Private ruling: Income Tax: Capital Gains Tax -Roll-over relief
Published: March 2014
Ruling period: xxxx
Date scheme commenced: xxxx

Ruling: Q1: Is G Trust eligible to choose replacement asset roll-over relief under Subdivision 124-G of the Income Tax Assessment Act 1997 (ITAA 1997) for its shares received in Z Group Pty Ltd in exchange for its shares in X Pty Ltd? | A1: Yes | Q2: Will the Commissioner make a determination under subsection 45B(3) of the Income Tax Assessment Act 1936 (ITAA 1936) that section 45C of the ITAA 1936 applies when G Trust exchange shares in Z Group Pty Ltd at the market value of shares in X Pty Ltd? | A2: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. D Pty Ltd as trustee for G Trust is a shareholder of X Pty Ltd and Y Pty Ltd. X Pty Ltd is a company incorporated in Australia. Y Pty Ltd is a company incorporated in Australia. All the shareholders of X Pty Ltd and Y Pty Ltd, including D Pty Ltd, will enter into an arrangement that involves the internal restructure of the companies. Under the arrangement, a new holding company, Z Group Pty Ltd will be set up. The shareholders of X Pty Ltd and Y Pty Ltd will then exchange all their shares for Z Group Pty Ltd shares, and the two companies will become 100% subsidiaries of Z Group Pty Ltd. The arrangement The arrangement involves two steps: (a) disposal of the X Pty Ltd shares to Z Group Pty Ltd by D Pty Ltd, in exchange for shares issued by Z Group Pty Ltd - roll-over relief under Subdivision 124-G of the ITAA 1997 (exchange of shares in one company for shares in another company) is applied on this transaction; and (b) disposal of the Y Pty Ltd shares to Z Group Pty Ltd by D Pty Ltd in exchange for shares issued by Z Group Pty Ltd - roll-over relief Subdivision 124-M of the ITAA 1997 (scrip for scrip) is applied on this transaction. D Pty Ltd is a resident of Australia within the meaning of subsection 6(1) of ITAA 1936 at the time the arrangement is undertaken. Further, it is not a 'temporary resident' of Australia within the meaning of section 995-1 of the ITAA 1997. D Pty Ltd. holds its shares in X Pty Ltd and Y Pty Ltd on capital account. As part of the arrangement, D Pty Ltd will dispose of all its shares in X Pty Ltd and Y Pty Ltd in exchange for Z Group Pty Ltd shares. The shares D Pty Ltd receives in Z Group Pty Ltd will equal to the market value of its shares in X Pty Ltd and Y Pty Ltd. As both companies are not owned by D Pty Ltd in the same proportion, a valuation is required to determine the interest that D Pty Ltd receives in Z Group Pty Ltd in exchange for their original shares in X Pty Ltd and Y Pty Ltd. D Pty Ltd is not a 'significant stakeholder' or 'common stakeholder' within the meaning of those expressions in Subdivision 124-M of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 45B | Income Tax Assessment Act 1936 subsection 45B(2) | Income Tax Assessment Act 1936 paragraph 45B(2)(a) | Income Tax Assessment Act 1936 paragraph 45B(2)(b) | Income Tax Assessment Act 1936 paragraph 45B(2)(c) | Income Tax Assessment Act 1936 paragraph 45B(5)(a) | Income Tax Assessment Act 1936 subsection 45B(3) | Income Tax Assessment Act 1936 subsection 45B(8) | Income Tax Assessment Act 1936 subsection 45B(9) | Income Tax Assessment Act 1936 section 45C | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 Division 110 | Income Tax Assessment Act 1997 section 115-25 | Income Tax Assessment Act 1997 section 116-20 | Income Tax Assessment Act 1997 Subdivision 124-A | Income Tax Assessment Act 1997 section 124-10 | Income Tax Assessment Act 1997 section 124 -15 | Income Tax Assessment Act 1997 Subdivision 124 - G | Income Tax Assessment Act 1997 section 124 - 360 | Income Tax Assessment Act 1997 section 124 - 365 | Income Tax Assessment Act 1997 Subdivision 124 - M | Income Tax Assessment Act 1997 section 124-780 | Income Tax Assessment Act 1997 section 124 -782 | Income Tax Assessment Act 1997 section 124 -783 | Income Tax Assessment Act 1997 section 124 -784A | Income Tax Assessment Act 1997 subsection 124 -784 B(2) | Income Tax Assessment Act 1997 section 124 -785 | Income Tax Assessment Act 1997 section 124 -790 | Income Tax Assessment Act 1997 section 124 -795 Anti-avoidance rules | Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

Reasons for decision: Summary: As the proposed restructure meets the requirements of Subdivision 124-G of the ITAA 1997, the original interest holders in X Pty Ltd can choose roll-over relief under Subdivision 124-G of the ITAA 1997. CGT event A1 in subsection 104-10(1) of the ITAA 1997 will happen when D Pty Ltd disposes of its shares in X Pty Ltd in exchange for shares in Z Group Pty Ltd. D Pty Ltd is eligible to choose CGT roll-over under Subdivision 124-G of the ITAA 1997 because of the disposal of X Pty Ltd shares in exchange for Z Group Pty Ltd shares. | Detailed Reasoning - Detailed Reasoning: CGT event A1 CGT event A1 in section 104-10 will happen when D Pty Ltd disposes its X Pty Ltd shares in exchange for Z Group Pty Ltd shares. Division 124 roll-over A roll -over relief may be available under Division 124 of the ITAA 1997 when a taxpayer who owns a CGT asset gives up, or surrenders that asset, or the taxpayer's ownership of the asset comes to an end in some other way, and as part of the same transaction or circumstances the taxpayer receives another CGT asset to replace the original asset. If a roll-over is available, the effect is to defer to a later CGT event any capital gain or loss which would otherwise be triggered by the event which brings the taxpayer's ownership of the original asset to an end. Sections 124-10 and 124-15 of the ITAA 1997 set out the general rules for replacement asset roll-overs. If a taxpayer chooses to apply a roll-over, the capital gain or capital loss from the original asset(s) is disregarded: subsections 124-10(2) and 124-15(2) of the ITAA 1997. In this case when D Pty Ltd disposes it shares in X Pty Ltd to Z Group Pty Ltd, D Pty Ltd's ownership of shares in X Pty Ltd will end and the capital gain or capital loss that D Pty Ltd will make under subsection 104-10(4) of the ITAA 1997 will be disregarded. Subdivision 124-G - Exchange of shares in one company for shares in another company A taxpayer who is a shareholder in a company (the original company) can choose to obtain a roll - over when the company reorganises its affairs. The taxpayer will be eligible for roll-over relief if: • the taxpayer and all other shareholders in the company dispose of all their shares to a second company (the "interposed company") in exchange for shares in that second company; and • the conditions in section 124-365 of the ITAA 1997 are satisfied. The requirements of section 124-365 of the ITAA 1997 are as follows: • the interposed company owns all of the shares in the original company when the exchanging members have disposed of their shares (the completion time) • at that time, each exchanging member now owns a whole number of shares in the interposed company in the same percentage as that member owned in the original company • the ratio of the market value of each exchanging member's shareholding in the interposed company to the total market value of shares in that company must be the same as the ratio of the market value of that member's shareholding in the original company to the total market value of the shares in the original company; and • the taxpayer must be an Australian resident at the time the shares in the original company are disposed of or if not, the shares in the original company must be "taxable Australian property" just before that time and the share in the interposed company must be "taxable Australian property" just after the completion time. Outcome of the proposed scheme In this case the facts indicate that all the shareholders of X Pty Ltd (the original company) will dispose of their shares to Z Group Pty Ltd (the interposed company), and the consideration for the disposal of X Pty Ltd shares will consist of receiving Z Group Pty Ltd shares and nothing else. Just after the completion time, Z Group Pty Ltd will own 100% of the shares in X Pty Ltd, and all the X Pty Ltd shareholders (exchanging members) will own all the shares in Z Group Pty Ltd. The following conditions will be satisfied: • Just after the completion time, each of the X Pty Ltd shareholders, including D Pty Ltd, will own a whole number of Z Group Pty Ltd shares in the same percentage as it owned in X Pty Ltd. • Just after the completion time, each of the X Pty Ltd shareholders, including D Pty Ltd, will own a percentage of Z Group Pty Ltd shares that were issued to all the X Pty Ltd shareholders that will equal to the percentage of the X Pty Ltd shares that the shareholder owned. • The ratio of the market value of each X Pty Ltd shareholder's Z Group Pty Ltd shares to the market value of Z Group Pty Ltd shares issued to all the X Pty Ltd shareholders (worked out just after the completion time), will equal the ratio of the market value of that shareholder's X Pty Ltd shares that were disposed of to Z Group Pty Ltd to the market value of all the shares in X Pty Ltd that were disposed of to Z Group Pty Ltd (worked out just before the first disposal). • The shares issued on Z Group Pty Ltd will not be redeemable shares. • Just after the completion time, the exchanging shareholders (including D Pty Ltd) will own all the shares in Z Group Pty Ltd. • D Pty Ltd is an Australian resident at the time it disposed of its X Pty Ltd shares. It is considered that the proposed scheme will meet the requirements of sections 124-360, 124-365 and 124-380 of the ITAA 1997. Therefore D Pty Ltd will be able to choose the roll-over relief provided for in Subdivision 124-G of the ITAA 1997. Consequences of Roll-over The facts indicate that D Pty Ltd did not hold any shares as revenue assets or as trading stock. The consequences of the roll-over relief under Subdivision 124-G of the ITAA 1997 for the participating shareholders who hold their X Pty Ltd shares as capital assets will be as follows: (i) any capital gain or capital loss that is made on the disposal of X Pty Ltd shares under the exchange is disregarded pursuant to subsection 124-10(2) of the ITAA 1997; and (ii) where the X Pty Ltd shareholder acquired the X Pty Ltd share(s) on or after 20 September 1985: n the first element of the cost base/reduced cost base for each Z Group Pty Ltd share acquired under the exchange is equal to the cost base of each corresponding X Pty Ltd share disposed of under the exchange pursuant to subsection 124-10(3) of the ITAA 1997 . In this case X Pty Ltd incorporated on after 20 September 1985. Therefore, D Pty Ltd acquired the shares after 20 September 1985 (Post CGT). Cost base of the new shares in Z Group Pty Ltd The first element of the cost base (subsection 110-25(2) of the ITAA 1997) of the new shares acquired on or after 20 September 1985 (post -CGT), is worked out according to the following formula: The total of the cost bases of all the original assets that you acquired on or after 20 September 1985 (worked out when your ownership of them ended) Number of remaining new assets The first element of the reduced cost base (subsection 110-35(2) of the ITAA 1997) of each new share is worked out in the same way under subsection 124-15(3) of the ITAA 1997. Discount capital Gain Subsection 115-25(1) of the ITAA 1997 states that a capital gain can only be a discount capital gain where the asset which gave rise to the capital gain was acquired at least 12 months before the relevant CGT event. Table item 2 in subsection 115-30(1) of the ITAA 1997 treats a replacement asset, acquired in a replacement-asset rollover, as having been acquired at the time the original asset was acquired. Accordingly, the trust will be eligible for discount capital gain provided that the trust acquired the X Pty Ltd shares at least 12 months before the CGT event happens to the Z Group Pty Ltd shares which the trust will exchange for the X Pty Ltd shares as per the proposed restructure. | Summary: The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefit received by any of the X Pty Ltd shareholders, including D Pty Ltd in exchange for Z Group Pty Ltd shares under Subdivision 124-G of the ITAA 1997 roll-over relief. | Detailed Reasoning - Detailed reasoning: Section 45B of the ITAA 1936 applies where certain capital payments are paid to shareholders in substitution for dividends. In broad terms, section 45B of the ITAA 1936 applies where: n there is a scheme under which a person is provided with a capital benefit by a company (paragraph 45B(2)(a) of the ITAA 1936); n under the scheme, a taxpayer, who may or may not be the person provided with the capital benefit, obtains a tax benefit (paragraph 45B(2)(b) of the ITAA 1936); and n having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose), of enabling a taxpayer to obtain a tax benefit (paragraph 45B (2)(c) of the ITAA 1936). Under the present scheme, each of X Pty Ltd shareholders, including D Pty Ltd, will receive Z Group Pty Ltd shares which will constitute the provision of a capital benefit. If the amount of tax payable by a participating shareholder would be payable at a later time (as a result of the roll-over under subdivision 124-G of the ITAA 1997) than it would be payable if the capital benefit had been a dividend, then the participating shareholder will obtain a tax benefit in accordance with paragraph 45B(2)(b) of the ITAA 1936. A further requirement of subsection 45B(2) of the ITAA 1936 is that a taxpayer (the relevant taxpayer) must obtain a tax benefit, as defined in subsection 45B(9) of the ITAA 1936. Shareholders would obtain a tax benefit, within the meaning of subsection 45B(9) of the ITAA 1936, as the amount of tax payable from the treatment of a return of capital distribution under the capital gains and losses provisions would, apart from the operation of 45B, be less than the amount that would be payable if the distribution had instead been a dividend. Subsection 45B(8) of the ITAA 1936 sets out circumstances that are relevant in determining whether, in relation to the scheme, any person has more than an incidental purpose of enabling a taxpayer to obtain a tax benefit. Having regard to the relevant circumstances of the scheme, it would not be concluded that the shareholders of X Pty Ltd will enter into or carry out the scheme into for more than an incidental purpose of enabling them to obtain a tax benefit. The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefit received by any of the X Pty Ltd shareholders, including D Pty Ltd in exchange for Z Group Pty Ltd shares under Subdivision 124-G of the ITAA 1997 roll-over relief. | Summary: CGT event A1 in subsection 104-10(1) of the ITAA 1997 will happen when D Pty Ltd disposes of its shares in Y Pty Ltd in exchange for shares in Z Group Pty Ltd on the implementation date of the arrangement. As the conditions in Subdivision 124-M of the ITAA 1997 will be satisfied, D Pty Ltd will be eligible to choose scrip for scrip roll-over relief under Subdivision 124-M of the ITAA 1997 for those Y Pty Ltd shares disposal. | Detailed Reasoning - Detailed Reasoning: CGT event A1 CGT event A1 in subsection 104-10(1) of the ITAA 1997 will happen when D Pty Ltd disposes its Y Pty Ltd shares in exchange for Z Group Pty Ltd shares. A taxpayer makes a capital gain from a CGT event A1 if the capital proceeds from the disposal are more than the assets cost base under subsection 104-10(5) of the ITAA 1997. The facts indicate that a capital gain will likely be made from the disposal of Y Pty Ltd share as the capital proceeds for each Y Pty Ltd share will be more than its cost base. Subdivision 124-M - Scrip for scrip roll-over In general, scrip for scrip roll-over enables a shareholder to disregard a capital gain from a share that is disposed of as part of a corporate takeover or merger if the shareholder receives a replacement share in the exchange. It also provides special rules for calculating the cost base and reduced cost base of the replacement share. Subdivision 124-M of the ITAA 1997 contains a number of conditions for, and exceptions to, a shareholder being eligible to choose scrip for scrip roll-over. The main conditions and exceptions that are relevant to the present arrangement are: n shares in a company are exchanged for shares in another company; n the exchange occurs as part of a single arrangement; n conditions for roll-over are satisfied; n further conditions are not applicable or are satisfied; and n exceptions to the availability of scrip for scrip roll-over are not applicable. Roll-over relief can only be chosen where a capital gain would have resulted from the exchange of the shares under subsection 124-780(3) of the ITAA 1997. This condition will be satisfied. Furthermore, roll-over relief will be available where: n a post-CGT share interest is exchanged for a share interest in another company; n the exchange is in consequence of a "single arrangement" that meets specified criteria; n the "replacement share interest" is in a specified replacement entity; and n roll-over is chosen and specific notice requirements fulfilled. Taxpayers must exchange their interests for similar interests in the acquiring company. In this case, the trust will exchange ordinary Y Pty Ltd shares for ordinary shares in Z Group Pty Ltd. Subsection 124-780(2) of the ITAA 1997 provides that the exchange of interests must arise under an arrangement in which all owners of voting shares in the original entity (apart from the acquiring company) could participate on substantially the same terms. In consequence of a single arrangement, the acquiring company must become the owner of at least 80% of the voting shares in the original company under paragraph 124-780(2) (a) of the ITAA 1997. The acquiring company may hold more than 80% of the shares in the original company before acquisition but, in such circumstances, must increase its percentage ownership of the original company as a result of the takeover offer. The replacement interest for shareholders of the original company must generally be shares in the acquiring company. The proposed arrangement provides that all entities registered as holders of a fully paid ordinary share in Y Pty Ltd are able to participate in this transaction. The new shares will have the same voting, dividend and capital rights as those of Y Pty Ltd and pursuant to restructure Z Group Pty Ltd will acquire 100% of the ordinary shares in Y Pty Ltd. Therefore, the conditions under subsection 124-780(2) of the ITAA 1997 will be satisfied. Paragraph 124-780(3)(c) of the ITAA 1997 requires that the replacement interest is in the acquiring entity or the ultimate holding company of the wholly owned group which includes the acquiring entity. This requirement will be satisfied as the shareholders of Y Pty Ltd will receive shares in Z Group Pty Ltd the acquiring entity. Paragraph 124-780(3)(d) of the ITAA 1997 requires that the original interest holder chooses the roll-over, or if section 124-782 of the ITAA 1997 applies, the original interest holder and the replacement entity jointly choose to obtain the roll-over. The facts indicate that there are no significant stakeholders or common stakeholders under the scheme. Therefore, section 124-782 of the ITAA 1997 does not apply for this scheme. Additional conditions must be satisfied in the following two situations in which the original interest holder and the acquiring entity did not deal with each other at arm's length under subsections 124-780(4) and (5) of the ITAA 1997: a the original entity and the acquiring entity had less than 300 members (for a company) or 300 beneficiaries (for a trust) immediately before the original interest were exchanged. Regardless of the actual number of members, a company will be treated as having less than 300 members if, broadly: b there is a 75% concentration of ownership of shares in the hands of up to 20 individuals. Ownership is determined by a number of criteria relating to entitlements to the company's income and capital and to the voting rights in the company. An individual, associates of the individual and nominees of the individual will be counted as one individual, or c the concentration of ownership referred to in (a) is, on an objective basis, capable of arising because of a range of possible eventualities including changes to rights attaching to any of the shares in the company, the conversion, cancellation, redemption or acquisition of those shares and the exercise by a person of any power or authority in relation to rights attaching to the shares. In these situations, roll-over will be available only where the following conditions are also satisfied: n the market value of the capital proceeds for the exchange must be at least substantially the same as the market value of the original interests; n the replacement interests obtained by the shareholders of the original entity must carry the same rights and obligations as those attached to the interests held in the original entity. In this case, all Y Pty Ltd shareholders, including D Pty Ltd, will be able to participate in the arrangement on substantially the same terms. The calculation of the cost base and reduced cost base of the shares Z Group Pty Ltd acquired in Y Pty Ltd will be based on the date of the transaction. Therefore, it will require market valuation to be determined at implementation date. If the market value of the capital proceeds for the exchange is at least substantially the same as the market value of its Y Pty Ltd shares, then this condition will be satisfied. Exceptions A roll-over is not available if, just before the disposal, the original interest holder is a foreign resident unless, just after the acquisition of the replacement interest, the replacement interest is taxable Australian property under subsection 124-795(1) of the ITAA 1997. Subsection 124-795(2) of the ITAA 1997 provides that the roll-over is not available if any capital gain the original interest holder might make from their replacement interest would be disregarded (except because of a roll-over), for example, if the shares are trading stock or if the original interest holder and the acquiring entity are members of the same wholly owned group just before the original interest holder stops owning their original interest and the acquiring entity is a foreign resident Subsection 124-795(3) of the ITAA 1997 provides that the roll-over is not available if a roll-over can be chosen under Division 122 or Subdivision 124-G of the ITAA 1997. In this case, the exceptions in section 124-795 of the ITAA 1997 will not be applicable. The following facts were provided: • Y Pty Ltd and Z Group Pty Ltd are both residents of Australia. • D Pty Ltd is also a resident of Australia for income tax purposes and the shares are not trading stock. • the circumstances of the scheme are such that a roll-over under Division 122 or Subdivision 124-G of the ITAA 1997 will not be available. Under the arrangement, all the requirements under Subdivision 124-M of the ITAA 1997 will be satisfied. Therefore, the trust will be eligible to elect scrip for scrip roll-over relief under Subdivision 124-M of the ITAA 1997 in relation to the disposal of its Y Pty Ltd shares for Z Group Pty Ltd shares. Consequences of choosing roll-over Scrip for scrip roll-over enables a shareholder to disregard all or part of a capital gain from a share that is disposed of as part of a corporate takeover or merger if the shareholder receives a replacement share in exchange. If the only capital proceeds the shareholder receives in respect of the disposal are replacement shares, and the requisite conditions are satisfied, the capital gain is disregarded completely (subsection 124-785(1) of the ITAA 1997). Under the proposed restructure, the Y Pty Ltd shareholders will receive only ordinary Z Group Pty Ltd shares for their Y Pty Ltd shares disposal (that is, no ineligible proceeds for the purposes of subsection 124-790(1) of the ITAA 1997 will be received). As a consequence, Y Pty Ltd shareholders, including D Pty Ltd, will be eligible to choose scrip for scrip roll-over. As a result of making that choice, they will disregard the entire amount of the capital gain made under CGT event A1 which will happen on the disposal of their Y Pty Ltd shares. Cost base For the acquiring entity, the cost base of the interests acquired will generally be determined under the ordinary cost base rules under Division 110 of the ITAA 1997. However, where the original holder is either a significant stakeholder or a common stakeholder for the arrangement the first element of the cost base of the interest acquired will be the original interest holder's cost base in that original interest under subsection 124-782(1) of the ITAA 1997). Similarly, there is a transfer of the cost base based on a reasonable allocation where there is a cancellation of the original interests under section 124-782 of the ITAA 1997. In this case the facts indicate that Y Pty Ltd has no significant stakeholders. Modification to the CGT cost base rules when an arrangement is taken to be a restructure Where an arrangement is taken to be a restructure, the cost base and reduced cost base of the qualifying interests acquired in the original entity are worked out by applying the method statement in subsection 124-784B(2) of the ITAA 1997. However, the modifications do not apply if the cost base and reduced cost base of the qualifying interests is worked out under section 124-782, because the common stakeholder rules in section 124-783 of the ITAA 1997 apply to the arrangement. If an arrangement is taken to be a restructure, the first element of the cost base and reduced cost base of the qualifying interests will be worked out at the completion time under the method statement in subsection 124-784B(2) of the ITAA 1997. Discount capital Gain Subsection 115-25(1) of the ITAA 1997 states that a capital gain can only be a discount capital gain where the asset which gave rise to the capital gain was acquired at least 12 months before the relevant CGT event. Table item 2 in subsection 115-30(1) of the ITAA 1997 treats a replacement asset, acquired in a replacement-asset rollover, as having been acquired at the time the original asset was acquired. Accordingly, the trust will be eligible for discount capital gain provided that the trust acquired the Y Pty Ltd shares at least 12 months before the CGT event happens to the Z Group Pty Ltd shares which the trust will exchange for the Y Pty Ltd shares as per the proposed restructure. | Summary: The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefit received by any of the Y Pty Ltd shareholders, including D Pty Ltd in exchange for Z Group Pty Ltd shares under Subdivision 124-M of the ITAA 1997 roll-over relief. | Detailed Reasoning - Detailed reasoning: As explained above in Issue 1, Question 2, section 45B of the ITAA 1936 applies where certain capital benefits are provided to shareholders in substitution for dividends. The provision applies where: n there is a scheme under which a person is provided with a capital benefit by a company (paragraph 45B(2)(a) of the ITAA 1936); n under the scheme a taxpayer, who may or may not be the person provided with the capital benefit, obtains a tax benefit (paragraph 45B(2)(b) of the ITAA 1936); and n having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, entered into the scheme for a purpose, other than an incidental purpose, of enabling a taxpayer to obtain a tax benefit (paragraph 45B(2)(c) of the ITAA 1936). In this case the exchange of Y Pty Ltd shares for consideration, being the issue of Z Group Pty Ltd shares is a 'scheme' for the purposes of paragraph 45B(2)(a) of the ITAA 1936. The issue of new Z Group Pty Ltd shares to Y Pty Ltd shareholders is a provision of a capital benefit pursuant to paragraph 45B(5)(a) of the ITAA 1936 as it is the provision of ownership interests in Z Group Pty Ltd to Y Pty Ltd shareholders. A shareholder 'obtains a tax benefit', as defined in subsection 45B(9) of the ITAA 1936, if: n the amount of tax payable; or n any other amount payable under the ITAA 1936 or the ITAA 1997, would, apart from the operation of section 45B of the ITAA 1936: n be less than the amount that would have been payable; or n be payable at a later time than it would have been payable, if the capital benefit instead had been a dividend. In the event that the consideration was a dividend rather than a capital benefit, it is likely that Australian resident Y Pty Ltd shareholders would have incurred a greater tax liability. Consequently, the receipt of the capital benefit will represent a tax benefit. Subsection 45B(8) of the ITAA 1936 sets out circumstances that are relevant in determining whether, in relation to the scheme, any person has more than an incidental purpose of enabling a taxpayer to obtain a tax benefit. Having regard to the relevant circumstances of the scheme, identified above, it is apparent that the tax benefits obtained by the shareholders of Y Pty Ltd from the provision of the capital benefits described above would be obtained as a mere incident of a scheme. Accordingly, it cannot be concluded objectively that the shareholders of Y Pty Ltd, Z Group Pty Ltd or any other person who entered into or carried out the scheme, did so for a more than incidental purpose of enabling Y Pty Ltd shareholders to obtain a tax benefit. Consequently, the Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefit received by any of the Y Pty Ltd shareholders, including D Pty Ltd in exchange for Z Group Pty Ltd shares under Subdivision 124-M of the ITAA 1997 roll-over relief.

Question 1: Is G Trust eligible to choose scrip for scrip roll-over relief under Subdivision 124-M of the ITAA 1997 for its shares in Z Group Pty Ltd in exchange for its shares in Y Pty Ltd? | Will the Commissioner make a determination under subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies when G exchange shares in Z Group Pty Ltd at the market value of shares in Y Pty Ltd?