Private ruling: Application of Division 615 to proposed business restructure
Date of advice: 21 April 2017
Published: September 2017
Ruling period: 1/7/20XX to 30/6/20YY
Date scheme commenced: Not applicable

Ruling: Q1: Are the requirements for rollover relief under Division 615 satisfied in respect of the taxpayer's disposal of their shares in X Pty Ltd and in Y Pty Ltd, as well as their interest in the Z Unit Trust under the proposed restructure? | A1: Yes

Relevant facts and circumstances: 1. The taxpayer is the W family trust. 2. A group of three trading entities collectively trade under the same single business name. 3. The trading entities are as follows: ● X Pty Ltd ● Y Pty Ltd ● Z Unit Trust 4. Each of the trading entities has only one class of shares (which are ordinary) or units on issue. 5. The owners of each trading entity are a mix of discretionary and fixed trusts. 6. The owners own shares or units in each of the trading entities in the same proportions. 7. The taxpayer is one of the owners. 8. It is proposed to restructure the affairs of the business by consolidating ownership in an interposed holding company, Q Pty Ltd. 9. This company will be owned by the owners in the same proportions as the trading entities prior to commencing the restructure. 10. Under the restructure, the owners will dispose of all their interests in the trading entities, in exchange for ordinary shares in the holding company. 11. The owners will own shares in the holding company in the same proportion as their interests in the trading entities. 12. The abovementioned entities are not currently part of a consolidated group and there is no intention to form a consolidated group for tax purposes. 13. Prior to the restructure occurring, it is intended that the A Family Trust and the C Family Trust will be disposing of all their holdings to the following parties: the B Family Trust, the D Family Trust and the T Unit Trust. 14. The exact percentages to be sold to each entity will not be finalised until closer to mid-year, but the percentage sold will be the same across all three entities. 15. Prior to the restructure, Y Pty Ltd will split the existing shares so as to increase the quantity of shares for each party by 50%. 16. Meanwhile, X Pty Ltd will split the existing shares so as to increase the quantity of shares for each party by X times. 17. This will have the effect that all parties have the same percentage and quantity interest in each trading entity, to eliminate any possible rounding variation. 18. O Pty Ltd, which is to be the acquirer of the trading entities under the restructure, is a newly setup company that has no trading history. 19. The proposed restructure will be carried out by a direct disposal of existing shares or units in exchange for the new shares in the interposed company. 20. The shares that will be issued to exchanging shareholders or unit holders (members) in the interposed company are not redeemable shares. 21. The interposed company will own all the shares or units in the original entity immediately after the time all the exchanging members have had their shares or units in the original entity disposed of. 22. The shares in the interposed company issued to an exchanging member will be owned by that member from the time of issue to the completion time (the time of the last disposal of a share or unit). 23. When the disposals of the units or shares in the original entity have been completed, all the shares in the interposed company will be in the hands of the exchanging members. 24. The interposed company, within two months after the completion time, will make a choice to apply section 615-65 of the ITAA 1997. 25. Each member in the original entity, whose shares or units were disposed of, just after the completion time, will own a whole number of shares in the interposed company. 26. Each exchanging member, just after the completion time, will own the same percentage of all of the shares in the interposed company that were issued as part of the reorganisation as that which they owned in the original entity. 27. The shares or units in the three trading entities all have the same rights. 28. The shares in the interposed company will all have the same rights. 29. The taxpayer is an Australian resident for tax purposes.

Relevant legislative provisions: Income Tax Assessment Act Division 615

Reasons for decision: Summary: [All legal references here are to the Income Tax Assessment Act 1997 unless otherwise stated.] Under section 615-5 you can choose to obtain a roll-over if: ● you are a member of a company or a unit trust (the original entity); and ● you and at least one other entity (the exchanging members) own all the shares or units in it; and ● under a scheme for reorganising its affairs, the exchanging members dispose of all their shares or units in it to a company (the interposed company) in exchange for shares in the interposed company (and nothing else); and ● the requirements in Subdivision 615-B are satisfied. You have advised that you intend to dispose of all your shares and units in the three trading entities in exchange for shares in the interposed company. Although the conditions for rollover are expressed in the singular form, this does not mean that the reorganisation of the affairs of more than 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 entity whose affairs are also reorganised and interposes the same company (see paragraph 2 of the Addendum to Taxation Ruling TR 97/8, which applied to the preceding rollover relief available under Subdivisions 124-G and 124-H, which were subsequently replaced by Division 615). Rollover will be available then for each of these three entities provided the requirements in Subdivision 615-B are satisfied. The further requirements for choosing to obtain roll-over are set out in Subdivision 615-B. There are specific requirements for both the interposed company and also the holders of the interests in the original entity. | Detailed Reasoning - Requirements on interposed company: First, the shares issued to exchanging members in the interposed company cannot be redeemable shares (subsection 615-25(1)). You have advised that the owners will dispose of all their interests in each of the three original entities, in exchange for ordinary shares in the holding company. This first requirement is met. Second, once the exchanging members have had their shares or units in the original entity disposed of, the interposed company must own all of the shares or units in the original entity (section 615-15). You advised that the interposed company will own all the shares or units in the original entity immediately after the time all the exchanging members have had their shares or units in each of the three original entities disposed of. This second requirement is met. Third, the shares in the interposed entity issued to an exchanging member must be owned by that member from the time of issue to the completion time (subsection 615-25(2)). You advised that the shares in the interposed entity issued to an exchanging member will be owned by that member from the time of issue to the completion time. This third requirement is met. Fourth, when the disposals of the units or shares in the original entity have been completed, all of the shares in the interposed company must be in the hands of the exchanging members (paragraph 615-25(3)(a)). You advised that when the disposals of the units or shares in each of the three original entities have been completed, all of the shares in the interposed company will be in the hands of the exchanging members. This fourth requirement is met. Fifth, where no consolidated group is involved, the interposed company must, within two months after the completion time, make a choice to apply section 615-65. You advised that no consolidated group is involved and the interposed company will, within two months after the completion time, make a choice to apply section 615-65. This fifth requirement is met. | Detailed Reasoning - Requirements on holders of interests in original entity: Sixth, just after the completion time, each member in the original entity whose shares or units were disposed of, must now own a whole number of shares in the interposed company. You advised that just after the completion time, each member in each of the three original entities whose shares or units were disposed of, will now own a whole number of shares in the interposed company. This sixth requirement is met. Seventh, each exchanging member must, just after the completion of the disposal of the shares or units in the original entities, own the same percentage of all of the shares in the interposed company that were issued as part of the reorganisation as that which they owned in the original entity. You advised that each exchanging member will, just after the completion of the disposal of the shares or units in each of the three original entities, own the same proportion (or percentage) of all of the shares in the interposed company that were issued as part of the reorganisation as that which they owned in each of the three original entities. This seventh requirement is met. Eighth, just after completion of the exchange, the ratio of the market value of each exchanging member's shareholding in the interposed company to the total market value of the shares in that company must be the same as the ratio of the market value of that member's holding in the original entity to the total market value of the shares or units in the original entity, worked out just before the first disposal of shares or units by an exchanging member (subsection 615-20(2)). You advised that each exchanging member will receive shares in the interposed company in the same proportion (or percentage) as their holding in each original entity. As each share or unit issued by the original company and each share issued by the interposed company carries the same rights and obligations, it follows that the proportionate market value of the shares acquired by each original interest holder in the new interposed company will be the same as that entity's shares or units in each of the three original entities. This eighth requirement is met. Ninth, for a taxpayer to access this rollover, they must be an Australian resident at the time the shares or units in the original entity are disposed of (subsection 615-20(3)). You advised that the taxpayer is an Australian resident for tax purposes. This ninth requirement is met. | Detailed Reasoning - Conclusion: All the requirements for rollover relief under Division 615 are satisfied in respect of the taxpayer's disposal of their shares in X Pty Ltd and in Y Pty Ltd, as well as their interest in the Z Unit Trust under the proposed restructure. The CGT and other consequences of accessing the Division 6-15 rollover are set out in Subdivision 615-C.