ATO ID 2003/913: Capital gains tax: Demergers - Chess Unit of Foreign Security (CUFS) issued under a demerger
Date of decision: 17 July 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Is a Chess Unit of Foreign Security (CUFS) an ownership interest in a company, for the purposes of the demerger provisions in Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. A CUFS is an ownership interest in a company, for the purposes of the demerger provisions in Division 125 of ITAA 1997.

Facts
A CUFS is a type of depositary interest developed by the Australian Stock Exchange to facilitate the transferring and holding of a foreign security. A CUFS is a unit of beneficial ownership in a foreign security. Legal title in the security is held by an Australian depositary entity on behalf of, and for the benefit of, the CUFS holder. In the demerger under consideration, the head entity was listed on the Australian Stock Exchange, but the demerged entity was a company listed on a foreign stock exchange. Shareholders in the head entity were not issued with shares in the demerged entity. Instead, they were issued with CUFS.

Reasons for decision
Summary: Paragraph 125-60(1)(a) of ITAA 1997 defines an ownership interest in a company as being either 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'. Under a demerger, a CUFS is created over a share in the demerged entity and issued to the shareholder in the head entity. The owner of a CUFS is absolutely entitled to the security covered by the CUFS. The consequences of dealing in the share in the demerged entity are attributed to the shareholder (section 106-50 of ITAA 1997). [Note: The treatment of a CUFS as an ownership interest is relevant to the maintenance of ownership test (subsection 125-70(2) of ITAA 1997) in the definition of a demerger (subsection 125-70(1) of ITAA 1997).]

Legislative references: Income Tax Assessment Act 1997 section 106-50 Division 125 paragraph 125-60(1)(a) subsection 125-70(1) subsection 125-70(2)
Subject references: Capital gains tax CGT assets Demerger Demerger roll-over