Private ruling: CGT - division 615 roll-over
Date of advice: 16 August 2022
Published: November 2022

Ruling: Q1: Will the unit holders in the Unit Trust A be eligible to choose to obtain a roll-over under Division 615 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to the exchange of their units in the Unit Trust A for shares in XXXX? | A1: Yes. | Q2: Will the unit holders in the Unit Trust A disregard any capital gain made in relation to the transfer of their units in the Unit Trust A to XXXX pursuant to subsection 124-15(2) of the ITAA 1997? | A2: Yes. | Q3: Pursuant to subsection 124-15(3) of the ITAA 1997, will the first element of the cost base of each of the shares in XXXX issued to the unit holders in exchange for their units in the Unit Trust A be equal to the aggregate cost base of the Unit Trust A units transferred to XXXX, divided by the number of XXXX shares issued to the unit holders? | A3: Yes. Issue 2- Taxation of shareholders in Company B | Q4: Will the shareholders in Company B be eligible to choose to obtain a roll-over under Division 615 of the ITAA 1997 in relation to the cancellation of their shares in Company B in exchange for shares in XXXX? | A4: Yes. | Q5: Will the shareholders in Company B disregard any capital gain made in relation to the cancellation of their shares in Company B pursuant to subsection 124-15(2) of the ITAA 1997? | A5: Yes. | Q6: Pursuant to subsection 124-15(3) of the ITAA 1997, will the first element of the cost base of each of the shares in XXXX issued to the shareholders in exchange for the cancelled shares in Company B be equal to the aggregate cost base of the Company B shares cancelled, divided by the number of XXXX shares issued to the shareholders? | A6: Yes. Issue 2- Taxation of XXXX | Q7: Pursuant to subsection 615-65(4) of the ITAA 1997, will the first element of the cost base of each of the Unit Trust A units transferred to XXXX, in the hands of XXXX, equal the total of the cost bases of the Unit Trust A's assets as at the completion time less any liabilities in respect of those assets? | A7: Yes. | Q8: Pursuant to subsection 615-65(4) of the ITAA 1997, will the first element of the cost base of the Company B share issued to XXXX under the terms of the Share Restructure Agreement (for the purposes of paragraph 615-10(1)(a) of the ITAA 1997) equal the total of the cost bases of Company B's assets as at the completion time less any liabilities in respect of those assets? | A8: Yes. This private ruling applies for the following period: Income year ending 30 June 20YY

Relevant facts and circumstances: The Group is as an Australian leader in its field. The business of the Group, primarily undertaken by Company C, is expanding and turnover has increased over recent years. The Unit Trust A is a member of the Group and was established by deed in YYYY. The Unit Trust A owns all the shares in Company C, but does not trade or carry on a business. Company B was incorporated in 20YY and is a member of the Group. Company B does not trade or carry on a business and, until recently, owned redeemable preference shares in Company C. The Group is currently owned by X 'equity holders', each an Australian resident, holding interests in X separate entities in the Group: the Unit Trust A, its corporate trustee (XXXX), and Company B. The proportional interest held by each equity holder in the Unit Trust A and Company B is identical, and none of those interests are held as revenue assets or trading stock. The Group has proposed to move to a single equity holding entity, i.e. where the equity holders only hold interests in a single entity. It is further proposed that: • that single entity be newly established (with no history); • the Group align the operating entities under Company C to enable financial reporting of operations at one level; and • where possible, any entities that are not required be wound up to simplify the structure going forward. To that end: • In November 20YY: • Company C bought back the shares issued in it from Company B. As a consequence of that buy-back, Company C currently has a debt owing to Company B equal to the amount payable for their buy-back. Company B has no other assets or liabilities. • Unit Trust A transferred its shares in Company D to Company C so that Company D is now wholly-owned by Company C. • In DD MM YYYY, XXXX, an Australian resident company, was incorporated. A total of X ordinary shares were issued to the equity holders (equal to the number of units issued in the Unit Trust A). The shares issued to each equity holder reflect the proportion of units they hold in the Unit Trust A. The proposed restructure The Group is also proposing to take the following steps as part of its broader restructure - Step 1 (a) All/any loans between Unit Trust A and related entities will be settled and any entitlements owing to its unit holders will be paid as distributions. [1] The only asset held by Unit Trust A following this Step 1(a) will be its shareholding in Company C. (b) Pursuant to the terms of a Unit Transfer Agreement between each unit holder in Unit Trust A and XXXX, the unit holders will sell all of their units in the Unit Trust A to XXXX in exchange for the issue of the same number of ordinary shares in XXXX, issued to each unit holder in the same proportions that the units are held. Step 2 (a) Pursuant to the terms of a Share Restructure Agreement to be executed between each shareholder in Company B, XXXX and Company B - and immediately after the exchange set out in Step 1(b) - Company B will issue one ordinary share in itself to XXXX and, with the agreement of each of the current shareholders in Company B, cancel the remaining shares in Company B in exchange for the issue of a further X ordinary shares in XXXX, issued to each shareholder in the same proportions that the shares in Company B are held. (b) The loan provided by Company B to Company C (as a consequence of the share buy-back in DD MM YYYY) will be assumed by XXXX so that Company C will become indebted to XXXX (instead of Company B). At the conclusion of this Step 2, the total issued capital in XXXX will be XXX ordinary shares (i.e. X at incorporation; X under Step 1(b) and X under Step 2(a)). Step 3 (a) Within 90 days of Step 2, the 1 issued share held by XXXX in Company B will be cancelled and Company B will be wound up. (b) All the shares in XXXX will be transferred to XXXX for nominal value and it will retire as trustee of the Unit Trust A and be wound up. XXXX will become the trustee for the Unit Trust A. The following table (Table 1) sets out the various interests held by the equity holders: Table 1 Equity holder Number of interests in the entity Proportional interest in the entity based on market value Unit Trust A (<Step 1) Company B (<Step 2) XXXX (>Step 2) Unit Trust A (<Step 1) Company B (<Step 2) XXXX (>Steps1 & 2) Equity holder A A A A X% X% X% Equity holder B B B B X% X% X% Equity holder C C C C X% X% X% Equity holder D D D D X% X% X% Equity holder E E E E X% X% X% Equity holder F F F F X% X% X% Equity holder G G G G X% X% X% Equity holder H H H H X% X% X% Equity holder I I I I X% X% X% Equity holder J J J J X% X% X% Total X% X% X% Assumptions 1. For the purposes of Questions 2 and 3 in this ruling, all the unit holders in the Unit Trust A will choose to obtain the roll-over under section 615-5 of the ITAA 1997 if eligible to do so, and will do so within the required time. 2. For the purposes of Questions 5 and 6 in this ruling, all the shareholders in Company B will choose to obtain the roll-over under section 615-10 of the ITAA 1997 if eligible to do so, and will do so within the required time. 3. XXXX will choose that section 615-65 of the ITAA 1997 applies, for the purposes of subsection 615-30(1) of the ITAA 1997, and will make the choice within the required time stipulated under subsection 615-30(3) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1936 former section 160ZZPA | Income Tax Assessment Act 1936 former section 160ZZPB | Income Tax Assessment Act 1936 former section 160ZZPC | Income Tax Assessment Act 1936 former section 160ZZPD | Income Tax Assessment Act 1997 Division 124 | Income Tax Assessment Act 1997 Subdivision 124-A | Income Tax Assessment Act 1997 section 124-15 | Income Tax Assessment Act 1997 subsection 124-15(2) | Income Tax Assessment Act 1997 subsection 124-15(3) | Income Tax Assessment Act 1997 Division 125 | Income Tax Assessment Act 1997 Division 615 | Income Tax Assessment Act 1997 section 615-5 | Income Tax Assessment Act 1997 subsection 615-5(1) | Income Tax Assessment Act 1997 paragraph 615-5(1)(a) | Income Tax Assessment Act 1997 paragraph 615-5(1)(b) | Income Tax Assessment Act 1997 paragraph 615-5(1)(c) | Income Tax Assessment Act 1997 section 615-10 | Income Tax Assessment Act 1997 subsection 615-10(1) | Income Tax Assessment Act 1997 paragraph 615-10(1)(a) | Income Tax Assessment Act 1997 paragraph 615-10(1)(b) | Income Tax Assessment Act 1997 paragraph 615-10(1)(c) | Income Tax Assessment Act 1997 paragraph 615-10(1)(d) | Income Tax Assessment Act 1997 paragraph 615-10(1)(e) | Income Tax Assessment Act 1997 section 615-15 | Income Tax Assessment Act 1997 section 615-20 | Income Tax Assessment Act 1997 subsection 615-20(1) | Income Tax Assessment Act 1997 subsection 615-20(2) | Income Tax Assessment Act 1997 subsection 615-20(3) | Income Tax Assessment Act 1997 section 615-25 | Income Tax Assessment Act 1997 subsection 615-25(1) | Income Tax Assessment Act 1997 subsection 615-25(2) | Income Tax Assessment Act 1997 subsection 615-25(3) | Income Tax Assessment Act 1997 section 615-30 | Income Tax Assessment Act 1997 subsection 615-30(1) | Income Tax Assessment Act 1997 subsection 615-30(3) | Income Tax Assessment Act 1997 Subdivision 615-C | Income Tax Assessment Act 1997 section 615-40 | Income Tax Assessment Act 1997 Subdivision 615-D | Income Tax Assessment Act 1997 section 615-65 | Income Tax Assessment Act 1997 subsection 615-65(4) | Income Tax Assessment Act 1997 section 960-130 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: The unit holders in the Unit Trust A will be eligible to choose to obtain a roll-over under Division 615 in relation to the exchange of their units in the Unit Trust A for shares in XXXX because they meet all the relevant conditions of Division 615. | Detailed Reasoning - Detailed reasoning: Broadly, Division 615 applies where shareholders or unit holders, as part of an eligible business restructure, exchange shares in a company or units in a trust for shares in another company. The effect of Division 615 is to provide roll-over relief so that the consequences which would normally flow from the disposal/acquisition under the CGT provisions are modified. Relevant requirements are contained in sections 615-5, 615-15, 615-20, 615-25 and 615-30. We summarise and apply these requirements in Table 2 . | Detailed Reasoning - Application to Unit Trust A: Paragraph 615-5(1)(a) The exchanging member is a member of the original entity Note: For a trust (except a public trading trust), a member includes a beneficiary, unitholder or object of the trust (section 960-130) Met. The Unit Trust A is the original entity and each of the X Unit Trust A unit holders are the exchanging members. Paragraph 615-5(1)(b) The exchanging members own all the units in the original entity Met. The X Unit Trust A unit holders (also exchanging members) together own all the units in Unit Trust A (and will immediately before Step 1(b)). Paragraph 615-5(1)(c) Under a scheme for reorganising its affairs, the exchanging members dispose of all their units in the original entity to the interposed company, in exchange for shares in the interposed company (and nothing else) Met. XXXX is the interposed company and, under Step 1(b), the X unit holders in Unit Trust A (as exchanging members) will dispose of all their units in the Unit Trust A in exchange for shares in XXXX, and nothing else. This requirement is discussed in greater detail below (see Characterising the 'scheme for reorganising') Section 615-15 The interposed company must own all the units in the original entity immediately after the time (the completion time) all the exchanging members disposed of their units under the scheme. Met. Immediately after Step 1(b) (the completion time), Unit Trust A will own all the units in Unit Trust A. Subsection 615-20(1) Immediately after the completion time, each exchanging member must own a whole number of shares in the interposed company, and a percentage of shares in the interposed company equal to their former holding in the original entity. Met. Immediately after Step 1(b) (the completion time), each unit holder (as an exchanging member) will hold a whole number of shares in XXXX, and the same percentage of shares in XXXX as they held in the Unit Trust A (as shown at Table 1). Subsection 615-20(2) For each exchanging member, the following ratios must be equal: • in the original entity, the market value of their original units, to the market value of the total units disposed of under the scheme • in the interposed company, the market value of the shares they receive, to the market value of total shares received by all the exchanging members Met. Immediately after Step 1(b) (the completion time), the ratio of the market value of each unit holder's shares in XXXX to the market value of the shares in XXXX issued to all unit holders will equal the ratio of the market value of each unit holder's units in Unit Trust A that were disposed of under the scheme to the market value of all the units in Unit Trust A that were disposed of under the scheme. Subsection 615-20(3) The exchanging member must either: • be an Australian resident at the time their units in the original entity were disposed of under the scheme; or ... Met. The X unit holders in Unit Trust A are Australian residents, and will be at the time of disposing their units in the Unit Trust A. Subsection 615-25(1) The shares issued in the interposed company must not be redeemable shares. Met. The shares issued by XXXX will be ordinary shares, and not redeemable. Subsection 615-25(2) Each exchanging member must own the shares in the interposed company from the time they are issued until at least the completion time. Met. Each of the X unit holders in Unit Trust A (as exchanging members) will continue to own the shares in XXXX issued under Step 1(b) until at least immediately after finalisation of the proposed restructure. Subsection 615-25(3) Immediately after the completion time, the exchanging members must own all shares in the interposed company (with an exception where other members can own up to 5 shares, where those shares represent a small percentage of the total market value) Met. Immediately after Step 1(b) (the completion time) and until at least immediately after finalisation of the proposed restructure, the X unit holders in Unit Trust A (as exchanging members) will own all the shares in XXXX. Section 615-30 Within two months after the completion time, the interposed company must choose that section 615-65 applies. Met on the basis of assumption 3 in this ruling, i.e. that XXXX will make a choice that section 615-65 applies within two months after the completion time. | Detailed Reasoning - Characterising the 'scheme for reorganising': In the context of the unit holders' eligibility to obtain roll-over relief under Division 615 in relation to Step 1(b) of the proposed restructure, the relevant 'nothing else' requirement, as set out in paragraph 615-5(1)(c), is whether there is a 'scheme for reorganising its affairs' under which the unit holders dispose of their units in Unit Trust A to an interposed company in exchange for shares in the interposed company, and nothing else. It is therefore necessary to determine which proposed transactions form part of the 'scheme for reorganising'. Section 995-1 defines 'scheme' to mean 'any arrangement,' or 'any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.' The phrase 'scheme for reorganising its affairs' is not described or defined in section 615-5 (or elsewhere in the Income Tax Assessment Act). However, a similar phrase 'reorganisation of the affairs' [of a unit trust or a company] was used in former sections 160ZZPA, 160ZZPB, 160ZZPC and 160ZZPD of the ITAA 1936 and discussed in Taxation Ruling TR 97/18 [2] (TR 97/18). Paragraph 26 of TR 97/18 says: ...the expression 'scheme for the reorganisation of the affairs of a unit trust' must be interpreted in the context in which that expression appears. What is meant is the interposition of a company between the unit trust and its unitholders. Paragraph 32 of TR 97/18 says: It is not possible to consider parts of schemes in isolation. In considering a scheme, we must look at the entirety of the scheme and its effect in determining whether the scheme is one for the reorganisation of the affairs of a unit trust. Applying the reasoning in TR 97/18 to the Division 615 roll-over, this suggests that while the 'reorganisation' involves interposing a company, a broader scheme may not be eligible if it includes other steps which would fail the roll-over requirements. Therefore, the application of the nothing else condition under paragraph 615-5(1)(c) is not limited to looking at a single step or transaction in isolation from other transactions or steps which form part of a single plan. Taxation Determination TD 2020/6 [3] (TD 2020/6) discusses the meaning of the phrase 'restructuring of the demerger group,' used in Division 125, which provides roll-over relief for demergers. TD 2020/6 makes several points for identifying the restructuring, including that: • what steps form part of the restructuring is a question of fact; • the restructuring is not necessarily confined to the steps or transactions that deliver ownership interests, but may include previous or subsequent transactions in a sequence; • transactions may form part of the restructuring even where they are legally independent of each other, contingent on different events, or may not occur; • a transaction is not necessarily part of the restructuring merely because it is enabled or a consequence of the restructuring; and • whether transactions occur simultaneously or are separated by a significant period is relevant but not necessarily decisive. While the phrase 'restructuring of the demerger group' is not used in Division 615, it is considered that the general approach taken in TD 2020/6 is relevant to identifying the 'scheme for reorganising its affairs'. That is, what steps form part of the scheme is a question of fact, and several transactions occurring in a sequence might form part of a single scheme. Taken together, both TR 97/18 and TD 2020/6 suggest that when evaluating an arrangement's eligibility for CGT roll-over relief, multiple transactions may form part of the relevant scheme. Therefore, we need to determine which steps in the proposed transactions form part of the 'scheme for reorganising'. In this regard, the relevant determination for the Unit Trust A unit holders is to identify the scope of the scheme by considering all likely and potential steps, and then determining which of those steps should be considered part of the 'scheme for reorganising its affairs'. For the purposes of paragraph 615-5(1)(c), of particular relevance to the Unit Trust A unit holders is whether any of the transactions or steps taken (either in DD MM YYYY or under the proposed restructure), other than that under Step 1(b) of the proposed restructure, is part of the scheme for reorganising. This, for instance, may include: • the incorporation of XXXX in DD MM YYYY at which time the unit holders were issued with shares in XXXX; • Step 1(a), under which any entitlements owing to the unit holders as beneficiaries of the Unit Trust A will be distributed; and/or • Step 2(a), under which the unit holders will be issued with further shares in XXXX in exchange for the cancellation of their shares in Company B. If the scheme for reorganising includes any of the above transactions/steps in addition to Step 1(b), then the Unit Trust A unit holders will receive 'something else' other than the XXXX shares received under Step 1(b) in exchange for their units in Unit Trust A, causing the condition under paragraph 615-5(1)(c) to be failed. While the interposition of XXXX will occur as part of a planned series of steps under which the Unit Trust A unit holders will receive more than the relevant tranche of shares in XXXX under Step 1(b), it is considered that the scheme for reorganising for the purposes of paragraph 615-5(1)(c) may exclude any step beyond that constituted by Step 1(b). The reasons for this conclusion include: • the equity holders in in Unit Trust A and Company B are the same, the proportional interest held by each equity holder in Unit Trust A and Company B is identical and the interposition of the same company (XXXX) over both Unit Trust A and Company B in separate transactions will not change the proportional interests to be held in XXXX by each equity holder; • each of the Unit Trust A unit holders, as exchanging members, will maintain the same economic interests before and after the reorganisation; and • each of the other transactions/steps is considered a separate step, and/or the something else acquired by the Unit Trust A unit holders under those separate steps are considered incidental or extraneous to the change of ownership that is the occasion for the roll-over. Paragraphs 1 to 15 of the Addendum to TR 97/18 confirm that the use of the same interposed shelf company does not, of itself, exclude reorganisations of entities from the roll-over provisions (as now rewritten into Division 615). Paragraph 2 of the Addendum to TR 97/18 provides: Although the conditions for roll-over are expressed in the singular form, this does not mean that the reorganisation of the affairs of more than one entity will be ineligible for relief. Rather, it is considered that the legislation intended for each entity to be tested for compliance with the roll-over requirements independently of any other entity whose affairs are also reorganised and interposes the same shelf company. As noted in paragraph 6 of the Addendum to TR 97/18, schemes for reorganising the affairs of more than one entity can only satisfy the legislative requirements for roll-over relief where, among other requirements, the reorganisation of each entity occurs at the same time and the economic interests in the underlying assets of each entity are maintained just after the reorganisation. Based on the above, it is concluded that under the relevant scheme for reorganising, the Unit Trust A unit holders will not receive something else other than the XXXX shares received (under Step 1(b)) in exchange for their units in Unit Trust A. | Summary: As the unit holders in the Unit Trust A will be eligible to choose to obtain a roll-over under Division 615 in relation to the exchange of their units in the Unit Trust A for shares in XXXX, and will choose to do so within the required time: • they will disregard any capital gain made on the disposal of their Unit Trust A units to XXXX pursuant to subsection 124-15(2); and • pursuant to subsection 124-15(3), the first element of the cost base of each of the XXXX shares issued to the unit holders will be equal to the aggregate cost base of the Unit Trust A units transferred to XXXX, divided by the number of XXXX shares issued to the unit holders. | Detailed Reasoning - Detailed reasoning: The consequences for entities choosing a roll-over under Division 615 are set by Subdivisions 615-C, 615-D and 124-A. Broadly, section 615-40 and Subdivision 124-A are relevant for the exchanging members. Section 615-40 says that the consequences set out in Subdivision 124-A (which applies to roll-overs covered by Division 124) also apply to a roll-over covered by Division 615. Specifically, section 124-15 sets out the consequences if you can obtain a roll-over when your ownership of more than one CGT asset (the original assets) ends and you acquire one or more CGT assets (the new assets). Relevantly, subsection 124-15(2) provides that a capital gain or a capital loss you make from each original asset is disregarded and subsection 124-15(3) provides that if you acquired all the original assets on or after 20 September 1985, the first element of each new asset's cost base (or reduced cost base) is: The total of the cost bases of all the original assets (worked out when your ownership of them ended) Number of new assets As confirmed at Question 1 of this ruling, the unit holders in the Unit Trust A will be eligible to choose to obtain a roll-over under Division 615 in relation to the exchange of their units in the Unit Trust A (the original assets) for shares in XXXX (the new assets). Upon the making of the choice to obtain that roll-over (as per assumption 1 of this ruling): • the Unit Trust A unit holders will disregard any capital gain they make from the disposal of their Unit Trust A units to XXXX pursuant to subsection 124-15(2); and • the first element of the cost base of each of the XXXX shares issued to the unit holders will be equal to the aggregate cost base of the Unit Trust A units disposed of by them to XXXX (worked out at the time of the disposal), divided by the number of XXXX shares issued to them. | Summary: The shareholders in Company B will be eligible to choose to obtain a roll-over under Division 615 in relation to the cancellation of their shares in Company B in exchange for shares in XXXX because they meet all the relevant conditions of Division 615. | Detailed Reasoning - Detailed reasoning: As noted in Question 1 of this ruling, Division 615 broadly applies where shareholders or unit holders, as part of an eligible business restructure, exchange shares in a company or units in a trust for shares in another company. The effect of Division 615 is to provide roll-over relief so that the consequences which would normally flow from the cancellation/acquisition under the CGT provisions are modified. In the context of the cancellation of each Company B shareholders' shares in Company B in exchange for shares in XXXX (under Step 2(a) of the proposed restructure), the relevant requirements contained in sections 615-10, 615-15, 615-20, 615-25 and 615-30 are summarised and applied in Table 3 . | Detailed Reasoning - Application to shareholders in Company B: Subsection 615 - 10(1) The exchanging member is a member of the original entity Note: For a company, a member includes a member of the company or a stockholder in the company (section 960-130) Met. Company B is the original entity and each of the X shareholders are the exchanging members. Paragraphs 615-10(1)(a) and 615-10(1)(b) Under a scheme for reorganising its affairs: • a company (the interposed company) acquires one or more, but not all, of the shares in the original entity; and • these are the first shares that the interposed company acquires in the original entity Met. XXXX is the interposed company and, under Step 2(a), will be issued one share in Company B. This is the first share that XXXX acquires in Company B. Paragraphs 615-10(1)(c) and 615-10(1)(d) Under a scheme for reorganising its affairs: • at least X exchanging members own all the remaining shares in the original entity; and • those remaining shares will be redeemed or cancelled Met. Each of the X Company B shareholders (as exchanging members) own all the remaining shares in Company B and, under Step 2(a), those remaining shares will be cancelled. Paragraph 615-10(1)(e) Under a scheme for reorganising its affairs, each exchanging member receives shares (and nothing else) in the interposed company in return for their shares in the original entity being redeemed or cancelled Met. Under Step 2(a), each of the X Company B shareholders (as exchanging members) receives shares in XXXX, and nothing else, in return for the cancellation of their shares in Company B. This requirement is discussed in greater detail below (see Characterising the 'scheme for reorganising') Section 615-15 The interposed company must own all the shares in the original entity immediately after the time (the completion time) all the exchanging members cancelled their shares under the scheme Met. Immediately after Step 2(a) (the completion time), XXXX will own all the shares in Company B. Subsection 615-20(1) Immediately after the completion time, each exchanging member must own a whole number of shares in the interposed company, and a percentage of shares in the interposed company equal to their former holding in the original entity Met. Immediately after Step 2(a) (the completion time), each shareholder (as an exchanging member) will hold a whole number of shares in XXXX, and the same percentage of shares in XXXX as they held in Company B (as shown at Table 1). Subsection 615-20(2) For each exchanging member, the following ratios must be equal: • in the original entity, the market value of their original shares, to the market value of the total shares cancelled under the scheme • in the interposed company, the market value of the shares they receive, to the market value of total shares received by all the exchanging members Met. Immediately after Step 2(a) (the completion time), the ratio of the market value of each shareholder's shares in XXXX to the market value of the shares in XXXX issued to all shareholders will equal the ratio of the market value of each shareholder's shares in Company B that were cancelled under the scheme to the market value of all the shares in Company B that were cancelled under the scheme. Subsection 615-20(3) The exchanging member must either: • be an Australian resident at the time their shares in the original entity were cancelled under the scheme; or ... Met. The X shareholders in Company B are Australian residents, and will be at the time of cancelling their shares in Company B. Subsection 615-25(1) The shares issued in the interposed company must not be redeemable shares Met. The shares issued by XXXX will be ordinary shares, and not redeemable. Subsection 615-25(2) Each exchanging member must own the shares in the interposed company from the time they are issued until at least the completion time Met. Each of the X shareholders in Company B (as exchanging members) will continue to own the shares in XXXX issued under Step 2(a) until at least immediately after finalisation of the proposed restructure. Subsection 615-25(3) Immediately after the completion time, the exchanging members must own all shares in the interposed company (with an exception where other members can own up to X shares, where those shares represent a small percentage of the total market value) Met. Immediately after Step 2(a) (the completion time) and until at least immediately after finalisation of the proposed restructure, the X shareholders in Company B (as exchanging members) will own all the shares in XXXX. Section 615-30 Within two months after the completion time, the interposed company must choose that section 615-65 applies Met on the basis of assumption 3 in this ruling, i.e. that XXXX will make a choice that section 615-65 applies within two months after the completion time. | Detailed Reasoning - Characterising the 'scheme for reorganising': In the context of the shareholders' eligibility to obtain roll-over relief under Division 615 in relation to Step 2(a) of the proposed restructure, the relevant 'nothing else' requirement, as set out in paragraph 615-10(1)(e), is whether there is a 'scheme for reorganising its affairs' under which the shareholders receive shares in the interposed company, and nothing else, in return for the cancellation of their shares in Company B. It is therefore necessary to determine which proposed transactions form part of the 'scheme for reorganising' and the ATO guidance referred to in relation to Question 1 of this ruling is equally relevant to the application of paragraph 615-10(1)(e). In this regard, the relevant determination for the Company B shareholders is to identify the scope of the scheme by considering all likely and potential steps, and then determining which of those steps should be considered part of the 'scheme for reorganising its affairs'. For the purposes of paragraph 615-10(1)(e), of particular relevance to the Company B shareholders is whether any of the transactions or steps taken (either in DD MM YYYY or under the proposed restructure), other than that under Step 2(a) of the proposed restructure, is part of the scheme for reorganising. This, for instance, may include: • the incorporation of XXXX in DD MM YYYY at which time the shareholders were issued with shares in XXXX; • Step 1(a), under which any entitlements owing to the unit holders as beneficiaries of the Unit Trust A will be distributed; and/or • Step 1(b), under which the shareholders will be issued with further shares in XXXX in exchange for the disposal of their units in Unit Trust A. If the scheme for reorganising includes any of the above transactions/steps in addition to Step 2(a), then the Company shareholders will receive 'something else' other than the XXXX shares received under Step 2(a) in return for the cancellation of their shares in Company B, causing the condition under paragraph 615-10(1)(e) to be failed. While Step 3(a) of the proposed restructure - at which time the one Company B share issued to XXXX under the scheme for reorganising is cancelled - may be considered a part of the relevant scheme for reorganising, it does not constitute a step under which the Company B shareholders will receive something else. While the interposition of XXXX will occur as part of a planned series of steps under which the Company B shareholders will receive more than the relevant tranche of shares in XXXX under Step 2(a), it is considered that the scheme for reorganising for the purposes of paragraph 615-10(1)(e) may exclude any step beyond that constituted by Step 2(a) under which the Company B shareholders receive something else. The reasons for this conclusion include: • the equity holders in Unit Trust A and Company B are the same, the proportional interest held by each equity holder in Unit Trust A and Company B is identical and the interposition of the same company (XXXX) over both Unit Trust A and Company B in separate transactions will not change the proportional interests to be held in XXXX by each equity holder; • each of the Company B shareholders, as exchanging members, will maintain the same economic interests before and after the reorganisation; and • each of the other transactions/steps under which the Company B shareholders receive something else is considered a separate step, and/or the something else acquired by the Company B shareholders under those separate steps are considered incidental or extraneous to the change of ownership that is the occasion for the roll-over. Based on the above, it is concluded that under the relevant scheme for reorganising, the Company B shareholders will not receive something else other than the XXXX shares received (under Step 2(a)) in return for the cancellation of their shares in Company B. | Summary: As the shareholders in Company B will be eligible to choose to obtain a roll-over under Division 615 in relation to the cancellation of their shares in Company B for shares in XXXX, and will choose to do so within the required time: • they will disregard any capital gain made on the cancellation of their Company B shares pursuant to subsection 124-15(2); and • pursuant to subsection 124-15(3), the first element of the cost base of each of the XXXX shares issued to the shareholders will be equal to the aggregate cost base of the Company B shares cancelled, divided by the number of XXXX shares issued to the shareholders. | Detailed Reasoning - Detailed reasoning: As noted in relation to Questions 2 and 3 of this ruling, the consequences for entities choosing a roll-over under Division 615 are set by Subdivisions 615-C, 615-D and 124-A. Broadly, section 615-40 and Subdivision 124-A are relevant for the exchanging members. Section 615-40 says that the consequences set out in Subdivision 124-A (which applies to roll-overs covered by Division 124) also apply to a roll-over covered by Division 615. Specifically, section 124-15 sets out the consequences if you can obtain a roll-over when your ownership of more than one CGT asset (the original assets) ends and you acquire one or more CGT assets (the new assets). Relevantly, subsection 124-15(2) provides that a capital gain or a capital loss you make from each original asset is disregarded and subsection 124-15(3) provides that if you acquired all the original assets on or after 20 September 1985, the first element of each new asset's cost base (or reduced cost base) is: The total of the cost bases of all the original assets (worked out when your ownership of them ended) Number of new assets As confirmed at Question 4 of this ruling, the shareholders in Company B will be eligible to choose to obtain a roll-over under Division 615 in relation to the cancellation of their shares in Company B (the original assets) for shares in XXXX (the new assets). Upon the making of the choice to obtain that roll-over (as per assumption 2 of this ruling): • the Company B shareholders will disregard any capital gain they make from the cancellation of their Company B shares pursuant to subsection 124-15(2); and • the first element of the cost base of each of the XXXX shares issued to the shareholders will be equal to the aggregate cost base of the Company B shares cancelled by them (worked out at the time of the cancellation), divided by the number of XXXX shares issued to them. | Summary: As XXXX will choose that section 615-65 applies in relation to the transactions undertaken as Steps 1(b) and 2(a) of the proposed restructure (for the purposes of subsection 615-30(1)), and will choose to do so within the required time, pursuant to subsection 615-65(4): • the first element of the cost base of XXXX's units in Unit Trust A will be equal to the total of the cost bases of the Unit Trust A's assets as at the relevant completion time, less any liabilities in respect of those assets; and • the first element of the cost base of Unit Trust A's share in Company B will be equal to the total of the cost bases of Company B's assets as at the relevant completion time, less any liabilities in respect of those assets. | Detailed Reasoning - Detailed Reasoning: The consequences that fall to the interposed company when exchanging members choose a roll-over under Division 615, as chosen by the interposed company for the purposes of subsection 615-30(1), are set by section 615-65 (in Subdivision 615-D). Relevantly, subsection 615-65(4) provides that if an interposed company's shares or units in the original entity are not taken to have been acquired before 20 September 1985, the first element of the cost base (or reduced cost base) of those shares or units is: (a) the total of the cost bases (as at the completion time) of the original entity's post-CGT assets; less (b) its liabilities (if any) in respect of those assets. As confirmed at Questions 1 and 4 of this ruling, the equity holders will be eligible to choose to obtain a roll-over under Division 615 in relation to the exchange of their units in the Unit Trust A for shares in XXXX and the cancellation of their shares in Company B for shares in XXXX, respectively. That eligibility will arise, in part, as a result of XXXX (as the interposed company) choosing that section 615-65 applies (for the purposes of subsection 615-30(1)). Upon the making of the choice by XXXX that section 615-65 applies (as per assumption 3 of this ruling), and upon the making of the choice by the equity holders to obtain those roll-overs pursuant to subsection 615-5(1) and subsection 615-10(1) respectively (as per assumptions 1 and on 2 of this ruling): • the first element of the cost base of XXXX's units in Unit Trust A (received under Step 1(b) of the proposed restructure) will be equal to the total of the cost bases of the Unit Trust A's assets (as at the relevant completion time), less any liabilities in respect of those assets; and • the first element of the cost base of XXXX's one share in Company B (received under Step 2(a) of the proposed restructure) will be equal to the total of the cost bases of Company's assets (as at the relevant completion time), less any liabilities in respect of those assets. [1] Unit Trust A has no other liabilities. [2] Income tax: capital gains: roll-over relief following reorganisation of the affairs of a unit trust or company - > sections 160ZZPA, 160ZZPB, 160ZZPC and 16OZZPD . [3] Income tax: what is a 'restructuring' for the purposes of subsection 125-70(1) of the Income Tax Assessment Act 1997?