Private ruling: Unit trust leaves a consolidated group
Published: December 2011




Reasons for decision: Summary: The pre-CGT proportion of the membership interests in B Co, and in C Co, when they joined the consolidated group is 100%. All of the membership interests that New Trust holds in B Co and C Co will, therefore, be pre-CGT membership interests when they leave the consolidated group and are transferred to Trust 1, subject to the integrity rules contained in sections 711-70 and 711-75 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: XYZ, as head company of the consolidated group, has chosen to apply the new rules (pre-CGT proportion rules) to preserve the pre-CGT status of the membership interests in B Co and C Co. Under those rules, the pre-CGT status of membership interests held in a joining entity is preserved by: · working out the proportion of pre-CGT membership interests in a joining entity, and · subject to integrity rules, attaching pre-CGT status to an equivalent proportion of membership interests when the entity leaves the group. When an entity joins a consolidated group the pre-CGT proportion of the membership interests is the market value of the pre-CGT membership interests held by members of the group divided by the market value of all of the membership interests held by members of the group (subsection 705-125(2) of the ITAA 1997). When B Co, and C Co, joined the A Co consolidated group all of the membership interests in each company were owned by A Co and were acquired by A Co prior to 20 September 1985, such that they are all pre-CGT membership interests. The pre-CGT proportion for both B Co and C Co is, therefore, 100%. When the joining entity is a trust, the membership interests taken into account are the units and interests in the trust (subsection 705-125(4) of the ITAA 1997). When New Trust joined the consolidated group none of the units in the trust were pre-CGT units. The pre-CGT proportion is therefore nil. When an entity leaves a consolidated group, the number of membership interests held by members of the group which are treated as pre-CGT assets is worked out using the following formula in subsection 711-65(4) of the ITAA 1997: Number of membership interests in the leaving entity held by members of the old group x Leaving entity's pre-CGT proportion When New Trust leaves the consolidated group the pre-CGT proportion is nil. Therefore, none of the units in New UT will be pre-CGT units. When B Co and C Co leave the consolidated group (when New Trust is disposed of by A Co) the pre-CGT proportion will be 100%. Therefore, all of the membership interests that New Trust holds in B Co and C Co will be pre-CGT membership interests when they leave the consolidated group and are transferred to Trust 1, subject to the integrity rules contained in sections 711-70 and 711-75 of the ITAA 1997.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Relevant facts: Trust 1 holds all of the shares in the head company of a consolidated group (A Co). | Two of A Co's wholly-owned companies (A Co and B Co) are subsidiary members of the consolidated group. | A Co acquired 100% of the shares in B Co and C Co before 20 September 1985. | It is proposed to restructure the corporate group. Under the restructure a new unit trust (New Trust) will be established by A Co. 100% of the units in New Trust will be held by A Co. New Trust will be a member of the A Co consolidated group. New Trust will be interposed between A Co, and B Co and C Co by A Co transferring the shares in B Co and C Co at their market value to New Trust in exchange for units in New Trust of the same value. | A Co will then transfer 100% of its units in New Trust to Trust 1 at the direction of its shareholder (Trust 1).