Taxation Laws Amendment Act (No. 4) 2002 (53 of 2002)
Schedule 2 Trust to company roll-over
Part 1 Roll-over
Income Tax Assessment Act 1997
1 At the end of Division 124
Add:
Subdivision 124-N - Disposal of assets by a trust to a company
Guide to Subdivision 124-N
124-850 What this Subdivision is about
Entities can choose to obtain a roll-over if:
(a) a trust disposes of all of its assets to a company; and
(b) units and interests in the trust are replaced by shares in the company.
The roll-over may also be available for 2 or more trusts disposing of all their assets to a single company.
Note: The effect of the roll-over may be reversed if the trust does not cease to exist within 6 months: see section 104-195.
Table of sections
Operative provisions
124-855 What this Subdivision deals with
124-860 Requirements for roll-over
124-865 Entities both choose the roll-over
124-870 Roll-over for owner of units or interests in a trust
124-875 Effect on the transferor and transferee
[This is the end of the Guide.]
Operative provisions
124-855 What this Subdivision deals with
(1) A roll-over may be available for a restructuring (a trust restructure ) if:
(a) a trust, or 2 or more trusts, (the transferor ) *dispose of all of their *CGT assets to a company limited by *shares (the transferee ); and
(b) *CGT event E4 is capable of applying to all of the units and interests in the transferor; and
(c) the requirements in section 124-860 are met.
Note: A roll-over is not available for a restructure undertaken by a discretionary trust.
(2) For 2 or more transferors, units and interests in each transferor must be owned in the same proportions by the same beneficiaries.
Example: Matthew and Jaclyn each own 50% of the units in the Spring Unit Trust and the Dale Unit trust. All of the assets of both trusts are disposed of to Jonathon Pty Ltd. A roll-over for a trust restructure is available if the other requirements of this Subdivision are met.
124-860 Requirements for roll-over
(1) All of the *CGT assets owned by the transferor must be disposed of to the transferee during the *trust restructuring period. However, ignore any CGT assets retained by the transferor to pay existing or expected debts of the transferor.
(2) The trust restructuring period for a trust restructure:
(a) starts just before the first *CGT asset is *disposed of to the transferee under the trust restructure, which must happen on or after 11 November 1999; and
(b) ends when the last CGT asset of the transferor is disposed of to the transferee.
(3) The transferee must not be an *exempt entity.
(4) The transferee must be a company that:
(a) has never carried on commercial activities; and
(b) has no *CGT assets other than small amounts of cash or debt; and
(c) has no losses of any kind.
Example: It could be a shelf company.
(5) Subsection (4) does not apply to a transferee that is the trustee of the transferor.
(6) Just after the end of the *trust restructuring period:
(a) each entity that owned interests in a transferor just before the start of the trust restructuring period must own replacement interests in the transferee in the same proportion as it owned those interests in that transferor; and
(b) the *market value of the replacement interests each of those entities owns in the transferee must be at least substantially the same as the market value of the interests it owned in the transferor or transferors just before the start of the trust restructuring period.
Note: Any assets in the company just before the start of the trust restructuring period may affect the ability of owners of units or interests to comply with paragraph (6)(b).
(7) For the purposes of subsection (6), ignore any *shares in the transferee that:
(a) just before the start of the *trust restructuring period, were owned by entities who together owned no more than 5 shares; and
(b) just after the end of that period, represented such a low percentage of the total market value of all the shares that it is reasonable to treat other entities as if they owned all the shares in the transferee.
Example: To continue the example in subsection 124-855(2), assume that Jonathon Pty Ltd was a shelf company organised for Matthew and Jaclyn by their solicitor, Indira.
Indira owned the 2 shares in Jonathon Pty Ltd before the trust restructuring period. The company issues Matthew and Jaclyn 5,000 shares each.
In these circumstances, it is reasonable to treat Matthew and Jaclyn as if they owned all the shares in Jonathon Pty Ltd.
(8) The transferee must be an Australian resident.
124-865 Entities both choose the roll-over
A roll-over is only available for the transferor and transferee if both the transferor and transferee choose to obtain it.
Note 1: If they do so, the consequences for the transferor and transferee are set out in section 124-875.
Note 2: An entity that owns a unit or interest in the transferor can also choose to obtain a roll-over: see section 124-870.
124-870 Roll-over for owner of units or interests in a trust
(1) You can choose to obtain a roll-over (whether or not the transferor and transferee choose to obtain a roll-over, and even if *CGT event J4 applies) if:
(a) you own units or interests in the transferor (your original interests ); and
(b) the ownership of all your units or interests ends under a trust restructure in exchange for *shares in the transferee (your replacement interests ).
Note 1: The roll-over consequences are set out in Subdivision 124-A. The original assets are your units and interests in the transferor. The new assets are your shares in the transferee.
Note 2: The effect of the roll-over may be reversed if the transferor does not cease to exist within 6 months: see section 104-195.
(2) You must make the choice for each of your original interests.
(3) An entity that is not an Australian resident cannot choose a roll-over under this section unless the replacement interests the entity *acquires in the transferee have the *necessary connection with Australia just after their acquisition.
(4) If you choose a roll-over, you cannot make a *capital loss from a *CGT event that happens to your original interests during the *trust restructuring period.
Note: The rule in subsection (4) prevents a capital loss arising on your units or interests after the trust assets have been disposed of to the company ut before your shares are issued to you.
Exception: trading stock
(5) This section does not apply to your ownership of an original interest ending if:
(a) the interest was an item of your *trading stock and the corresponding replacement interest becomes an item of your trading stock when you *acquire it; or
(b) the interest was not an item of your trading stock but the corresponding replacement interest becomes an item of your trading stock when you acquire it.
124-875 Effect on the transferor and transferee
Capital gains and losses disregarded
(1) Any *capital gain or *capital loss from *CGT event A1 happening to the transferor under the trust restructure is disregarded (even if *CGT event J4 applies).
Note: The effect of the roll-over may be reversed if the transferor does not cease to exist within 6 months: see section 104-195.
Cost base is transferred
(2) The first element of the *cost base and *reduced cost base (for the transferee) of each *CGT asset that the transferee *acquires under the trust restructure is the same as the cost base and reduced cost base of that asset (for the transferor) just before that acquisition.
Note: For the cost base and reduced cost base of interests in the transferee: see Subdivision 124-A.
Pre-CGT assets retain their status
(3) If the transferor *acquired any of the *CGT assets *disposed of to the transferee under the trust restructure before 20 September 1985, the transferee is taken to have acquired it before that day.
(4) However, subsection (3) is taken never to have applied to such an asset of the transferee if subsection 104-195(4) (CGT event J4) applies to the transferee in relation to the asset.
Exception: trading stock
(5) This section does not apply to a *CGT asset if:
(a) the asset was an item of *trading stock of the transferor and becomes an item of trading stock of the transferee; or
(b) the asset was not an item of trading stock of the transferor but becomes an item of trading stock of the transferee when the transferee *acquires it.