) in the interposed company in return for their shares or units in the original entity being redeemed or cancelled;
and the requirements in Subdivision 615-B are satisfied.
Note: For paragraph (e), see section 124-20 if an exchanging member uses a share sale facility.
(2) You are taken to have chosen to obtain the roll-over if:
(a) immediately before the completion time (see section 615-15), the original entity is the *head company of a *consolidated group; and
(b) immediately after the completion time, the interposed company is the head company of the group.
Note: The consolidated group continues in existence because of section 703-70.
(3) The original entity, or its trustee if it is a unit trust, can issue other *shares or units to the interposed company as part of the *scheme.
Note: Some of the interposed company's shares or units in the original entity may be taken to be acquired before 20 September 1985: see section 615-65.
Subdivision 615-B - Further requirements for choosing to obtain roll-overs
Table of sections
615-15 Interposed company must own all the original interests
615-20 Requirements relating to your interests in the original entity
615-25 Requirements relating to the interposed company
615-30 Interposed company must make a particular choice
615-35 ADI restructures - disregard certain preference shares
615-15 Interposed company must own all the original interests
The interposed company must own all the *shares or units in the original entity immediately after the time (the completion time ) all the exchanging members have had their shares or units in the original entity disposed of, redeemed or cancelled under the *scheme.
615-20 Requirements relating to your interests in the original entity
(1) Immediately after the completion time, each exchanging member must own:
(a) a whole number of *shares in the interposed company; and
(b) a percentage of the shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares or units in the original entity that were:
(i) owned by the member; and
(ii) disposed of, redeemed or cancelled under the *scheme.
(2) The following ratios must be equal:
(a) the ratio of:
(i) the *market value of each exchanging member's *shares in the interposed company; to
(ii) the market value of the shares in the interposed company issued to all the exchanging members (worked out immediately after the completion time);
(b) the ratio of:
(i) the market value of that member's shares or units in the original entity that were disposed of, redeemed or cancelled under the *scheme; to
(ii) the market value of all the shares or units in the original entity that were disposed of, redeemed or cancelled under the scheme (worked out immediately before the first disposal, redemption or cancellation).
Example 1: There are 100 shares in A Pty Ltd (the original entity), all having the same rights. B Pty Ltd (the interposed company) acquires all the shares in A by issuing each shareholder in A 10 shares in itself for each share they have in A. All shares in B have the same rights. Bill owned 15 shares in A and received 150 shares in B in exchange.
Example 2: There are 1,000 units in the A unit trust (the original entity), all having the same rights. 2 new units in A are issued to B Pty Ltd (the interposed company), and all other units in A are cancelled. Each unitholder in A is issued 10 shares in B for each 100 units they have in A. All shares in B have the same rights. Alison owned 200 units in A and received 20 shares in B in exchange.
(3) Either:
(a) you are an Australian resident at the time your *shares or units in the original entity are disposed of, redeemed or cancelled under the *scheme; or
(b) if you are a foreign resident at that time:
(i) your shares or units in the original entity were *taxable Australian property immediately before that time; and
(ii) your shares in the interposed company are taxable Australian property immediately after the completion time.
615-25 Requirements relating to the interposed company
(1) The *shares issued in the interposed company must not be *redeemable shares.
(2) Each exchanging member who is issued *shares in the interposed company must own the shares from the time they are issued until at least the completion time.
(3) Immediately after the completion time:
(a) the exchanging members must own all the *shares in the interposed company; or
(b) entities other than those members must own no more than 5 shares in the interposed company, and the *market value of those shares expressed as a percentage of the market value of all the shares in the interposed company must be such that it is reasonable to treat the exchanging members as owning all the shares.
615-30 Interposed company must make a particular choice
(1) Unless subsection (2) applies, the interposed company must choose that section 615-65 applies.
(2) The interposed company must choose that a *consolidated group continues in existence at and after the completion time with the interposed company as its *head company, if:
(a) immediately before the completion time, the consolidated group consisted of the original entity as head company and one or more other members (the other group members ); and
(b) immediately after the completion time, the interposed company is the head company of a *consolidatable group consisting only of itself and the other group members.
Note: Sections 703-65 to 703-80 deal with the effects of the choice for the consolidated group.
(3) A choice under subsection (1) or (2) must be made:
(a) within 2 months after the completion time, if the choice is under subsection (1); or
(b) within 28 days after the completion time, if the choice is under subsection (2); or
(c) within such further time as the Commissioner allows.
The choice cannot be revoked.
(4) The way the interposed company prepares its *income tax returns is sufficient evidence of the making of the choice.
615-35 ADI restructures - disregard certain preference shares
For the purposes of this Division, disregard any *shares in the original entity that can be disregarded under subsection 703-37(4) if:
(a) the interposed company is a non-operating holding company within the meaning of the Financial Sector (Business Transfer and Group Restructure) Act 1999; and
(b) a restructure instrument under Part 4A of that Act is in force in relation to the interposed company; and
(c) because of the restructure to which the instrument relates, an *ADI becomes a subsidiary (within the meaning of that Act) of the interposed company; and
(d) the original entity is:
(i) the ADI; or
(ii) part of an extended licensed entity (within the meaning of the *prudential standards) that includes the ADI.
Subdivision 615-C - Consequences of roll-overs
Table of sections
615-40 CGT consequences
615-45 Additional consequences - deferral of profit or loss
615-50 Trading stock
615-55 Revenue assets
615-60 Disregard CGT exemption for trading stock
615-40 CGT consequences
The consequences set out in Subdivision 124-A also apply to a roll-over under this Division as if that roll-over were a roll-over covered by Division 124 (about replacement-asset roll-overs).
Note: Those consequences generally involve:
(a) disregarding a capital gain or capital loss you make from the disposal, redemption or cancellation of your shares or units in the original entity; and
(b) working out the first element of the cost base of each of your new shares in the interposed entity by reference to the cost bases of your shares or units in the original entity.
615-45 Additional consequences - deferral of profit or loss
The additional consequences in sections 615-50 and 615-55 apply if:
(a) under this Division:
(i) you are taken to have chosen to obtain the roll-over; or
(ii) you otherwise choose to obtain the roll-over; and
(b) if subparagraph (a)(ii) applies to you, you choose for these additional consequences to apply; and
(c) some or all of your *shares or units in the original entity at the time immediately before they were:
(i) disposed of as described in paragraph 615-5(1)(c); or
(ii) redeemed or cancelled as described in paragraph 615-10(1)(d);
had the character of being your *trading stock or *revenue assets; and
(d) the shares in the interposed company that you acquired in return for those shares or units have the same character.
Note 1: Apply this section separately for assets of each character.
Note 2: The CGT exemption for trading stock does not prevent you obtaining the roll-over (see section 615-60).
615-50 Trading stock
(1) The amount included in your assessable income because of the disposal, redemption or cancellation of each of your *shares or units described in paragraph 615-45(c) that was your *trading stock at the time mentioned in that paragraph is equal to:
(a) if the share or unit had been your trading stock ever since the start of the income year that included that time - the total of:
(i) its *value as trading stock at the start of the income year; and
(ii) the amount (if any) by which its cost had increased since the start of the income year; or
(b) otherwise - its cost at that time.
(2) For each of the *shares that you acquired as described in paragraph 615-45(d) that is your *trading stock, you are taken to have paid:
(3) For the purposes of Division 70 (about trading stock), you, the original entity and the interposed company are taken to have dealt with each other in the ordinary course of *business and at *arm's length for each of the transactions referred to in paragraph 615-5(1)(c) or 615-10(1)(d) or (e).
615-55 Revenue assets
(1) For each of your *shares or units that:
(a) is described in paragraph 615-45(c); and
(b) was a *revenue asset immediately before its disposal, redemption or cancellation;
your gross proceeds for that disposal, redemption or cancellation are taken to be the amount you would have needed to have received in order to have a nil profit and nil loss for that disposal, redemption or cancellation.
(2) For the purpose of calculating any profit or loss on a future disposal, cessation of ownership, or other realisation of a *share that:
(a) you acquired as described in paragraph 615-45(d); and
(b) is a *revenue asset;
you are taken to have paid the following for your acquisition of that share:
615-60 Disregard CGT exemption for trading stock
For the purposes of this Division, disregard section 118-25 (which gives a CGT exemption for trading stock).
Subdivision 615-D - Consequences for the interposed company
Table of sections
615-65 Consequences for the interposed company
615-65 Consequences for the interposed company
(1) This section applies if the interposed company so chooses under subsection 615-30(1).
(2) A number of the *shares or units that the interposed company owns in the original entity (immediately after the completion time) are taken to have been *acquired before 20 September 1985 if any of the original entity's assets as at the completion time were acquired by it before that day.
Note: Generally, a capital gain or capital loss you make from a CGT asset that you acquired before 20 September 1985 can be disregarded: see Division 104.
(3) That number (worked out as at the completion time) is the greatest possible whole number that (when expressed as a percentage of all the *shares or units) does not exceed:
(a) the *market value of the original entity's assets that it *acquired before 20 September 1985; less
(b) its liabilities (if any) in respect of those assets;
expressed as a percentage of the market value of all the original entity's assets less all of its liabilities.
(4) The first element of the *cost base of the interposed company's *shares or units in the original entity that are not taken to have been *acquired before 20 September 1985 is:
(a) the total of the cost bases (as at the completion time) of the original entity's assets that it acquired on or after that day; less
(b) its liabilities (if any) in respect of those assets.
The first element of the *reduced cost base of those shares or units is worked out similarly.
(5) A liability of the original entity that is not a liability in respect of a specific asset or assets of the original entity is taken to be a liability in respect of all the assets of the original entity.
Note: An example is a bank overdraft.
(6) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to: