ATO ID 2003/177: Capital gains tax: scrip for scrip roll-over - arrangement on substantially the same terms
Date of decision: 9 December 2002
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Does an arrangement satisfy the requirement in paragraph 124-780(2)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) that participation in it be on 'substantially the same terms for all owners of interests of a particular type' if different offers are made to separate classes of shareholders?

Decision
Yes. The arrangement will satisfy the requirement in paragraph 124-780(2)(c) of the ITAA 1997 providing the offer to shareholders within each class of share is on substantially the same terms.

Facts
A company made a takeover offer in relation to all of the shares in Company X. The issued share capital of Company X consists of 2 classes of shares. The holders of one class of share have no special rights to participate in the profits of Company X. The holders of the other class of share have special rights that allow priority participation in the profits of the non-core business of Company X. Because of the different rights attaching to the shares in each class, the takeover offer that has been made to each class of shareholders is different.

Reasons for decision
Summary: One of the conditions that has to be satisfied for a shareholder to qualify for scrip for scrip roll-over under Subdivision 124-M of the ITAA 1997 is that participation in the scrip for scrip arrangement must have been on substantially the same terms for all the owners of interests of a particular type in the original entity (paragraph 124-780(2)(c) of the ITAA 1997). In this case, the difference in the rights attaching to each class of share is sufficient for each class of share to be regarded as a different type of interest for the purposes of paragraph 124-780(2)(c) of the ITAA 1997. Accordingly, if each shareholder within each class of share is able to participate in the arrangement on substantially the same terms, the requirement in paragraph 124-780(2)(c) of the ITAA 1997 will be satisfied.

Legislative references: Income Tax Assessment Act 1997 Subdivision 124-M paragraph 124-780(2)(c)
Subject references: Capital gains Tax Capital gains CGT roll-over relief Scrip for scrip roll-over