Private ruling: Scrip for scrip cost base
Date of advice: 2 July 2021
Published: September 2021
Ruling period: Year ended 30 June 2021 | Year ending 30 June 2022

Ruling: Q2: Where the Sub-Trust Unitholders are a significant stakeholder and they, with the trustee for the Fund, jointly choose to obtain roll-over for the purposes of paragraph 124-781(3)(c), will the first element of the cost base and reduced cost base of the Sub-Trust units acquired by the Fund from those Sub-Trust Unitholders be the Sub-Trust Unitholder's cost base of those Sub-Trust units pursuant to subsection 124-782(1) of the ITAA 1997? Answer Yes

Relevant facts and circumstances: 1. The Fund is a newly established trust that is a 'resident of Australia' as defined in subsection 6(1) of the Income Tax Assessment Act 1936 ( ITAA 1936 ). 2. Each of the Sub-Trusts: • is a unit trust established after 19 September 1985 • is a 'resident of Australia' as defined in subsection 6(1) of the ITAA 1936 • has, since its establishment, had one class of unit (ordinary units) on issue • is managed by a delegate of an Australian Financial Services Licence holder, and • provides a managed investment scheme platform for eligible investors to invest in (via the subscription of units in the Sub-Trusts). 3. The main activity of the Sub-Trusts is to invest for the purposes of deriving rental income. 4. It is proposed that the Sub-Trusts will be consolidated under the Fund (the Proposed Arrangement) through which further asset expansions are intended to be funded. The purpose of the Proposed Arrangement, among other purposes, is to provide Sub-Trust Unitholders with greater diversification in their investment portfolio and to assist the Sub-Trusts attract future capital. 5. As part of the Proposed Arrangement: • Sub-Trust Unitholders provided the trustees for each of the Sub-Trusts with a legal authority to implement the Proposed Arrangement; • the trustee for the Fund issued ordinary units ('initial units') to each of the Sub-Trust Unitholders. The number of initial units issued to each Sub-Trust Unitholder is based on the market value of their Sub-Trust units as a proportion of the total market value of the units in all of the Sub-Trusts; and • on the exchange date, all of the Sub-Trust units will be transferred to the Fund in exchange for units in the Fund, and nothing else. The number of Fund units issued to the Sub-Trust Unitholders will be based on the market value of their Sub-Trust units as a proportion to the total market value of the units in all the Sub-Trusts. 6. As a consequence of the Proposed Arrangement: • the trustee for the Fund will acquire 100% of the units in each of the Sub-Trusts (so that the Sub-Trusts become wholly-owned sub-trusts of the Fund); • the Sub-Trust Unitholders will receive units in the Fund in exchange for their Sub-Trust units; and • the market value of each Sub-Trust Unitholder's units in the Fund immediately after the exchange will be substantially the same as the market value of the Sub-Trust units they held immediately prior to the exchange. 7. The Fund and the Sub-Trust Unitholders will be dealing at arm's length in connection with the Proposed Arrangement. 8. Based on independent market valuations obtained, it is expected that at least one Sub-Trust Unitholder will be a significant stakeholder in relation to the Proposed Arrangement within the meaning of that term in subsection 124-783(1) of the ITAA 1997. 9. There are no common stakeholders in relation to the Proposed Arrangement within the meaning of that term in subsection 124-783(3) of the ITAA 1997. 10. A Sub-Trust Unitholder that makes a capital gain under the Proposed Arrangement from the disposal of their Sub-Trust units in exchange for units in the Fund is eligible to choose to obtain scrip for scrip roll-over pursuant to section 124-781 of the ITAA 1997. Assumption Each Sub-Trust Unitholder that is a significant stakeholder in relation to the Proposed Arrangement will obtain scrip for scrip roll-over pursuant to section 124-781 of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 Division 110 | Income Tax Assessment Act 1997 subsection 110-25(2) | Income Tax Assessment Act 1997 paragraph 110-25(2)(b) | Income Tax Assessment Act 1997 subsection 110-55(2) | Income Tax Assessment Act 1997 Division 112 | Income Tax Assessment Act 1997 section 124-781 | Income Tax Assessment Act 1997 paragraph 124-781(3)(c) | Income Tax Assessment Act 1997 subsection 124-782(1) | Income Tax Assessment Act 1997 subsection 124-783(1) | Income Tax Assessment Act 1997 subsection 124-783(3)

Reasons for decision: Summary: Where the Sub-Trust Unitholders are not a significant stakeholder in relation to the Proposed Arrangement, pursuant to subsections 110-25(2) and 110-55(2) of the ITAA 1997 respectively the first element of the cost base and reduced cost base of the Sub-Trust units acquired by the Fund from those Sub-Trust Unitholders will be the market value of the Fund units issued to those Sub-Trust Unitholders on the date of acquisition. | Detailed Reasoning - Detailed reasoning: Under subsection 110-25(2) of the ITAA 1997, the first element of the cost base of a CGT asset is the total of: (a) the money you paid, or are required to pay, in respect of acquiring it; and (b) the market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition). Where the original interest holder under a scrip for scrip exchange to which section 124-781 of the ITAA 1997 applies is not a significant stakeholder (within the meaning of that term in subsection 124-783(1) of the ITAA 1997) or a common stakeholder (within the meaning of that term in subsection 124-783(3) of the ITAA 1997) for the arrangement, the acquiring entity's cost base in the original interest acquired from the original interest holder is determined by reference to the ordinary cost base rules in Divisions 110 and 112 of the ITAA 1997. Therefore, where a Sub-Trust Unitholder (as the original interest holder under a scrip for scrip exchange to which section 124-781 of the ITAA 1997 applies) is not a significant stakeholder (or a common stakeholder) in relation to the Proposed Arrangement, the first element of the cost base of the Fund (as the acquiring entity) in the Sub-Trust units acquired from the Sub-Trust Unitholder is determined by reference to subsection 110-25(2) of the ITAA 1997. There will be no money paid, or required to be paid, to the Sub-Trust Unitholders by the Fund in respect of the Fund's acquisition of the Sub-Trust units under the Proposed Arrangement, but Fund units will be given by the Fund to the Sub-Trust Unitholders in respect of that acquisition. Therefore, pursuant to paragraph 110-25(2)(b) of the ITAA 1997, the first element of the cost base of the Sub-Trust units acquired by the Fund under the Proposed Arrangement will be the market value of the Fund units transferred to the Sub-Trust Unitholders for the acquisition (worked out as at the date of acquisition). The first element of the reduced cost base of the Sub-Trust units acquired by the Fund under the Proposed Arrangement will be determined the same way (see subsection 110-55(2)). None of the modifications to the general rules about cost base and reduced cost base (as set out in Division 112) apply in relation to the Fund's acquisition of the Sub-Trust units. | Summary: Where the Sub-Trust Unitholders are a significant stakeholder in relation to the Proposed Arrangement and they, with the trustee for the Fund, jointly choose to obtain roll-over for the purposes of paragraph 124-781(3)(c), pursuant to subsection 124-782(1) of the ITAA 1997 the first element of the cost base and reduced cost base of the Sub-Trust units acquired by the Fund from those Sub-Trust Unitholders will be the cost base of the Sub-Trust Unitholders in those Sub-Trust units. | Detailed Reasoning - Detailed reasoning: Subsection 124-782(1) of the ITAA 1997 provides that: (1) The cost base of an original interest acquired by an acquiring entity under the arrangement from an original interest holder becomes the first element of the cost base and reduced cost base of the acquiring entity for the interest if: (a) the original interest holder obtains a roll-over; and (b) the holder is a significant stakeholder or a common stakeholder for the arrangement. Where the original interest holder is a significant stakeholder (within the meaning of that term in subsection 124-783(1) of the ITAA 1997) or a common stakeholder (within the meaning of that term in subsection 124-783(3) of the ITAA 1997), and obtains a roll-over under section 124-781 of the ITAA 1997, the acquiring entity's cost base and reduced cost base in the original interest acquired by the acquiring entity under a scrip for scrip exchange to which section 124-781 of the ITAA 1997 applies is transferred from the cost base of the original interest holder. Therefore, where a Sub-Trust Unitholder (as the original interest holder) is a significant stakeholder in relation to the Proposed Arrangement and, as assumed for the purposes of this ruling, will obtain a scrip for scrip roll-over pursuant to section 124-781 of the ITAA 1997, the first element of the cost base and reduced cost base of the Fund (as the acquiring entity) for the Sub-Trust units (being the original interest) acquired by the Fund from the Sub-Trust Unitholder under the Proposed Arrangement will be, pursuant to subsection 124-782(1) of the ITAA 1997, that Sub-Trust Unitholder's cost base of those Sub-Trust units.

Question 1: Where the Sub-Trust Unitholders are not a significant stakeholder, will the first element of the cost base and reduced cost base of the units acquired by the Fund be the market value of the units issued to those Sub-Trust Unitholders on the date of acquisition pursuant to subsections 110-25(2) and 110-55(2) of the Income Tax Assessment Act 1997 ( ITAA 1997 )? | This ruling applies for the following periods: