Private ruling: CGT rollover under Subdivision 126-B of the Income Tax Assessment Act 1997 (“ITAA 1997”)
Date of advice: 30 August 2017
Published: December 2017
Ruling period: 1 July 2017 to 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is ForHeadCo, a cooperatief formed under the laws of Country A, regarded as a company under subsection 995-1(1) of the ITAA 1997 for the purposes of Subdivision 126-B of the ITAA 1997? | A1: Yes. | Q2: Do the ‘members’ of ForHeadCo, a cooperatief formed under the laws of Country A, own shares in ForHeadCo for the purposes of Subdivision 975-W of the ITAA 1997 and Subdivision 126-B of the ITAA 1997? | A2: Yes. | Q3: If the answer to Question 1 is “Yes”, will ForCo1 qualify for rollover under Subdivision 126-B of the ITAA 1997 for the transfer of shares in AusCo to ForHeadCo? | A3: Yes. | Q4: If the answers to Question 1 and Question 2 are “Yes”, will ForHeadCo qualify for rollover under Subdivision 126-B of the ITAA 1997 for the transfer of shares in AusCo to ForHeadCo? | A4: Yes. | Q5: Will ForHeadCo qualify for a rollover under Subdivision 126-B of the ITAA 1997 for the transfer of shares in AusCo to ForCo3? | A5: Yes. | Q6: Will ForHeadCo qualify for a rollover under Subdivision 126-B of the ITAA 1997 for the transfer of shares in ForCo3 to ForCo4? | A6: Yes.

Relevant facts and circumstances: International Ownership Structure 1. ForHeadCo is a foreign based entity that owns and manages two distinct international businesses. 2. ForHeadCo has invested XX% of the members account balance of ForHeadCo, a cooperatief incorporated in Country A. 3. The other X% of the members account balance of ForHeadCo was invested by another related company based in Country .A 4. ForHeadCo owns XX% of the shares issued in ForCo1, a company incorporated in Country A. 5. ForCo1 holds XX% of the shares issued in AusCo. AusCo 6. AusCo is an Australian company and the head of an income tax consolidated group. 7. The shares in AusCo held by ForCo1 are taxable Australian property (“TAP”) at the time of the restructure. ForHeadCo 8. The key characteristics of ForHeadCo are: (i) Incorporation – ForHeadCo was formed by execution of a deed, which contained Articles of Association stating ForHeadCo’s objects and affairs providing it with separate legal identity from its members. The Articles may not be amended otherwise than by resolution of a general meeting of members. (ii) Preparation and retention of annual accounts – The Board of ForHeadCo shall prepare and retain annual accounts and make them available for inspection by members. The annual accounts may be subject to audit if required by the Country A Civil Code and are to be adopted by the General Meeting of Members. (iii) Capacity to legally own assets and conclude agreements in its own name – ForHeadCo has its own rights and obligations with the capacity to legally and beneficially own assets and to provide collateral, and to bind itself for other obligations of third parties (i.e. to enter contracts in its own name and to sue to enforce performance of such contracts). (iv) Limited liability – Upon the dissolution of ForHeadCo, members are not required to make any additional contributions in respect of any deficits. (v) Characteristics of rights and obligations of members – The members of ForHeadCo: i. may be individuals, legal entities and partnerships ii. can transfer their membership of the ForHeadCo with the unanimous approval of a General Meeting of Members iii. can be admitted to the membership of the ForHeadCo with the unanimous approval of a General Meeting of Members iv. may be required to pay an admittance fee on becoming a new member, and v. shall be recorded as members of the ForHeadCo in a register to be kept by the Board. (vi) Termination of membership – The membership of a particular member may end: i. upon notice of termination by the member ii. in the case of legal entities and partnerships, upon them ceasing to exist other than pursuant to a legal merger or legal division iii. upon notice of termination by the ForHeadCo, and iv. upon removal ordered by the General Meeting of Members. (vii) Consequence of termination – Upon termination of membership, the balance of the membership account and the reserve account of the relevant member shall be paid out by ForHeadCo. The Articles of Association do not prevent these payments from being made to the estate of a deceased member who is an individual. (viii) Members’ voting rights – The members of ForHeadCo are entitled to cast votes at a General Meeting of Members in proportion to the balance of their membership and reserve accounts as per the moment of exercise of the voting rights. (ix) Role and composition of the management board – The management board is entrusted with the management of ForHeadCo and the responsibilities of the Board are governed by the Articles of Association. The Board is authorised to, among other things, conclude agreements to acquire, alienate or encumber registered property, to conclude agreements whereby the ForHeadCo binds itself as surety or joint and several co-debtor and to represent the ForHeadCo. (x) Capital contributions and return of capital – Capital contributed to ForHeadCo is credited to the member account for each contributing member. Contributions standing in the member account can only be repaid to members on the unanimous vote of members or upon termination of membership or the winding up of the ForHeadCo. (xi) Distribution of profits – The net profits or losses of ForHeadCo shall be attributed to the reserve accounts of each member in proportion to the average daily balance of each member’s membership and reserve accounts for the relevant financial year. Each member has the right to withdraw an amount from its reserve account only if the withdrawal does not result in a negative balance to the reserve account. (xii) General meetings – The annual General Meeting of Members shall be held every year to adopt the annual report, discharge Directors from liability for actions in respect of their management for the preceding financial year and make other resolutions as necessary. (xiii) Merger, division, amendment to the articles of association and dissolution – ForHeadCo may be merged, divided or wound up by a resolution of the general meeting of the members. Where a resolution to dissolve the ForHeadCo is adopted the Board shall act as liquidators and shall be responsible for the liquidation of ForHeadCo’s assets and liabilities, unless a court should appoint another liquidator. The liquidation surplus shall be distributed to members in proportion to the balance of the membership and reserve account of each member at the date of the resolution to dissolve. 9. Under the Country A Civil Code, cooperatiefs are: (i) subject to corporate income tax (ii) incorporated as separate legal personalities with limited liability for participants (iii) seen as legal persons (iv) have the capacity to legally own and dispose of assets, and (v) have the power to sue and be sued. Proposed global restructure 10. Global group management is of the view that its current global structure is not organised in a cohesive manner, which has resulted in commercial difficulties. 11. As such, global management has decided to restructure its global operations. 12. The restructure process involves a restructure of divisions and entities to facilitate internal efficiencies and streamlined dealings with external stakeholders. 13. Global management intends to simplify the structure while also aligning the management and legal structure of the group into distinct business lines, which will be held in separate lines of ownership. 14. To effect this strategy AusCo must move to new ownership in a different business line in the global group. 15. ForCo3 is a foreign company which will operate as the initial holding company for the business line responsible for AusCo’s operations. ForCo3 is wholly owned by ForHeadCo. 16. ForHeadCo will also incorporate ForCo4, a foreign company which will be interposed between ForHeadCo and ForCo3 to operate as the holding company for all of the relevant business line. Relevant restructure steps Step 1 17. ForHeadCo will acquire the X% interest in ForHeadCo held by its Country A affiliate. 18. Subsequently, ForHeadCo will be wholly owned by ForHeadCo. Step 2 19. ForCo1 will transfer all of its shares in AusCo to ForHeadCo in the form of a dividend as a distribution in specie. 20. ForCo1 and ForHeadCo will both choose to obtain the rollover under paragraph 126-55(1)(b) of the ITAA 1997. 21. ForHeadCo will not hold its shares in AusCo as trading stock. Step 3 22. ForHeadCo will transfer all of its shares in AusCo to ForHeadCo in the form of a dividend as a distribution in specie. 23. ForHeadCo and ForHeadCo will both choose to obtain the rollover under paragraph 126-55(1)(b) of the ITAA 1997. 24. ForHeadCo will not hold its shares in AusCo as trading stock. Step 4 25. ForHeadCo will transfer all of its shares in AusCo to ForCo3 in exchange for shares in ForCo3 being issued to ForHeadCo. 26. ForHeadCo and ForCo3 will both choose to obtain the rollover under paragraph 126-55(1)(b) of the ITAA 1997. 27. ForCo3 will not hold its shares in AusCo as trading stock. 28. Following the completion of this step, the shares in ForCo3 are TAP. Step 5 29. ForCo4 is incorporated and issues shares in itself to ForHeadCo in exchange for acquiring all of the shares in ForCo3. 30. ForHeadCo and ForCo4 will both choose to obtain the rollover under paragraph 126-55(1)(b) of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 126-B | Income Tax Assessment Act 1997 section 855-15 | Income Tax Assessment Act 1997 section 855-25 | Income Tax Assessment Act 1997 Subdivision 975-W | Income Tax Assessment Act 1997 subsection 995-5(1)

Reasons for decision: Summary: Yes. ForHeadCo is a company as defined in subsection 995-1(1) and will therefore be considered a company for the purposes of applying the provisions in Subdivision 126-B. | Detailed Reasoning - Detailed reasoning: The Articles of Association of a Country A cooperatief are highly flexible and the rights and obligations of the members of one cooperatief may be substantially different to the rights and obligations of the members of another cooperatief . As such, the determination of whether a cooperatief will be considered a company will turn on the specific Articles of Association of each cooperatief . The provisions of Subdivision 126-B provide CGT roll-over to a company (the originating company) that transfers a CGT asset to , or creates a CGT asset in, another company (the recipient company) that is a member of the same ‘wholly-owned group’ (subsection 126-50(1)). Section 975-500 details the requirements for a wholly-owned group: Two companies are members of the same wholly-owned group if: (a) one of the companies is a XX% subsidiary of the other company; or (b) each of the companies is a XX% subsidiary of the same third company. Subsection 975-505(1) provides that a company is a ‘XX% subsidiary’ of another company if all the shares in the subsidiary company are beneficially owned by the holding company, or one or more XX% subsidiaries of the holding company, or both. As such, a critical consideration in the application of Subdivision 126-B is whether the originating and recipient entities are companies. Subsection 995-1(1) defines the term ‘company’ as: (a) a body corporate; or (b) any other unincorporated association or body of persons; but does not include a partnership or a non-entity joint venture. | Detailed Reasoning - Body corporate: The term ‘body corporate’ is not defined in the Income Tax Assessment Act 1936 or the ITAA 1997. Miscellaneous Tax Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (“MT 2006/1”) considers the definition of ‘body corporate’: Body corporate 30. 'Body corporate' is not a defined term. The term takes its meaning from the general law. 'Body corporate' is a general term to describe an artificial entity having a separate legal existence. A body corporate has the ability to continue in existence indefinitely and to keep its identity regardless of changes to its membership. It also has the power to act, hold property, enter into legal contracts, sue and be sued in its own name, just as a natural person can. 31. A body corporate may be created: ● by common law, for example a chartered corporation; ● by statute, for example a Corporations Act company; or ● by registration pursuant to a statute, for example building societies, credit unions, trade unions and incorporated associations. Section 9 of the Corporations Act 2001 (Cth) (“Corporations Act”) defines ‘body corporate’ as: (a) includes a body corporate that is being wound up or has been dissolved; and (b) in this Chapter (except section 66A) and section 206E includes an unincorporated registrable body. The Macquarie Dictionary 3 rd edition, 1997 Macquarie University, NSW, (“Macquarie Dictionary”) defines a ‘body corporate’ as: ‘an association or group of persons legally incorporated in a corporation’ The Macquarie Dictionary also defines the term ‘corporation’ as: An association of individuals, created by law or under authority of law, having a continuous existence irrespective from that of its members, and powers and liabilities distinct from those of its members. Furthermore, the Corporations Act defines the term ‘corporation’: “corporation” has the meaning given by section 57A. Section 57A if the Corporations Act states: (1) Subject to this section, in this Act, corporation includes: (a) a company; and (b) any body corporate (whether incorporated in this jurisdiction or elsewhere); and (c) an unincorporated body that under the law of its place of origin, may sue or be sued, or may hold property in the name of its secretary or of an office holder of the body duly appointed for that purpose. (2) Neither of the following is a corporation: (a) an exempt public authority; (b) a corporation sole. Accordingly, a ‘body corporate’, and therefore a ‘company’ for the purposes of the definition in subsection 995-1(1) includes a corporation which is a body incorporated by statute that: (i) has a separate legal existence conferred by the appropriate legal authority, (ii) has the ability to continue indefinitely, (iii) has the ability to keep its identity regardless of changes to its membership, (iv) has the power to act, hold property and enter into legal contracts in its own name, and may sue or be sued. | Detailed Reasoning - Is ForHeadCo a body corporate?: In assessing the status of ForHeadCo against the four factors outlined above: (i) ForHeadCo was incorporated by execution of a deed, which contained Articles of Association stating ForHeadCo’ s objects and affairs, providing it with separate legal identity from its members. Furthermore, the members of ForHeadCo will not be liable for ForHeadCo’s debts and shall be under no obligation to contribute to a deficit existing at the time of dissolution. (ii) ForHeadCo shall only dissolve in the event of a resolution to dissolve it by its members. (iii) ForHeadCo’ s members can transfer their membership of the ForHeadCo with the unanimous approval of a General Meeting of Members without affecting the status of ForHeadCo and new members can be admitted to the membership of the ForHeadCo. (iv) ForHeadCo has its own rights and obligations with the capacity to legally and beneficially own assets and to provide collateral, and to bind itself for other obligations of third parties, including to enter contracts in its own name and to sue to enforce performance of such contracts. As such, ForHeadCo will meet the definition of ‘body corporate’ within the definition of a ‘company’ pursuant to subsection 995-1(1). | Detailed Reasoning - Is ForHeadCo a partnership or non-entity joint venture?: In order for ForHeadCo to be considered to be a company, it must also be shown not to be a partnership or non-entity joint venture. Subsection 995-1(1) defines a ‘partnership’ as: (a) an association of persons (other than a company or a limited partnership) carrying on a business as partners or in receipt of ordinary income or statutory income jointly; or (b) a limited partnership. A ‘limited partnership’ is defined by subsection 995-1(1) to be: (a) an association of persons (other than a company) carrying on business as partners or in receipt of *ordinary income or *statutory income jointly, where the liability of at least one of those persons is limited; or (b) an association of persons (other than one referred to in paragraph (a)) with legal personality separate from those persons that was formed solely for the purpose of becoming a *VCLP, an *ESVCLP, an *AFOF or a *VCMP and to carry on activities that are carried on by a body of that kind. Subsection 995-1(1) defines ‘non-entity joint venture’ as: an arrangement that the Commissioner is satisfied is a contractual arrangement: (a) under which 2 or more parties undertake an economic activity that is subject to the joint control of the parties; and (b) that is entered into to obtain individual benefits for the parties, in the form of a share of the output of the arrangement rather than joint or collective profits for all the parties. ForHeadCo is a separate legal entity from its members who hold membership interests in its capital in the form of the members capital deposited into the members accounts. The business of ForHeadCo is carried out by ForHeadCo itself, not its members in partnership or as a joint venture. The members are entitled to be attributed the net profits or losses evidenced by the annual accounts of ForHeadCo in their reserve account in the relevant financial year. As such, the members do not receive income jointly from the business of ForHeadCo or as individual benefit from an arrangement. ForHeadCo receives income in its separate legal capacity and pays expenses and distributes the net profits or losses made to its members in each financial year. As such, ForHeadCo is not a partnership, including a limited partnership, nor a non-entity joint venture. As such, ForHeadCo is a company as it meets the definition of ‘body corporate’ and is not excluded from being a company by virtue of being a partnership or non-entity joint venture. | Detailed Reasoning - Question 2: Do the ‘members’ of ForHeadCo, a cooperatief formed under the laws of the Country A, own shares in the ForHeadCo for the purposes of Subdivision 975-W and Subdivision 126-B? | Summary: Yes. The ‘members’ of ForHeadCo are considered to own shares in the cooperatief for the purposes of Subdivision 975-W and Subdivision 126-B. | Detailed Reasoning - Detailed reasoning: The Articles of Association of a Country A cooperatief are highly flexible and the rights and obligations of the members of one cooperatief may be substantially different to the rights and obligations of the members of another cooperatief. As such, the determination of whether a cooperatief will be considered a company will turn on the specific Articles of Association of each cooperatief. The provisions of Subdivision 126-B provide CGT roll-over to a company (the originating company) that transfers a CGT asset to , or creates a CGT asset in, another company (the recipient company) that is a member of the same ‘wholly-owned group’ (subsection 126-50(1)). Section 975-500 details the requirements for a wholly-owned group: Two companies are members of the same wholly-owned group if: (a) one of the companies is a XX% subsidiary of the other company; or (b) each of the companies is a XX% subsidiary of the same third company. Subsection 975-505(1) provides that a company is a ‘XX% subsidiary’ of another company if all the shares in the subsidiary company are beneficially owned by the holding company, or one or more XX% subsidiaries of the holding company, or both. As such, a critical consideration in the application of Subdivision 126-B is whether the owners of ForHeadCo own ‘shares’ in ForHeadCo. | Detailed Reasoning - Definition of a ‘share’: Subsection 995-1(1) defines the term ‘share’ as: share in a company means a share in the capital of the company, and includes stock. Subsection 1070A(1) of the Corporations Act defines a share as: A share, or other interest of a member in a company or interest of a person in a registered scheme: (a) is personal property; and (b) is transferable or transmissible as provided by: i. the company’s, or scheme’s, constitution; or ii. the operating rules of a prescribed CS facility if they are applicable; and (c) is capable of devolution by will or by operation of law. In Bradbury v English Sewing Cotton Co [1923] AC 744-767, Lord Wrenbury stated: “A share is, therefore, a fractional part of capital. It confers upon the holder a certain right to a proportionate part of the assets of the corporation, whether by way of dividend or of distribution of assets in a winding up. It forms, however, a separate right to property. The capital is the property of the corporation. The share, although it is a fraction of the capital, is the property of the corporator…” In Borland’s Trustee v. Steel Brothers and Co Ltd [1900] 1 Ch 279, Farwell J considered the nature of a share. His comments, later affirmed in a number of cases (for example, Archibald Howie Pty Ltd v. Commissioner of Stamp Duties (NSW) [1948] 77 CLR 143; Inland Revenue Commissioners v. Crossman [1937] AC 26) were as follows: “A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all shareholders inter se in accordance with [the corporations legislation]” Farwell J went on to articulate the source of a share: “The contract contained in the Articles of Association is one of the original incidents of the share. A share is not a sum of money settled in the way suggested, but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.” In Bank of New South Wales v Commonwealth [1948] 76 CLR 1 Latham CJ stated: “A share in a company, regarded as property, consists of the rights to which the shareholder is entitled by the reason of the provisions of the articles and memorandum of association and any relevant statute.” Accordingly, a share: (i) is a fractional interest in the capital, dividend, or assets (upon winding up) of a company measured by a sum of money and the other rights and obligations to which the owner is entitled or obliged by virtue of the articles of association, (ii) is personal property of the member, (iii) is transferable or transmissible or capable of devolution by will or by operation of law. | Detailed Reasoning - Do the members of ForHeadCo own shares in it?: In assessing the status of the membership interests in ForHeadCo against the three factors outlined above: (i) Capital contributed to ForHeadCo is credited to the member account for each contributing member and profits are attributed to the reserve accounts pro rata. The members of ForHeadCo are entitled to cast votes at a General Meeting of Members in proportion to the balance of their membership and reserve accounts as per the moment of exercise of the voting rights. Where a resolution to dissolve the ForHeadCo is adopted the liquidation surplus shall be distributed to members in proportion to the balance of the membership and reserve account of each member at the date of the resolution to dissolve. (ii) Contributions standing in the member account can only be repaid to members on the unanimous vote of members or upon termination of membership or the winding up of the ForHeadCo. (iii) The members of ForHeadCo can transfer their membership of the ForHeadCo with the unanimous approval of a General Meeting of Members and new members can be admitted to the membership of the ForHeadCo with the unanimous approval of a General Meeting of Members. If a membership is terminated then the balance of the membership account and the reserve account of the relevant member shall be paid out by the ForHeadCo to the member. ForHeadCo has been determined to be a ‘company’ for the purposes of subsection 995-1(1) at Question 1. While there are no legal form shares in ForHeadCo, only members who make capital contributions which are recorded in the membership accounts of each member and only members are subsequently entitled to proportionate voting, capital and dividend rights in the entity. Additionally, the membership of ForHeadCo can be transferred with the unanimous approval of the General Meeting of Members. As such, the members of ForHeadCo have a share in the capital of the company and their interests will be considered shares for the purposes of subsection 975-505(1) and the provisions of Subdivision 126-B. | Detailed Reasoning - Question 3: If the answer to Question 1 is “Yes”, will ForCo1 qualify for rollover under Subdivision 126-B for the transfer of shares in AusCo to ForHeadCo? | Summary: ForCo1 will qualify for the roll-over under Subdivision 126-B for the transfer of shares in AusCo to ForHeadCo. | Detailed Reasoning - Detailed reasoning: The provisions of Subdivision 126-B provide CGT roll-over to a company (the originating company) that transfers a CGT asset to , or creates a CGT asset in, another company (the recipient company) that is a member of the same ‘wholly-owned group’ (subsection 126-50(1)). | Detailed Reasoning - Trigger Event: Subsections 126-45(1) and (2) of Subdivision 126-B state: 126-45(1) There may be a roll-over if a *CGT event (the trigger event) happens involving a company (the originating company) and another company (the recipient company) in the circumstances set out in section 126-50. 126-45(2) Only these *CGT events are relevant: (a) CGT events A1 and B1 (a disposal case); and (b) CGT events D1, D2, D3 and F1 (a creation case). Subsections 126-45(1) and 126-45(2) require that a CGT event of a specified type happened to the originating company. CGT event A1 is one of the listed CGT events in paragraph 126-45(2)(a) for the roll-over. When ForCo1 transfers its beneficial interest in AusCo to ForHeadCo, CGT event A1 (the trigger event) will happen. | Detailed Reasoning - Section 126-50 requirements for roll-over: Subsection 126-50(1) requires that the originating company (ForCo1) and recipient company (ForHeadCo) must be members of the same wholly-owned group at the time of the trigger event. Section 975-500 (as referred to by subsection 995-1(1)) provides the definition of 'wholly-owned group' as: Two companies are members of the same wholly-owned group if: a) one of the companies is a XX% subsidiary of the other company; or b) each of the companies is a XX% subsidiary of the same third company. Subsection 975-505(1) then defines a XX% subsidiary as: A company (the subsidiary company) is a XX% subsidiary of another company (the holding company) if all the shares in the subsidiary company are beneficially owned by: (a) the holding company; or (b) one or more XX% subsidiaries of the holding company; or (c) the holding company and one or more XX% subsidiaries of the holding company. ForCo1 is a company incorporated in the Country A and Question 1 has determined that ForHeadCo is a company. ForHeadCo beneficially owns all of the shares in ForCo1. As such, ForCo1 is a XX% subsidiary of ForHeadCo and they are members of the same wholly-owned group. | Detailed Reasoning - Not trading stock or a registered emissions unit: Subsection 126-50(2) prohibits the roll-over asset being trading stock of the recipient company just after the time of the trigger event or a registered emissions unit. The roll-over assets are the shares in AusCo, which will not be trading stock in the hands of the recipient company just after the transfer (trigger event), nor are they a Kyoto unit or an Australian carbon credit unit (registered emissions units per section 420-10). Accordingly, the condition in subsection 126-50(2) is met. | Detailed Reasoning - Right or convertible interest: Subsection 126-50(3) contains conditions where the rollover asset is a right or convertible interest referred to in Division 130. As the shares in AusCo are not such assets, the subsection is not applicable. | Detailed Reasoning - Option: Subsection 126-50(3A) contains conditions where the rollover asset is an option of the kind referred to in Division 134. As the shares in AusCo are not such an asset, the subsection is not applicable. | Detailed Reasoning - Recipient not an exempt entity: Subsection 126-50(4) provides that the ordinary income and statutory income of the recipient company must not be exempt from income tax because it is an exempt entity for the income year of the trigger event. Subsection 995-1(1) defines 'exempt entity' as: a) an entity all of whose ordinary income and statutory income is exempt from income tax because of this Act or because of another Commonwealth law, no matter what kind of ordinary income or statutory income the entity might have; or b) an untaxable Commonwealth entity. Note: See section 11-5 for a list of entities of the kind referred to in paragraph (a). ForHeadCo is not an exempt entity, within the definition of that term in subsection 995-1(1). Accordingly, subsection 126-50(4) is met. | Detailed Reasoning - TAP: Subsection 126-50(5) provides that where both the originating company and the recipient company are foreign residents, the relevant CGT asset must be TAP just before and just after the trigger event. The shares in AusCo will be TAP just before and just after the trigger event. Accordingly, subsection 126-50(5) is satisfied. | Detailed Reasoning - Remaining provisions: Subsections 126-50(6)-(9) are not relevant to the current transaction. Therefore, all the requirements for roll-over in section 126-50 have been met. | Detailed Reasoning - Capital gain: Subsection 126-55(1)(a) limits the roll-over to the following three circumstances: ● the originating company makes a capital gain under the trigger event; or ● the originating company makes no capital loss and is not entitled to a ● deduction; or ● the originating company acquired the roll-over asset before 20 September 1985. ForCo1 will make a capital gain under CGT event A1 as a result of the transfer. Both ForCo1 and ForHeadCo will choose to obtain the Subdivision 126-B roll-over relief under paragraph 126-55(1)(b). Accordingly, ForCo1 can disregard any capital gain that arises from the transfer of its beneficial interest in the AusCo to ForHeadCo. | Detailed Reasoning - Question 4: If the answers to Question 1 and Question 2 are “Yes”, will ForHeadCo qualify for rollover under Subdivision 126-B for the transfer of shares in AusCo to ForHeadCo? | Summary: ForHeadCo will qualify for the roll-over under Subdivision 126-B for the transfer of shares in AusCo to ForHeadCo. | Detailed Reasoning - Detailed reasoning: The provisions of Subdivision 126-B provide CGT roll-over to a company (the originating company) that transfers a CGT asset to , or creates a CGT asset in, another company (the recipient company) that is a member of the same ‘wholly-owned group’ (subsection 126-50(1)). | Detailed Reasoning - Trigger Event: Subsections 126-45(1) and (2) of Subdivision 126-B state: 126-45(1) There may be a roll-over if a *CGT event (the trigger event) happens involving a company (the originating company) and another company (the recipient company) in the circumstances set out in section 126-50. 126-45(2) Only these *CGT events are relevant: (a) CGT events A1 and B1 (a disposal case); and (b) CGT events D1, D2, D3 and F1 (a creation case). Subsections 126-45(1) and 126-45(2) require that a CGT event of a specified type happened to the originating company. CGT event A1 is one of the listed CGT events in paragraph 126-45(2)(a) for the roll-over. When ForHeadCo transfers its beneficial interest in AusCo to ForHeadCo, CGT event A1 (the trigger event) will happen. | Detailed Reasoning - Section 126-50 requirements for roll-over: Subsection 126-50(1) requires that the originating company (ForHeadCo) and recipient company (ForHeadCo) must be members of the same wholly-owned group at the time of the trigger event. Section 975-500 (as referred to by subsection 995-1(1)) provides the definition of 'wholly-owned group' as: Two companies are members of the same wholly-owned group if: a) one of the companies is a XX% subsidiary of the other company; or b) each of the companies is a XX% subsidiary of the same third company. Subsection 975-505(1) then defines a XX% subsidiary as: A company (the subsidiary company) is a XX% subsidiary of another company (the holding company) if all the shares in the subsidiary company are beneficially owned by: (a) the holding company; or (b) one or more XX% subsidiaries of the holding company; or (c) the holding company and one or more XX% subsidiaries of the holding company. ForHeadCo is a cooperatief incorporated in the Country A and Question 1 has determined that ForHeadCo is a company. Question 2 determined that the membership interests in ForHeadCo are shares. As ForHeadCo holds all of the membership capital in ForHeadCo it, therefore, beneficially owns all of the shares in ForHeadCo. ForHeadCo is a foreign incorporated company. As such, ForHeadCo is a XX% subsidiary of ForHeadCo and they are members of the same wholly-owned group. | Detailed Reasoning - Not trading stock or a registered emissions unit: Subsection 126-50(2) prohibits the roll-over asset being trading stock of the recipient company just after the time of the trigger event or a registered emissions unit. The roll-over assets are the shares in AusCo, which will not be trading stock in the hands of the recipient company just after the transfer (trigger event), nor are they a relevant unit or an Australian carbon credit unit (registered emissions units per section 420-10). Accordingly, the condition in subsection 126-50(2) is met. | Detailed Reasoning - Right or convertible interest: Subsection 126-50(3) contains conditions where the rollover asset is a right or convertible interest referred to in Division 130. As the shares in AusCo are not such assets, the subsection is not applicable. | Detailed Reasoning - Option: Subsection 126-50(3A) contains conditions where the rollover asset is an option of the kind referred to in Division 134. As the shares in AusCo are not such an asset, the subsection is not applicable. | Detailed Reasoning - Recipient not an exempt entity: Subsection 126-50(4) provides that the ordinary income and statutory income of the recipient company must not be exempt from income tax because it is an exempt entity for the income year of the trigger event. Subsection 995-1(1) defines 'exempt entity' as: a) an entity all of whose ordinary income and statutory income is exempt from income tax because of this Act or because of another Commonwealth law, no matter what kind of ordinary income or statutory income the entity might have; or b) an untaxable Commonwealth entity. Note: See section 11-5 for a list of entities of the kind referred to in paragraph (a). ForHeadCo is not an exempt entity, within the definition of that term in subsection 995-1(1). Accordingly, subsection 126-50(4) is met. | Detailed Reasoning - TAP: Subsection 126-50(5) provides that where both the originating company and the recipient company are foreign residents, the relevant CGT asset must be TAP just before and just after the trigger event. The shares in AUSCO will be TAP just before and just after the trigger event. Accordingly, subsection 126-50(5) is satisfied. | Detailed Reasoning - Remaining provisions: Subsections 126-50(6)-(9) are not relevant to the current transaction. Therefore, all the requirements for roll-over in section 126-50 have been met. | Detailed Reasoning - Capital gain: Subsection 126-55(1)(a) limits the roll-over to the following three circumstances: ● the originating company makes a capital gain under the trigger event; or ● the originating company makes no capital loss and is not entitled to a ● deduction; or ● the originating company acquired the roll-over asset before 20 September 1985. ForHeadCo will make a capital gain under CGT event A1 as a result of the transfer. Both ForHeadCo and ForHeadCo will choose to obtain the Subdivision 126-B roll-over relief under paragraph 126-55(1)(b). Accordingly, ForHeadCo can disregard any capital gain that arises from the transfer of its beneficial interest in the AusCo to ForHeadCo. | Detailed Reasoning - Question 5: Will ForHeadCo qualify for a rollover under Subdivision 126-B for the transfer of shares in AusCo to ForCo3? | Summary: ForHeadCo will qualify for the roll-over under Subdivision 126-B for the transfer of shares in AusCo to ForCo3. | Detailed Reasoning - Detailed reasoning: The provisions of Subdivision 126-B provide CGT roll-over to a company (the originating company) that transfers a CGT asset to , or creates a CGT asset in, another company (the recipient company) that is a member of the same ‘wholly-owned group’ (subsection 126-50(1)). | Detailed Reasoning - Trigger Event: Subsections 126-45(1) and (2) of Subdivision 126-B state: 126-45(1) There may be a roll-over if a *CGT event (the trigger event) happens involving a company (the originating company) and another company (the recipient company) in the circumstances set out in section 126-50. 126-45(2) Only these *CGT events are relevant: (a) CGT events A1 and B1 (a disposal case); and (b) CGT events D1, D2, D3 and F1 (a creation case). Subsections 126-45(1) and 126-45(2) require that a CGT event of a specified type happened to the originating company. CGT event A1 is one of the listed CGT events in paragraph 126-45(2)(a) for the roll-over. When ForHeadCo transfers its beneficial interest in AusCo to ForCo3, CGT event A1 (the trigger event) will happen. | Detailed Reasoning - Section 126-50 requirements for roll-over: Subsection 126-50(1) requires that the originating company (ForHeadCo) and recipient company (ForCo3) must be members of the same wholly-owned group at the time of the trigger event. Section 975-500 (as referred to by subsection 995-1(1)) provides the definition of 'wholly-owned group' as: Two companies are members of the same wholly-owned group if: a) one of the companies is a XX% subsidiary of the other company; or b) each of the companies is a XX% subsidiary of the same third company. Subsection 975-505(1) then defines a XX% subsidiary as: A company (the subsidiary company) is a XX% subsidiary of another company (the holding company) if all the shares in the subsidiary company are beneficially owned by: (a) the holding company; or (b) one or more XX% subsidiaries of the holding company; or (c) the holding company and one or more XX% subsidiaries of the holding company. ForHeadCo and ForCo3 are foreign incorporated companies. ForHeadCo beneficially owns all of the shares in ForCo3. As such, ForCo3 is a XX% subsidiary of ForHeadCo and they are members of the same wholly-owned group. | Detailed Reasoning - Not trading stock or a registered emissions unit: Subsection 126-50(2) prohibits the roll-over asset being trading stock of the recipient company just after the time of the trigger event or a registered emissions unit. The roll-over assets are the shares in AusCo, which will not be trading stock in the hands of the recipient company just after the transfer (trigger event), nor are they a relevant unit or an Australian carbon credit unit (registered emissions units per section 420-10). Accordingly, the condition in subsection 126-50(2) is met. | Detailed Reasoning - Right or convertible interest: Subsection 126-50(3) contains conditions where the rollover asset is a right or convertible interest referred to in Division 130. As the shares in AusCo are not such assets, the subsection is not applicable. | Detailed Reasoning - Option: Subsection 126-50(3A) contains conditions where the rollover asset is an option of the kind referred to in Division 134. As the shares in AusCo are not such an asset, the subsection is not applicable. | Detailed Reasoning - Recipient not an exempt entity: Subsection 126-50(4) provides that the ordinary income and statutory income of the recipient company must not be exempt from income tax because it is an exempt entity for the income year of the trigger event. Subsection 995-1(1) defines 'exempt entity' as: a) an entity all of whose ordinary income and statutory income is exempt from income tax because of this Act or because of another Commonwealth law, no matter what kind of ordinary income or statutory income the entity might have; or b) an untaxable Commonwealth entity. Note: See section 11-5 for a list of entities of the kind referred to in paragraph (a). ForCo3 is not an exempt entity, within the definition of that term in subsection 995-1(1). Accordingly, subsection 126-50(4) is met. | Detailed Reasoning - TAP: Subsection 126-50(5) provides that where both the originating company and the recipient company are foreign residents, the relevant CGT asset must be TAP just before and just after the trigger event. The shares in AusCo will be TAP just before and just after the trigger event. Accordingly, subsection 126-50(5) is satisfied. | Detailed Reasoning - Remaining provisions: Subsections 126-50(6)-(9) are not relevant to the current transaction. Therefore, all the requirements for roll-over in section 126-50 have been met. | Detailed Reasoning - Capital gain: Subsection 126-55(1)(a) limits the roll-over to the following three circumstances: ● the originating company makes a capital gain under the trigger event; or ● the originating company makes no capital loss and is not entitled to a ● deduction; or ● the originating company acquired the roll-over asset before 20 September 1985. ForHeadCo will make a capital gain under CGT event A1 as a result of the transfer. Both ForHeadCo and ForCo3 will choose to obtain the Subdivision 126-B roll-over relief. Accordingly, ForCo3 can disregard any capital gain that arises from the transfer of its beneficial interest in the AusCo to ForCo3. | Detailed Reasoning - Question 6: Will ForHeadCo qualify for a rollover under Subdivision 126-Bfor the transfer of shares in ForCo3 to ForCo4? | Summary: ForHeadCo will qualify for the roll-over under Subdivision 126-B for the transfer of shares in ForCo3 to ForCo4. | Detailed Reasoning - Detailed reasoning: The provisions of Subdivision 126-B provide CGT roll-over to a company (the originating company) that transfers a CGT asset to , or creates a CGT asset in, another company (the recipient company) that is a member of the same ‘wholly-owned group’ (subsection 126-50(1)). | Detailed Reasoning - Trigger Event: Subsections 126-45(1) and (2) of Subdivision 126-B state: 126-45(1) There may be a roll-over if a *CGT event (the trigger event) happens involving a company (the originating company) and another company (the recipient company) in the circumstances set out in section 126-50. 126-45(2) Only these *CGT events are relevant: (a) CGT events A1 and B1 (a disposal case); and (b) CGT events D1, D2, D3 and F1 (a creation case). Subsections 126-45(1) and 126-45(2) require that a CGT event of a specified type happened to the originating company. CGT event A1 is one of the listed CGT events in paragraph 126-45(2)(a) for the roll-over. When ForHeadCo transfers its beneficial interest in ForCo3 to ForCo4, CGT event A1 (the trigger event) will happen. | Detailed Reasoning - Section 126-50 requirements for roll-over: Subsection 126-50(1) requires that the originating company (ForHeadCo) and recipient company (ForCo4) must be members of the same wholly-owned group at the time of the trigger event. Section 975-500 (as referred to by subsection 995-1(1)) provides the definition of 'wholly-owned group' as: Two companies are members of the same wholly-owned group if: a) one of the companies is a XX% subsidiary of the other company; or b) each of the companies is a XX% subsidiary of the same third company. Subsection 975-505(1) then defines a XX% subsidiary as: A company (the subsidiary company) is a XX% subsidiary of another company (the holding company) if all the shares in the subsidiary company are beneficially owned by: (a) the holding company; or (b) one or more XX% subsidiaries of the holding company; or (c) the holding company and one or more XX% subsidiaries of the holding company. Both ForHeadCo and ForCo4 are foreign incorporated companies. ForHeadCo beneficially owns all of the shares in ForCo4. As such, ForCo4 is a XX% subsidiary of ForHeadCo and they are members of the same wholly-owned group. | Detailed Reasoning - Not trading stock or a registered emissions unit: Subsection 126-50(2) prohibits the roll-over asset being trading stock of the recipient company just after the time of the trigger event or a registered emissions unit. The roll-over assets are the shares in ForCo3, which will not be trading stock in the hands of the recipient company just after the transfer (trigger event), nor are they a relevant unit or an Australian carbon credit unit (registered emissions units per section 420-10). Accordingly, the condition in subsection 126-50(2) is met. | Detailed Reasoning - Right or convertible interest: Subsection 126-50(3) contains conditions where the rollover asset is a right or convertible interest referred to in Division 130. As the shares in ForCo3 are not such assets, the subsection is not applicable. | Detailed Reasoning - Option: Subsection 126-50(3A) contains conditions where the rollover asset is an option of the kind referred to in Division 134. As the shares in ForCo3 are not such an asset, the subsection is not applicable. | Detailed Reasoning - Recipient not an exempt entity: Subsection 126-50(4) provides that the ordinary income and statutory income of the recipient company must not be exempt from income tax because it is an exempt entity for the income year of the trigger event. Subsection 995-1(1) defines 'exempt entity' as: a) an entity all of whose ordinary income and statutory income is exempt from income tax because of this Act or because of another Commonwealth law, no matter what kind of ordinary income or statutory income the entity might have; or b) an untaxable Commonwealth entity. Note: See section 11-5 for a list of entities of the kind referred to in paragraph (a). ForCo4 is not an exempt entity, within the definition of that term in subsection 995-1(1). Accordingly, subsection 126-50(4) is met. | Detailed Reasoning - TAP: Subsection 126-50(5) provides that where both the originating company and the recipient company are foreign residents, the relevant CGT asset must be TAP just before and just after the trigger event. The shares in ForCo3 will be TAP just before and just after the trigger event. Accordingly, subsection 126-50(5) is satisfied. | Detailed Reasoning - Remaining provisions: Subsections 126-50(6)-(9) are not relevant to the current transaction. Therefore, all the requirements for roll-over in section 126-50 have been met. | Detailed Reasoning - Capital gain: Subsection 126-55(1)(a) limits the roll-over to the following three circumstances: ● the originating company makes a capital gain under the trigger event; or ● the originating company makes no capital loss and is not entitled to a ● deduction; or ● the originating company acquired the roll-over asset before 20 September 1985. ForHeadCo will make a capital gain under CGT event A1 as a result of the transfer. Both ForHeadCo and ForCo4 will choose to obtain the Subdivision 126-B roll-over relief. Accordingly, ForHeadCo can disregard any capital gain that arises from the transfer of its beneficial interest in the ForCo3 to ForCo4.

Reasons for decision: All legislative references are to the ITAA 1997 unless specified otherwise. | Is ForHeadCo, a cooperatief formed under the laws of the Country A, regarded as a company under subsection 995-1(1) for the purposes of Subdivision 126-B?