Private ruling: Proposed internal reorganisation
Published: March 2015

Ruling: A6: No

Relevant facts and circumstances: Australia Company is a wholly owned subsidiary company of Foreign Company and is a tax resident of Australia. Australia Company acquired all of the shares in Holding Co. Holding Co is an Australian resident company. Proposed internal reorganisation The proposed internal reorganisation and subsequent distribution would consist of the following steps: Step 1 • Australia Company will elect to form an income tax consolidated group Step 2 Holding Co (as a subsidiary member of the Australia Company Group) will dispose of all of its interests in the SubCo to Foreign Company at market value. Step 3 Holding Co will make a distribution to Australia Company. On the basis that Holding Co and Australia Company are both members of the same income tax consolidated group, this step should have no Australian income tax consequences. Step 4 Australia Company will make a distribution to its shareholder, Foreign Company: • The proposed distribution is to be accounted for by Australia Company as a debit against the amount standing to the credit of its share capital account and a credit to the promissory note owed by Foreign Company. • The total amount of the distribution is proposed to be debited against the share capital account. • Since its incorporation, Australia Company has not made any distributions. • The share capital account of Australia Company is not a tainted share capital account.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 768-505(1) | Income Tax Assessment Act 1997 subsection 768-520(1) | Income Tax Assessment Act 1997 subparagraph 768-540(1)(b)(i) | Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1936 subsection 44(1) | Income Tax Assessment Act 1936 Part IVA

Reasons for decision: Detailed Reasoning - Question A1 to A7: The Applicant satisfied all of the requisite requirements of the relevant legislative provisions for the purposes of answering questions A1 to A7 of the ruling application. | Detailed Reasoning - Question B1: The requirements of a 'distribution' under subsection 6(1) of the ITAA 1936 were not satisfied. | Detailed Reasoning - Question B2: The Applicant failed to meet all of the relevant requirements of section 45B of the ITAA 1936. | Detailed Reasoning - Question C1: The proposed scheme did not meet all of the requirements of Part IVA of the ITAA 1936.

Will the disposal of the SubCo shares by the Australian Company income tax consolidated group satisfy the preconditions in subsection 768-505(1) of the ITAA 1997? | Question A3: Is the exploration for minerals considered to be a 'business' within the meaning of subparagraph 768-540(1)(b)(i) of the ITAA 1997? | Question A4: Will the active foreign business asset percentage of SubCo as determined under the method statement in subsection 768-520(1) of the ITAA 1997 be 100%? | Will any part of the distribution made by Australian Company to the Foreign Company be treated as a dividend within the meaning of section 6(1) of the ITAA 1936? | Will the Commissioner seek to make a determination under section 45B of the ITAA 1936 that section 45C of the ITAA 1936 applies? | Will the Commissioner seek to apply Part IVA of the ITAA 1936 in relation to the scheme?