Private ruling: Availability of the rollover for business restructures under Division 615 of ITAA 1997
Date of advice: 26 September 2019
Published: November 2019
Ruling period: Year ending 30 June 20XX
Date scheme commenced: XX August 20XX

Ruling: Q1: Are the specific requirements under subsection 615-5(1) of the ITAA 1997 for rollover relief met in relation to Restructure A where the existing Class A and Class B shares in Company D are exchanged for ordinary shares in Company G where the ordinary shares are issued by Company G on a proportionate basis to the current Company D shareholders in accordance with their current percentage interest in Company D? | A1: Yes | Q2: Are the specific requirements under subsection 615-5(1) of the ITAA 1997 for rollover relief met in relation to Restructure B where the existing ordinary shares in Company E are exchanged for ordinary shares in Company H where the ordinary shares are issued by Company H on a proportionate basis to the current Company E shareholders in accordance with their current percentage interest in Company E? | A2: Yes

Relevant facts and circumstances: 1. This description of facts is based on the following documents. The documents form part of and are to be read with this description. The relevant documents are: (a) The private ruling application ( the application ) dated XX August 20XX; (b) A copy of Form OSR D10.1 for Company E; (c) A copy of Form OSR D10.1 for Company D; (d) A draft copy of Form OSR D3.3 for Company H; (e) A draft copy of Form OSR D3.3 for Company G; (f) The letter to Individual A dated XX August 20XX; (g) The letter to the ATO dated XX August 20XX; (h) The draft letter to the Office of State Revenue ( OSR ) and attachments; (i) The information request from the ATO on XX August 20XX; (j) The email to the ATO on XX August 20XX; and (k) Confirmation of Company E consolidated group dated XX September 20XX. 2. On XX Month 20XX, Company A, Company B and Company C (collectively, the relevant taxpayers ) were incorporated as Australian proprietary companies limited by shares. 3. Individual A is the sole shareholder of the relevant taxpayers 4. Company D was incorporated as an Australian private company limited by shares on XX Month 19XX. 5. Company D is the head company of an income tax consolidated group, which has a number of wholly owned subsidiaries. 6. Company E was incorporated as an Australian private company limited by shares on XX Month 19XX. 7. Company E elected to form an income tax consolidated group from XX July 20XX, as it wholly owns all of the issued shares in Company F. 8. The respective shareholdings of the relevant taxpayers in Company D and Company E follows: (a) In Company D: (i) Company A holds X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares; (ii) Company B holds X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares; and, (iii) Company C holds X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares. (b) In Company E: (i) Company A holds X,XXX,XXX ordinary; (ii) Company B holds X,XXX,XXX ordinary; and, (iii) Company C holds X,XXX,XXX ordinary shares. 9. The paid up capital of the respective shareholdings in Company D is outlined below: (a) Company D has on issue X,XXX,XXX Class A ordinary shares. The total amount paid on these shares is $X,XXX,XXX. (b) Company D has on issue X,XXX,XXX Class B ordinary shares. The total amount paid on these shares is $X,XXX,XXX. (c) In total, the paid up capital of Company D is $X,XXX,XXX. 10. The paid up capital of the respective shareholdings in Company E is outlined below: (a) Company E has on issue X,XXX,XXX ordinary shares. The total amount paid on these shares is $X,XXX,XXX. 11. The relevant taxpayers have resolved to undertake two restructures (Restructure A and Restructure B) to reorganise its corporate structure through the interposition of newly incorporated holding companies. The restructures are not steps which form part of a broader scheme or arrangement. 12. The details of these restructures are outlined below. Restructure A (Interposition between the relevant taxpayers and Company D) 13. Individual A will incorporate Company G (final entity name to be confirmed at time of incorporation) as an Australian proprietary company limited by shares, and will be the sole shareholder of one redeemable initial subscriber share on issue in Company G with paid up capital of $X. 14. Company G will pass a resolution to acquire 100% of the issued shares in Company D. 15. After this resolution is passed, Company G will enter into an agreement with the relevant taxpayers. Under this agreement: (a) Company G will issue to the relevant taxpayers X,XXX,XXX ordinary shares in the following proportions: (i) to Company A: X,XXX,XXX (ii) to Company B: X,XXX,XXX (iii) to Company C: X,XXX,XXX (b) The paid up amount of each of these ordinary shares will be $X per share. (c) The relevant taxpayers will transfer all Class A and Class B ordinary shares in Company D to Company G. (d) Each parcel of new ordinary shares in Company G issued as consideration for the purchase of the Class A and Class B shares in Company D from the respective taxpayer will be of equal value and in the same proportion to the shares in Company D transferred by the particular taxpayer to Company G. 16. At or around the same time, Individual A will redeem or cancel their redeemable share and the amount of $X initial share capital will be returned. 17. The following ratios will be equal: (a) The ratio of the market value of each of the relevant taxpayers' respective shares in Company G to the market value of the shares in Company G issued to all of the relevant taxpayers. (b) The ratio of the market value of each of the relevant taxpayers' shares in Company D that were disposed of under the restructure to the market value of all shares in Company D that were disposed of under the restructure. 18. This will have the effect that Company G will be interposed between the relevant taxpayers and Company D. Restructure B (Interposition between the relevant taxpayers and Company E) 19. Individual A will incorporate Company H (final entity name to be confirmed at time of incorporation) as an Australian proprietary company limited by shares, and will be the sole shareholder of one redeemable initial subscriber share on issue in Company H with paid up capital of $X. 20. Company H will pass a resolution to acquire 100% of the issued shares in Company E. 21. After this resolution is passed, Company H will enter into a Share Sale Agreement with the relevant taxpayers. Under this agreement: (a) Company H will issue to the relevant taxpayers X,XXX,XXX ordinary shares in the following proportions: (i) to Company A: X,XXX,XXX (ii) to Company B: X,XXX,XXX (iii) to Company C: X,XXX,XXX (b) The paid up amount of each of these ordinary shares will $X per share. (c) The relevant taxpayers will transfer all ordinary shares in Company E to Company H. (d) Each parcel of new ordinary shares in Company H issued as consideration for the purchase of the ordinary shares in Company E from the respective taxpayer will be of equal value and in the same proportion to the shares in Company E transferred by the particular taxpayer to Company H. 22. At or around the same time, Individual A will redeem or cancel their redeemable share and the amount of $X initial share capital will be returned. 23. The following ratios will be equal: (a) The ratio of the market value of each of the relevant taxpayers' respective shares in Company H to the market value of the shares in Company H issued to all of the relevant taxpayers. (b) The ratio of the market value of each of the relevant taxpayers' shares in Company E that were disposed of under the restructure to the market value of all shares in Company E that were disposed of under the restructure. 24. This will have the effect that Company H will be interposed between the relevant taxpayers and Company E. 25. The relevant taxpayers will continue to own and hold the shares in Company G and Company H until they dispose of their respective shareholdings in Company D and Company E (i.e. until the completion time). 26. The Class A and Class B shares in Company D will not be varied, changed, altered or otherwise modified up to and including the completion time. 27. Company G and Company H will make the relevant choice under section 615-30 of the ITAA 1997. Purpose of the restructures 28. In Form OSR D10.1 for Company D and Company E, it was declared that the restructures are for the purpose of changing the corporate structure to make internal adjustments to corporate arrangements. 29. The relevant taxpayers have also submitted that the restructures: (a) creates a new holding structure that will permit new acquisitions to be made outside of the asset owning and operating entities (i.e. Company D and Company E); (b) allows new activities to be undertaken separate to the current operations of these entities; (c) facilitates the ability for the formation of accounting and tax consolidated groups with the newly incorporated and interposed entities (Company G and Company H) as the relevant head companies; (d) improves the structure by ensuring for both groups that there are non-operating holding companies; and, (e) achieves the ability to pay up dividends from the operating subsidiaries for reinvestment within each tax consolidated group. Rights of respective shareholdings for Company D 30. The taxpayers are not aware of any difference between the Class A and Class B ordinary shares except for their initial issued value. Each of the taxpayers hold the Class A and Class B ordinary shares in the same proportion.

Relevant legislative provisions: Income Tax Assessment Act 1997 , Division 615 | Income Tax Assessment Act 1997 , section 615-1 | Income Tax Assessment Act 1997 , section 615-5 | Income Tax Assessment Act 1997 , Subdivision 615-B | Income Tax Assessment Act 1997 , section 615-15 | Income Tax Assessment Act 1997 , section 615-20 | Income Tax Assessment Act 1997 , section 615-25 | Income Tax Assessment Act 1997 , section 615-30 | Income Tax Assessment Act 1997 , section 960-130 | Income Tax Assessment Act 1997 , subsection 995-1(1)

Reasons for decision: Summary: Are the specific requirements under subsection 615-5(1) of the ITAA 1997 for rollover relief met in relation to Restructure A where the existing Class A and Class B shares in Company D are exchanged for ordinary shares in Company G where the ordinary shares are issued by Company G on a proportionate basis to the current Company D shareholders in accordance with their current percentage interest in Company D? | Detailed Reasoning - Overview: 31. Division 615 of the ITAA 1997 states that you can choose for transactions under a scheme to restructure a company's business to be tax neutral if, under the scheme, you cease to own shares in the company and, in exchange, you become the owner of new shares in another company: pursuant to section 615-1 of the ITAA 1997. 32. Subsection 615-5(1) of the ITAA set out the relevant conditions to be met: (1) You can choose to obtain a roll-over if: (a) you are a *member of a company...(the original entity ); and (b) you and at least one other entity (the exchanging members ) own all the *shares...in it; (c) under a *scheme for reorganising its affairs, the exchanging members *dispose of all their shares...in it to a company (the interposed company ) in exchange for shares in the interposed company (and nothing else); and (d) the requirements in Subdivision 615-B are satisfied. Note 1: ... Note 2: After the completion of the scheme, later dealings between the interposed entity and the original entity may be subject to the rules for consolidated groups (see Part 3-90). 33. Subsection 995-1(1) of the ITAA defines: (a) 'dispose of' as meaning a disposal of a CGT asset in the circumstances as specified in section 104-10 of the ITAA 1997 (i.e. a CGT event A1). (b) a 'member' (in relation to an entity) as having the meaning given by section 960-130 of the ITAA 1997. Item 1 of the table found under subsection 960-130(1) of the ITAA 1997 states that a 'member' is a member of the company or a stockholder in the company. (c) a 'scheme' as meaning any arrangement, or any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. (d) a 'share' (in relation to a company) as meaning a share in the capital of the company, and includes stock. 34. Subdivision 615-B of the ITAA 1997 outlines further requirements for choosing to obtain this roll-over. 35. Section 615-15 of the ITAA 1997 states: The interposed company must own all the shares...in the original entity immediately after the time (the completion time ) all the exchanging members have had their shares...in the original entity disposed of...under the scheme. 36. Section 615-20 of the ITAA 1997 also requires: (1) Immediately after the completion time, each exchanging member must own: (a) a whole number of shares in the interposed company; and (b) a percentage of the shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares...in the original entity that were: (i) owned by the member; and (ii) disposed of...under the scheme. (2) The following ratios must be equal: (a) the ratio of: (i) the *market value of each exchanging member's shares in the interposed company; to (ii) the market value of the shares in the interposed company issued to all the exchanging members (worked out immediately after the completion time); (b) the ratio of: (i) the market value of that member's share...in the original entity that were disposed of...under the scheme; to (ii) the market value of all the shares...in the original entity that were disposed of...under the scheme (worked out immediately before the first disposal...). (3) Either: (a) you are an Australian resident at the time your shares...in the original entity are disposed of...under the scheme; or (b) ... 37. In relation to the interposed company, section 615-25 of the ITAA 1997 also requires: (1) The shares issued in the interposed company must not be redeemable shares. (2) Each exchanging member who is issued shares in the interposed company must own the shares from the time they are issued until at least the completion time. (3) Immediately after the completion time: (a) the exchanging members must own all the shares in the interposed company; or (b) ... 38. Further, section 615-30 of the ITAA 1997 requires that: (1) Unless subsection (2) applies, the interposed company must choose that section 615-65 applies. (2) The interposed company must choose that a consolidated group continues in existence at and after the completion time with the interposed company as its head company, if: (a) immediately before the completion time, the consolidated group consisted of the original entity as head company and one or more other members (the other group members ); and (b) immediately after the completion time, the interposed company is the head company of a consolidatable group consisting only of itself and the other group members. (3) A choice under subsection (1) or (2) must be made: (a) within 2 months after the completion time, if the choice is under subsection (1); or (b) within 28 days after the completion time, if the choice is under subsection (2); or (c) within such further time as the Commissioner allows. 39. For the purposes of this ruling, the Commissioner has determined that section 615-35 does not apply. | Detailed Reasoning - Paragraphs 615-5(1)(a) to (c): 40. Paragraph 615-5(1)(a) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) Company D is the original entity. (b) Company A is a member of Company D. (c) Company B is a member of Company D. (d) Company C is a member of Company D. 41. Paragraph 615-5(1)(b) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) In relation to Company A: Company A and two other entities (Company B and Company C) own all the shares in Company D. (b) In relation to Company B: Company B and two other entities (Company A and Company C) own all the shares in Company D. (c) In relation to Company C: Company C and two other entities (Company A and Company B) own all the shares in Company D. 42. Paragraph 615-5(1)(c) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) Restructure A is a 'scheme' for the purposes of subsection 995-1(1) of the ITAA 1997. (b) Restructure A is a scheme for reorganising the affairs of Company D. (c) Under Restructure A: (i) The relevant taxpayers will transfer all of their shares in Company D to the newly incorporated Company G. (ii) This transfer of shares will result in the happening of a CGT event A1 for the purposes of section 104-10 of the ITAA 1997. (iii) As consideration for these shares, Company G will issue to the relevant taxpayers shares in Company G. (iv) Nothing else is received by the relevant taxpayers. 43. As a result, paragraphs 615-5(1)(a) to (c) of the ITAA 1997 have been satisfied. | Detailed Reasoning - Paragraph 615-5(1)(d) and Subdivision 615-B: 44. Section 615-15 of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) Company G will issue to the relevant taxpayers X,XXX,XXX ordinary shares. (b) Individual A will redeem their $X subscriber share. (c) The relevant taxpayers will transfer all Class A and Class B shares (representing all the shares in Company D) to Company G. This will be the completion time. (d) As a result, this will have the effect that Company G will own all of the shares in Company D immediately after the completion time. 45. Subsection 615-20(1) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) The number and percentage of shares owned by the relevant taxpayers in Company D prior to Restructure A was: (i) In relation to Company A: X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares; (ii) In relation to Company B: X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares; and, (iii) In relation to Company C: X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares. (b) The number and percentage of shares in Company D disposed of by the relevant taxpayers under Restructure A was: (i) In relation to Company A: X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares; (ii) In relation to Company B: X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares; and, (iii) In relation to Company C: X,XXX,XXX Class A and X,XXX,XXX Class B ordinary shares. (c) Immediately after the completion time (outlined above): (i) Company A will own X,XXX,XXX ordinary shares. (ii) Company B will own X,XXX,XXX ordinary shares. (iii) Company C will own X,XXX,XXX ordinary shares. (d) As a result, immediately after the completion time, each of the relevant taxpayers will own: (i) a whole number of shares in Company G; and (ii) a percentage of the shares in Company G that were issued to the relevant taxpayers that is equal to the percentage of shares in Company D owned by the relevant taxpayers and were disposed of under Restructure A. 46. Subsection 615-20(2) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers because the following ratios will be achieved: (a) The market value of each of the relevant taxpayers' share in Company D that will be disposed of under Restructure A to the market value of the shares in Company D issued to all the relevant taxpayers to be disposed of under Restructure A; and, (b) The market value of each of the relevant taxpayers' shares in Company G to the market value of the shares in Company G issued to all the relevant taxpayers. 47. Subsection 615-20(3) of the ITAA 1997 has been satisfied because each of the relevant taxpayers will be Australian residents when the shares in Company D are disposed of under Restructure A. 48. Subsection 615-25(1) of the ITAA 1997 will be satisfied because the shares to be issued to the relevant taxpayers in Company G will not be redeemable shares. 49. Subsection 615-25(2) of the ITAA 1997 will be satisfied because each of the relevant taxpayers will own the shares in Company G from the time they are issued until the completion time. 50. Subsection 615-25(3) of the ITAA 1997 will be satisfied because, immediately after the completion time, the relevant taxpayers will own all the shares in Company G (as highlighted above). 51. Section 615-30 of the ITAA 1997 will be satisfied. 52. As a result, paragraphs 615-5(1)(d) and Subdivision 615-B of the ITAA 1997 have been satisfied. | Detailed Reasoning - Conclusion: 53. The specific requirements under subsection 615-5(1) of the ITAA 1997 for rollover relief have been met in relation to Restructure A. | Detailed Reasoning - Question 2: Are the specific requirements under Subsection 615-5(1) of the ITAA 1997 for rollover relief met in relation to Restructure B where the existing ordinary shares in Company E are exchanged for ordinary shares in Company H where the ordinary shares are issued by Company H on a proportionate basis to the current Company E shareholders in accordance with their current percentage interest in Company E? Detailed reasoning 54. The relevant provisions have been outlined above. | Detailed Reasoning - Paragraphs 615-5(1)(a) to (c): 55. Paragraph 615-5(1)(a) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) Company E is the original entity. (b) Company A is a member of Company E. (c) Company B is a member of Company E. (d) Company C is a member of Company E. 56. Paragraph 615-5(1)(b) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) In relation to Company A: Company A and two other entities (Company B and Company C) own all the shares in Company E. (b) In relation to Company B: Company B and two other entities (Company A and Company C) own all the shares in Company E. (c) In relation to Company C: Company C and two other entities (Company A and Company B) own all the shares in Company E. 57. Paragraph 615-5(1)(c) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) Restructure B is a 'scheme' for the purposes of subsection 995-1(1) of the ITAA 1997. (b) Restructure B is a scheme for reorganising the affairs of Company E. (c) Under Restructure B: (i) The relevant taxpayers will transfer all of their shares in Company E to the newly incorporated Company H. (ii) This transfer of shares will result in the happening of a CGT event A1 for the purposes of section 104-10 of the ITAA 1997. (iii) As consideration for these shares, Company H will issue to the relevant taxpayers shares in Company H. (iv) Nothing else is received by the relevant taxpayers. 58. As a result, paragraphs 615-5(1)(a) to (c) of the ITAA 1997 have been satisfied. | Detailed Reasoning - Paragraph 615-5(1)(d) and Subdivision 615-B: 59. Section 615-15 of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) Company H will issue to the relevant taxpayers X,XXX,XXX ordinary shares. (b) Individual A will redeem their $X subscriber share. (c) The relevant taxpayers will transfer all ordinary shares (representing all the shares in Company E) to Company H. This will be the completion time. (d) As a result, this will have the effect that Company H will own all of the shares in Company E immediately after the completion time. 60. Subsection 615-20(1) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) The number and percentage of shares owned by the relevant taxpayers in Company E prior to Restructure B was: (i) In relation to Company A: X,XXX,XXX ordinary shares; (ii) In relation to Company B: X,XXX,XXX ordinary shares; and, (iii) In relation to Company C: X,XXX,XXX ordinary shares. (b) The number and percentage of shares in Company E disposed of by the relevant taxpayers under Restructure B was: (i) In relation to Company A: X,XXX,XXX ordinary shares; (ii) In relation to Company B: X,XXX,XXX ordinary shares; and, (iii) In relation to Company C: X,XXX,XXX ordinary shares. (c) Immediately after the completion time (outlined above): (i) Company A will own X,XXX,XXX. (ii) Company B will own X,XXX,XXX. (iii) Company C will own X,XXX,XXX. (d) As a result, immediately after the completion time, each of the relevant taxpayers will own: (i) a whole number of shares in Company H; and (ii) a percentage of the shares in Company H that were issued to the relevant taxpayers that is equal to the percentage of shares in Company E owned by the relevant taxpayers and were disposed of under Restructure B. 61. Subsection 615-20(2) of the ITAA 1997 has been satisfied with respect of each of the relevant taxpayers: (a) The market value of each of the relevant taxpayers' share in Company E that will be disposed of under Restructure B to the market value of the shares in Company E issued to all the relevant taxpayers to be disposed of under Restructure B; and, (b) The market value of each of the relevant taxpayers' shares in Company H to the market value of the shares in Company H issued to all the relevant taxpayers. 62. Subsection 615-20(3) of the ITAA 1997 has been satisfied because each of the relevant taxpayers will be Australian residents when the shares in Company E are disposed of under Restructure B. 63. Subsection 615-25(1) of the ITAA 1997 will be satisfied because the shares to be issued to the relevant taxpayers in Company H will not be redeemable shares. 64. Subsection 615-25(2) of the ITAA 1997 will be satisfied because each of the relevant taxpayers will own the shares in Company H from the time they are issued until the completion time. 65. Subsection 615-25(3) of the ITAA 1997 will be satisfied because, immediately after the completion time, the relevant taxpayers will own all the shares in Company H (as highlighted above). 66. Section 615-30 of the ITAA 1997 will be satisfied. 67. As a result, paragraphs 615-5(1)(d) and Subdivision 615-B of the ITAA 1997 have been satisfied. | Detailed Reasoning - Conclusion: 68. The specific requirements under subsection 615-5(1) of the ITAA 1997 for rollover relief have been met in relation to Restructure B.