ATO ID 2012/56: CGT Roll-Over Relief: same wholly-owned group
Date of decision: 28 March 2012
Year of income: Year ended 30 June 2012
Business line: Public Groups and International

Issue
Does a 'legal merger' of two companies that are members of the same wholly-owned group carried out under the law of a foreign country prevent those companies from choosing roll-over under paragraph 126-55(1)(b) of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that the transferor company (the originating company) ceases to exist at the time required by subsection 126-50(1) of the ITAA 1997?

Decision
No. Both companies are considered to still be members of the same wholly-owned group at the time that the CGT event happened to the originating company. Therefore, the originating company and the company to which the asset was transferred (the recipient company) can choose under paragraph 126-55(1)(b) of the ITAA 1997 to obtain roll-over under Subdivision 126-B of the ITAA 1997.

Facts
Holding Company is a listed foreign public company, which owns 100 per cent of the share capital in the originating company and the recipient company. Both the originating and recipient companies are non-resident companies. The originating company owns 100 per cent of the share capital in two companies incorporated and resident in Australia. A 'legal merger' is to be carried out between the originating and recipient companies in accordance with a foreign country's Civil Code. The legal effect of the merger is as follows:

Reasons for decision
Summary: Subdivision 126-B of the ITAA 1997 provides for roll-over for asset transfers between two companies that are members of the same wholly-owned group of companies where one or both companies are non-residents. Where both the originating company and the recipient company are non-residents, the asset for which roll-over is sought must be taxable Australia property as defined in section 855-15 of the ITAA 1997 just before and just after the CGT event happens to the asset (subsection 126-50(5) of the ITAA 1997). Subsection 126-50(1) of the ITAA 1997 requires that both the originating and recipient companies must be members of the same wholly-owned group at the time that the CGT event happens to the originating company. Even though the originating company will immediately cease to exist following and consequent upon the legal merger process, it is considered that only after the shares have been transferred does the recipient company 'step into the shoes of the originating company'. Accordingly, it is considered that the originating company and the recipient company continue to be members of the same wholly-owned group of companies at the time of the disposal of the shares in the Australian companies. It is considered that the 'legal merger' carried out between the originating company and the recipient company does not prevent them from both choosing roll-over under paragraph 126-55(1)(b) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 Subdivision 126-B section 126-45 subsection 126-50(1) subsection 126-50(5) paragraph 126-55(1)(b) section 855-15
Subject references: Capital gains tax CGT roll-over relief Capital Gains Tax CoE