Private ruling: Offshore Mergers
Date of advice: 16 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2018
Date scheme commenced: When the merger agreements are entered into

Ruling: Q1: Will the transfer of assets by CFC Subsidiary to CFC Parent give rise to notional assessable income of CFC Subsidiary? | A1: No | Q2: Will the CFC Parent's cancellation of shares in CFC Subsidiary give rise to notional assessable income of CFC Parent? | A2: No

Relevant facts and circumstances: CFC Parent and CFC Subsidiary are non-resident companies wholly owned by a resident company. CFC Parent wholly owns CFC Subsidiary. Under an offshore merger, CFC Subsidiary will transfer all of its assets to CFC Parent for nil consideration. Subsequent to the transfer, CFC Parent will cancel all of its shares in CFC Subsidiary also for nil consideration. CFC Subsidiary will cease to exist and CFC Parent will continue.

Relevant legislative provisions: Part X of the ITAA 1936 | Subdivision 126-B of the ITAA 1997 | Division 116 of the ITAA 1997

Reasons for decision: Summary: CGT roll-over relief under Subdivision 126-B of the ITAA 1936 will apply to any capital gain made by CFC Subsidiary from the transfer of its assets to CFC Parent. Accordingly, CFC Subsidiary will not have a notional assessable income for the purposes of Part X of the ITAA 1936. The market value substitution rule under Division 116 of the ITAA 1997 will apply to the nil capital proceeds received by CFC Parent from its cancellation of shares in CFC Subsidiary. However, as the market value of the shares in CFC Subsidiary is nil because CFC Subsidiary no longer has assets, the capital proceeds received by CFC Parent will also be nil. Accordingly, CFC Parent will not make a capital gain from the cancellation of the shares in CFC Subsidiary. CFC Parent will also not have notional assessable income for the purposes of Part X of the ITAA 1936.