ATO ID 2004/886: Financial Sector (Business Transfer and Group Restructure) Act 1999: transfer of revenue assets
Date of decision: 26 February 2004
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Where a credit union business is voluntarily transferred to another eligible credit union business, pursuant to the provisions of the under the Financial Sector (Business Transfer and Group Restructure) Act 1999 (FSBTGR Act) what are the acquisition costs the receiving body is taken to have incurred in respect of revenue assets at the effective date of transfer, for the purposes of Division 977 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
The receiving body is taken to have incurred acquisition costs in respect of revenue assets at the effective date of transfer, for the purposes of Division 977 of the ITAA 1997, equal to the amount of debt owing on securities at the effective date of transfer.

Facts
Entity A, the transferring body, has transferred its business to Entity B, the receiving body, in accordance with the FSBTGR Act. Both entities are authorised deposit-taking institutions for the purposes of the Banking Act 1959. The parties satisfied all of the relevant procedural and substantive provisions determined by the Australian Prudential Regulation Authority (APRA), including preparation of a statement under section 20 of the FSBTGR Act (section 20 statement). The section 20 statement provided that the consequences for parties of the transfer of assets and liabilities under the FSBTGR Act are taken to be the same as if the transfer involved a sale of the assets of the transferring body to the receiving body. APRA approved the transfer of business and issued a certificate of transfer pursuant to section 18 of the FSBTGR Act.

Reasons for decision
Summary: The FSBTGR Act was enacted to enhance stability in the Australian financial sector by facilitating the merging of eligible entities and otherwise unviable institutions. Under this Act, APRA, in approving the transfer, is required to have regard to the interests of the members of such entities and the financial sector as a whole. The FSBTGR Act empowers APRA to approve, and in some circumstances to compel amalgamations of eligible entities for the purpose of enhancement of the Australian financial sector. For practical purposes, the aim of the FSBTGR Act is to enable APRA to provide certainty that an endorsed transfer is effective at law to ensure that the rights and liabilities of the transferring entity survive in the new entity. This certainty is achieved by APRA issuing a certificate of transfer pursuant to section 18 of the FSBTGR Act stating that the transfer is to take effect on the date specified. Broadly, section 22 of the FSBTGR Act provides that when APRA issues a certificate of transfer, the receiving body becomes the successor in law of the transferring body. In particular, all the assets and liabilities of the transferring body become assets and liabilities of the receiving body without any additional formality. Further, the totality of duties, obligations, immunities, rights and privileges applying to the transferring body apply to the receiving body. Subject to the relevant circumstances of each case of voluntary total transfer of business sanctioned under the FSBTGR Act the Commissioner will aim to administer the tax law in such a way that it complements the operation of the FSBTGR Act and promotes stated objectives of the legislation. In practice this will be accomplished by adopting adjustments on the basis of acceptable valuations.

Legislative references: Income Tax Assessment Act 1997 Division 977
Subject references: Acquisition of business Revenue assets