Private ruling: Demerger
Date of advice: 22 June 2022
Published: September 2022
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: As a consequence of section 125-155 of the ITAA 1997, will Company X disregard any capital gain or capital loss it makes under CGT event A1, C2, C3 or K6 upon the transfer of its shares in Company Y to the shareholders of Company X? | A1: Yes. | Q2: As a consequence of the transfer of the shares in Company Y to the shareholders of Company X, would Company X be required under subsection 45D(1A) of the ITAA 1936 to give a copy of a notice to its shareholders? | A2: No.

Relevant facts and circumstances: Company X and Company Y are both companies incorporated in Australia. Company X owns 100% of the ordinary shares in Company Y. Company X will transfer all the ordinary shares it owns in Company Y to the shareholders of Company X in proportion to their shareholding in Company X. The transfer will partly be accounted for by debiting an amount to the share capital account of Company.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 45A | Income Tax Assessment Act 193 paragraph 45A(3)(b) | Income Tax Assessment Act 1936 subsection 45A(2) | Income Tax Assessment Act 1936 section 45B | Income Tax Assessment Act 1936 subsection 45B(3) | Income Tax Assessment Act 1936 subsection 45B(4) | Income Tax Assessment Act 1936 subsection 45B(5) | Income Tax Assessment Act 1936 subsection 45B(6) | Income Tax Assessment Act 1936 subsection 45B(8) | Income Tax Assessment Act 1936 paragraph 45B(8)(k) | Income Tax Assessment Act 1936 subsection 45B(9) | Income Tax Assessment Act 1936 section 45BA | Income Tax Assessment Act 1936 section 45C | Income Tax Assessment Act 1936 subsection 45C(3) | Income Tax Assessment Act 1936 section 45D | Income Tax Assessment Act 1936 subsection 45D(1A) | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 section 125-65 | Income Tax Assessment Act 1997 section 125-70 | Income Tax Assessment Act 1997 subsection 125-70(2) | Income Tax Assessment Act 1997 subsection 125-70(6) | Income Tax Assessment Act 1997 paragraph 125-70(7)(a) | Income Tax Assessment Act 1997 section 125-75 | Income Tax Assessment Act 1997 section 125-155

Reasons for decision: Summary: Company X will disregard any capital gain from CGT event A1 happening as a result of the transfer of its shares in Company Y to the shareholders of Company X in accordance with section 125-155 of the ITAA 1997, because the transfer of shares will be a 'demerger' as defined in section 125-70 of the ITAA 1997. Having regard to the relevant circumstances of the scheme: • the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to all or part of the capital benefits • the Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45BA or section 45C of the ITAA 1936 applies to all or part of the demerger benefit or the capital benefit (respectively). Therefore, Company X will not be required under subsection 45D(1A) of the ITAA 1936 to give a copy of a notice to its shareholders.

This ruling applies for the following period periods :