Private ruling: Demerger
Date of advice: 9 February 2022
Published: April 2022
Ruling period: 1 July 20XX to 30 June 20XX

Ruling: Q1: Will a capital gain or capital loss made by Hold Co from CGT event A1 happening to its shares in Sub Co be disregarded under section 125-155 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. | Q2: As a consequence of the transfer of Hold Co's shares in Sub Co to the shareholders of Hold Co, is Hold Co required under subsection 45D(1A) of the Income Tax Assessment Act 1936 (ITAA 1936) to give a copy of the Commissioner's determination to its shareholders? | A2: No. | Q3: Does Hold Co have an obligation to withhold tax on the demerger dividend paid to its non-resident shareholders under section 12-210 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)? | A3: No.

Relevant facts and circumstances: Hold Co is a company incorporated in Australia. It owned all the shares in another company incorporated in Australia, Sub Co. The shareholders of Hold Co approved a resolution for Hold Co to undertake a reduction of share capital under sections 256B and 256C of the Corporations Act 2001 . Hold Co satisfied the capital reduction by transferring all of the shares in Sub Co to the shareholders of Hold Co in proportion to their shareholdings. Hold Co accounted for the demerger by debiting its share capital account and retained earnings. Immediately before the Implementation Date, Hold Co's share capital account was not tainted (within the meaning of Division 197 of the ITAA 1997). Hold Co did not elect under subsection 44(2) of the Income Tax Assessment Act 1936 (ITAA 1936) that subsections 44(3) and (4) of the ITAA 1936 will not apply to the demerger dividend for all Hold Co shareholders. Just after the demerger, CGT assets owned by Sub Co and its demerger subsidiaries representing at least 50% by market value of all the CGT assets owned by those entities were used in carrying on a business by those entities.

Relevant legislative provisions: ITAA 1997 section 125-155 | ITAA 1936 section 45A | ITAA 1936 section 45B | ITAA 1936 subsection 45D(1A) | ITAA 1936 section 128B | TAA 1953 Schedule 1, section 12-210

Reasons for decision: Summary: A capital gain or capital loss that is made by Hold Co from CGT event A1 happening to its shares in Sub Co will be disregarded because the requirements of section 125-155 of the ITAA 1997 are satisfied. As neither section 45A nor section 45B of the ITAA 1936 applies, subsection 45D(1A) of the ITAA 1936 does not apply. Hold Co does not have an obligation to withhold tax on the demerger dividend paid to its non-resident shareholders under section 12-210 of Schedule 1 to the TAA 1953, because of the combined effect of subsection 128B(3D) of the ITAA 1936 and section 12-300 of Schedule 1 to the TAA 1953.