Private ruling: Demerger
Date of advice: 17 December 2025
Published: 9 February 2026
Ruling period: year ending 30 June 20XX | year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the demerger roll-over relief, pursuant to Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997), be available to the Trust? | A1: Yes. | Q2: Will the dividend component of the in-specie distribution of shares from the Holding Company to the Trust be non-assessable non-exempt income by virtue of sections 44(3) and (4) of the Income Tax Assessment Act 1936 (ITAA 1936), that is, a demerger dividend? | A2: Yes. | Q3: Will the Commissioner make a determination under section 45B of the ITAA 1936 that sections 45BA or 45C apply to the whole, or any part, of the demerger dividend received by the Trust? | A3: No.

Relevant facts and circumstances: Subsidiary Company The Subsidiary Company is an Australian resident company incorporated on DD MM YYYY. Its sole director is Person X. Its sole shareholder is the Holding Company. The Subsidiary Company carries on an engineering and commercial construction business. The market value of the Subsidiary Company is approximately $XX. All of its CGT assets are utilised for its business. Holding Company The Holding Company is an Australian resident company incorporated on DD MM YYYY. Its sole director is Person X. Its sole shareholder is the Trust. The Trust is an Australian resident. Company Y is the trustee of the Trust. The Trust is a discretionary trust and does not operate a business. The Holding Company was originally incorporated to solely be a holding company for the Subsidiary Company. It is not involved in the business undertaken by the Subsidiary Company. The Trust capitalised the Holding Company with $X. This $X was then used by the Holding Company to acquire all the shares in the Subsidiary Company. There were no further (non-share) equity or capital contributions made by the Trust (via the Holding Company) to the Subsidiary Company since the initial $X share capital contribution. The cost base of the shares currently owned by the Trust in the Holding Company is $XX. The Holding Company does not have a history of regularly paying dividends to the Trust. In YYYY, it paid a dividend of $XX million sourced from a $XX million dividend it received from the Subsidiary Company. The Subsidiary Company paid this dividend out of its profits. Acquisition of properties Both the Holding Company and Subsidiary Company acquired a number of properties in recent years: • Between December YYYY and April YYYY, the Holding Company acquired three properties, each for less than $XX million. • In December YYYY, it acquired a commercial property in Victoria for $XX million which it plans to significantly develop. • On DD MM YYYY, the Subsidiary Company purchased two residential properties for investment purposes. On DD MM YYYY, the Subsidiary Company transferred its residential properties to the Property Company for $XX million. The Property Company is wholly owned by the Trust. This transfer was done to enable the Subsidiary Company to offer an employee share ownership plan (ESOP) to a prospective employee. If the Subsidiary Company were still to own the properties, an ESOP would entitle such employees an indirect ownership in them rather than solely the assets of the business. It is submitted by the applicant that: • The ideal structure for the group is for the Holding Company to be primarily engaged in commercial property development and the Property Company to be engaged in residential property development. • Given the unplanned and unsystematic way in which property has been acquired by the group, this ideal is not entirely reflected in the current ownership of the properties. (For example, the Holding Company owns residential properties). However, the division of the ownership of commercial properties and residential properties as between the companies is intended to be maintained as much as possible. • The primary concern for the group at this point in time is separating the Subsidiary Company from the group. Severing the 100% ownership connection between the Holding Company and Subsidiary Company will provide each entity with increased operational and financial autonomy. In particular it is submitted that the objectives sought in this respect are: - to allow access to different financiers for the separate entities (and their business activities), allowing a separation of liability and risk from each other, and access to capital without competing with capital requirements of the other member; - to allow more funding, future investment and growth, by attracting investors for separate business activities undertaken by the separated entities; - to increase borrowing capacity, as the business activity of one company would not affect the borrowing capacity of the other company; - to provide protection from the application of section 588V of the Corporations Act; and - to separate the credit risks of each company. This will be achieved by undertaking the proposed restructure outlined below. Proposed restructure The group is proposing to undertake a demerger in which an in-specie distribution of 100% of the shares in the Subsidiary Company will be made by the Holding Company to the Trust. In executing the demerger, the Holding Company will undertake the following steps: • The Holding Company will undertake an asset revaluation in which the market value of the Subsidiary Company will be ascertained. • The resulting amount represents the notional amount distributed to the Trust as part of the in-specie distribution of the shares in the Subsidiary Company. • $X will be debited against the share capital account of the Holding Company, representing the portion of the in-specie distribution that is attributed to capital. • The remaining portion of the value of the in-specie distribution, being the market value of the Subsidiary Company shares less the capital component of $X, will be debited against the Holding Company's asset revaluation reserve account, reducing it to zero. There is no particular time at which the proposed demerger must occur, although it is anticipated that it will occur in this or the next financial year. Other facts • There is no proposal to dispose of the Subsidiary Company after the demerger, nor any intention on the part of the Trust to deal with its interest in the Subsidiary Company following the demerger. • Person X is actively involved in running and driving the business along with the potential property developments and will continue to do so after the demerger. • After the demerger, the Subsidiary Company will continue to carry on its engineering and commercial construction business which utilises at least 50% by market value of its CGT assets. • There is and has been no arrangement to which subsection 6(4) of the ITAA 1936 applies. • The Trust has no capital losses that would be unutilised at the end of the income year ended 30 June YYYY.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1936 subsection 6(4) | Income Tax Assessment Act 1936 section 44 | Income Tax Assessment Act 1936 subsection 44(1) | Income Tax Assessment Act 1936 paragraph 44(1)(a) | Income Tax Assessment Act 1936 paragraph 44(1)(a)(i) | Income Tax Assessment Act 1936 subsection 44(3) | Income Tax Assessment Act 1936 subsection 44(4) | Income Tax Assessment Act 1936 subsection 44(5) | Income Tax Assessment Act 1936 section 45B | Income Tax Assessment Act 1936 subsection 45B(2) | Income Tax Assessment Act 1936 paragraph 45B(2)(a) | Income Tax Assessment Act 1936 paragraph 45B(2)(b) | Income Tax Assessment Act 1936 paragraph 45B(2)(c) | Income Tax Assessment Act 1936 subsection 45B(3) | Income Tax Assessment Act 1936 subsection 45B(4) | Income Tax Assessment Act 1936 paragraph 45B(4)(a) | Income Tax Assessment Act 1936 subsection 45B(8) | Income Tax Assessment Act 1936 paragraph 45B(8)(a) | Income Tax Assessment Act 1936 paragraph 45B(8)(b) | Income Tax Assessment Act 1936 paragraph 45B(8)(c) | Income Tax Assessment Act 1936 paragraph 45B(8)(d) | Income Tax Assessment Act 1936 paragraph 45B(8)(e) | Income Tax Assessment Act 1936 paragraph 45B(8)(f) | Income Tax Assessment Act 1936 paragraph 45B(8)(h) | Income Tax Assessment Act 1936 paragraph 45B(8)(i) | Income Tax Assessment Act 1936 paragraph 45B(8)(j) | Income Tax Assessment Act 1936 paragraph 45B(8)(k) | Income Tax Assessment Act 1936 section 45BA | Income Tax Assessment Act 1936 section 45C | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 paragraph 177D(2)(a) | Income Tax Assessment Act 1936 paragraph 177D(2)(b) | Income Tax Assessment Act 1936 paragraph 177D(2)(c) | Income Tax Assessment Act 1936 paragraph 177D(2)(d) | Income Tax Assessment Act 1936 paragraph 177D(2)(e) | Income Tax Assessment Act 1936 paragraph 177D(2)(h) | Income Tax Assessment Act 1997 section 104-135 | Income Tax Assessment Act 1997 subsection 104-135(1) | Income Tax Assessment Act 1997 paragraph 104-135(1)(b) | Income Tax Assessment Act 1997 paragraph 104-135(1)(c) | Income Tax Assessment Act 1997 section 125-55 | Income Tax Assessment Act 1997 subsection 125-55(1) | Income Tax Assessment Act 1997 subsection 125-55(2) | Income Tax Assessment Act 1997 paragraph 125-60(1)(a) | Income Tax Assessment Act 1997 subsection 125-65(1) | Income Tax Assessment Act 1997 subsection 125-65(2) | Income Tax Assessment Act 1997 subsection 125-65(2A) | Income Tax Assessment Act 1997 subsection 125-65(6) | Income Tax Assessment Act 1997 section 125-70 | Income Tax Assessment Act 1997 paragraph 125-70(1)(a) | Income Tax Assessment Act 1997 paragraph 125-70(1)(b) | Income Tax Assessment Act 1997 paragraph 125-70(1)(c) | Income Tax Assessment Act 1997 paragraph 125-70(1)(d) | Income Tax Assessment Act 1997 paragraph 125-70(1)(e) | Income Tax Assessment Act 1997 paragraph 125-70(1)(g) | Income Tax Assessment Act 1997 paragraph 125-70(1)(h) | Income Tax Assessment Act 1997 subsection 125-70(2) | Income Tax Assessment Act 1997 subsection 125-70(3) | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Detailed Reasoning - Question 1: Will the demerger roll-over relief, pursuant to Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997), be available to the Trust? | Summary: The demerger roll-over relief under Division 125 will be available to the Trust. | Detailed Reasoning - Detailed reasoning: Subsection 125-55(1) of the ITAA 1997 outlines when a roll-over is available for a demerger: You can choose to obtain a roll-over if: (a) you own an *ownership interest in a company or trust (your original interest); and (b) the company or trust is the *head entity of a *demerger group; and (c) a *demerger happens to the demerger group; and (d) under the demerger, a *CGT event happens to your original interest and you *acquire a new or replacement interest (your new interest) in the *demerged entity. The requirements in each of the above paragraphs are examined in turn below. Ownership interest The Trust has an ownership interest in the Holding Company as it owns shares in the company (paragraph 125-60(1)(a)). Company is a head entity of a demerger group The Holding Company is the head entity of a demerger group that includes the Subsidiary Company. A 'demerger group' is defined in subsection 125-65(1) as comprising the head entity of the group and one or more demerger subsidiaries. The Trust is not a member of the demerger group as CGT event E4 is not capable of applying to all of the units and interests in the trust-all entitlements are at the discretion of the trustee (subsection 125-65(2)). The Holding Company is not a corporation sole because it is fully owned by the Trust (subsection 125-65(2A)). The Subsidiary Company is a demerger subsidiary as it is wholly owned by the Holding Company (subsection 125-65(6)). A demerger happens The conditions for a 'demerger' specified in section 125-70 are satisfied for the following reasons. Restructuring of the demerger group - paragraph 125-70(1)(a) Paragraph [2] of Taxation Determination TD 2020/6 states that the restructuring of a demerger group refers to the reorganisation of a group of companies or trusts. While what constitutes a restructuring is a question of fact, 'all the steps which occur under a single plan of reorganisation will usually constitute the restructuring.' The steps outlined in the facts constitute a restructuring for the purposes of paragraph 125-70(1)(a). Notably, the steps will not change the economic position of the Trust. 80% test - paragraph 125-70(1)(b) The Holding Company will dispose of 100% of its shares in the Subsidiary Company to the Trust. Nothing else test - paragraph 125-70(1)(c) Under the proposed transaction the Trust will acquire 100% of the shares in the Subsidiary Company and nothing else. Original interest test - paragraph 125-70(1)(d) The Trust is only acquiring shares in the Subsidiary Company (the new interests) because it owns shares in the Holding Company (the original interests). Same entity test - paragraph 125-70(1)(e) The head entity, the Holding Company, is a company. The new interests acquired by the Trust are shares in the Subsidiary Company. Not a non-complying superannuation fund test - paragraph 125-70(1)(g) None of the interests in the proposed transaction are interests in a trust that is a non-complying superannuation fund. Maintenance of ownership test - paragraph 125-70(1)(h), subsections 125-70(2) and (3) Under the demerger, the Trust will acquire 100% of the shares in the Subsidiary Company (the new interests). Prior to the demerger, the Trust will own 100% of the shares in the Holding Company (the original interests). The proportion of new interests acquired in the Subsidiary Company and the original interest in the Holding Company are the same. Just after the demerger, the Trust will own 100% of the shares in the Holding Company and 100% of the shares in the Subsidiary Company. The proportionate total market value of the Trust's ownership interests in both entities after the demerger will be the same as its proportionate interest in the Holding Company just before the demerger-i.e. 100%. On DD MM YYYY, the Subsidiary Company transferred two residential properties to the Property Company. Property Y is wholly owned by the Trust. This transfer does not impact the nothing else test as it did not change the economic position of the beneficiaries of the Trust. Under the demerger, a CGT event happens to your original interest and you acquire a new interest in the demerged entity CGT event G1 concerns capital payments for shares. Subsection 104-135(1) of the ITAA 1997 states: (1) CGT event G1 happens if: (a) a company makes a payment to you in respect of a *share you own in the company (except for *CGT event A1 or C2 happening in relation to the share); and (b) some or all of the payment (the non-assessable part ) is not a *dividend, or an amount that is taken to be a dividend under section 47 of the Income Tax Assessment Act 1936; and (c) the payment is not included in your assessable income. The payment can include giving property: see section 103-5. In making an in-specie distribution of shares the Holding Company owns in the Subsidiary Company, the Holding Company will debit $X against its share capital account, representing the portion of the in-specie distribution that is attributed to capital. Consequently, CGT event G1 will happen to the Trust's shares in the Holding Company. In considering the application of section 104-135 of the ITAA 1997 (CGT event G1), it is noted that: • CGT event A1 will not occur as the Trust will not dispose of any of its shares in the Holding Company. CGT event C2 will not apply as the Trust will not be cancelling, surrendering or causing a similar ending of its shares in the Holding Company. • The $X return of capital to the Trust will not be a dividend (paragraph 104-135(1)(b)). • The entirety of the payment will not be included in the Trust's assessable income as it will be comprised of a return of share capital and a demerger dividend (addressed in Question 2) (paragraph 104-135(1)(c)). The Trust will acquire a new interest in the demerged entity, the Subsidiary Company, through the shares transferred to it under the in-specie distribution.. As the Trust is not a foreign resident, the exception in subsection 125-55(2) will not apply. As the conditions in section 125-55 will be satisfied, roll-over relief will be available to the Trust. | Detailed Reasoning - Question 2: Will the dividend component of the in-specie distribution of shares from the Holding Company to the Trust be non-assessable non-exempt income by virtue of sections 44(3) and (4) of the Income Tax Assessment Act 1936 (ITAA 1936), that is, a demerger dividend? | Summary: The dividend will be non-assessable non-exempt income. | Detailed Reasoning - Detailed reasoning: Subsection 6(1) of the ITAA 1936 states that a 'dividend' includes any distribution made by a company to any of its shareholders, whether in money or other property. A dividend, however, does not include any amount debited to a share capital account of the distributing company in respect of the distribution. 'Demerger dividend' is defined in subsection 6(1) of the ITAA 1936 as: 'that part of a demerger allocation that is assessable as a dividend under subsection 44(1) or that would be so assessable apart from subsections 44(3) and (4).' A 'demerger allocation' is defined in subsection 6(1) as: (a) the total market value of the allocation represented by the ownership interests issued by the demerged entity in itself under a demerger to the owners of ownership interests in the head entity of the demerger group; or (b) the total market value of the allocation represented by the ownership interests disposed of by a member of a demerger group under a demerger to the owners of ownership interests in the head entity; or (c) the total of both of those market values. Paragraph 44(1)(a) of the ITAA 1936 states that the assessable income of a shareholder in a company includes dividends that are paid to the shareholder by the company out of profits derived by it from any source. Subsection 44(3) of the ITAA 1936 states that section 44 applies to the demerger dividend as if it had not been paid out of profits. Subsection 44(4) states that a demerger dividend is not assessable income or exempt income. The distribution of the Subsidiary Company shares from the Holding Company to the Trust is a dividend under paragraph (a) of the definition of 'dividend' in subsection 6(1) as it a distribution of property by the Holding Company to its shareholder, the Trust. Ordinarily, they would be included in the assessable income of the Trust by subsection 44(1). The dividends are, for the purposes of subparagraph 44(1)(a)(i), taken to be paid out of profits. In this regard, TR 2003/8 states the following in paragraph 13: In most cases a company which distributes property to its shareholders and debits part of the value of that property to its share capital account would debit the remaining part to another account or reserve. Where that account or reserve does not represent share capital, it would, for subsection 44(1) purposes, represent profits derived by the company so that the amount debited to it would be included in the shareholder's assessable income under that subsection. The amount of the distribution, minus the $X debited to the share capital account (i.e. the market value of the Subsidiary Company shares less the capital component of $X): • is considered a dividend paid out of the Holding Company's profits, and therefore falls within the scope of subsection 44(1); • in turn also falls within the definition of 'demerger dividend' under subsection 6(1) since it is the part of the demerger allocation that would (but for subsection 44(3) and subsection 44(4)) be assessable under subsection 44(1). Subsection 44(3) applies to the demerger divided to the Trust as if it had not been paid out of profits. Subsection 44(4) applies so that the demerger dividend will be non-assessable non-exempt income. Subsection 44(5) does not apply as the Subsidiary Company will continue to carry on its engineering and commercial construction business which utilises at least 50% by market value of its CGT assets. | Detailed Reasoning - Question 3: Will the Commissioner make a determination under section 45B of the ITAA 1936 that sections 45BA or 45C apply to the whole, or any part, of the demerger dividend received by the Trust? | Summary: The Commissioner will not make a determination under section 45B. | Detailed Reasoning - Detailed reasoning: Section 45B allows the Commissioner to make a determination that a scheme to provide a person with a demerger benefit was entered into for the purpose of enabling a taxpayer to obtain a tax benefit. Subsection 45B(2) states that this section applies if: (a) there is a scheme under which a person is provided with a demerger benefit or a capital benefit by a company; and (b) under the scheme, a taxpayer (the relevant taxpayer ), who may or may not be the person provided with the demerger benefit or the capital benefit, obtains a tax benefit; and (c) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the relevant taxpayer ) to obtain a tax benefit. Paragraph 45B(2)(a) Subsection 45B(10) states that in this section, 'scheme' has the meaning given to it by subsection 995-1(1) of the ITAA 1997: (a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. Subsection 45B(4) states that a person is provided with a demerger benefit in relation to a demerger when: (a) a company provides the person with ownership interests in that or another company; or (b) something is done in relation to an ownership interest owned by the person that has the effect of increasing the value of an ownership interest (which may or may not be the same ownership interest) owned by the person. The in-specie distribution of Subsidiary Company shares by the Holding Company to the Trust constitutes a scheme. Under the terms of the demerger, the Holding Company will provide the Trust with shares in the Subsidiary Company, and the Trust will thereby be considered to have been provided with a demerger benefit as defined in paragraph 45B(4)(a). The Trust will also be provided with a capital benefit, comprising the $X that will be debited against the Holding Company's share capital account. Paragraph 45B(2)(b) Subsection 45B(9) states that a taxpayer obtains a tax benefit if the amount of tax payable by the taxpayer would be less than would have been payable, or would be payable at a later time, if the demerger benefit had been an assessable dividend. As addressed in Question 1, under the proposed transaction, the Trust will be entitled to choose the demerger roll-over relief pursuant to section 125-55 of the ITAA 1997. Since no CGT event will be triggered at the time of the distribution, the Trust will obtain a tax benefit. Additionally, the demerger dividend component of the payment to the Trust will not be assessable to the Trust under section 44 of the ITAA 1936. This will also result in a tax benefit for the Trust. Paragraph 45B(2)(c) The relevant circumstances which must be considered in the assessment of whether the scheme was entered into for a purpose of enabling a taxpayer to obtain a tax benefit are outlined in subsection 45B(8). The relevant circumstances - s 45B(8) Appropriate capital and profit allocation Paragraph 45B(8)(a) considers the extent to which the demerger benefit is attributable to capital or profits of a company. Paragraph [58] of PS LA 2005/21 states that a reasonable approach should be taken in determining the extent to which share capital was invested in the demerged entity. The Trust capitalised the Holding Company with $X. This $X was then used by the Holding Company to capitalise the Subsidiary Company. The Holding Company is proposing to debit $X against the share capital account of the Holding Company, representing the portion of the in specie distribution that is attributed to capital. This is in substance a return of the specifically identified amount of $X capital effectively invested by the Trust in the Subsidiary Company, and this approach is in line with the methodology demonstrated in Case Study 2 in paragraph [58]. Pattern of distributions Paragraph 45B(8)(b) concerns the pattern of distributions of dividends and returns of capital by the company. As per paragraph [59] of PS LA 2005/21, '[t]he inference here is that an interruption to the normal pattern of profit distribution and its replacement with a distribution under a demerger would suggest dividend substitution.' The Holding Company does not have a history of regularly paying dividends. In YYYY, it paid a dividend of $XX million. This was sourced from a $XX million dividend it received from the Subsidiary Company. The Subsidiary Company paid this dividend out of its profits. Characteristics of shareholders Paragraphs 45B(8)(c) to (f) consider the tax characteristics of the owners of the head entity. In this regard it is noted that: • Paragraph 45B(8)(c) looks at whether the owners of the head entity have capital losses that, apart from the scheme, would be carried forward to a later year of income. The Trust has no capital losses that would be unutilised at the end of the relevant income year. In addition, the return of capital ($X) will be a small portion of the overall demerger benefit. • Paragraph 45B(8)(d) considers whether any of the ownership interests held by the head entity's owners in the head entity are pre-CGT assets as this could influence the decision transfer the assets. The Subsidiary Company shares that the Trust will receive from the Holding Company are post-CGT assets. • Paragraph 45B(8)(e) considers whether the owners of the head entity are non-residents. The Trust is an Australian resident taxpayer. • Paragraph 45B(8)(f) asks whether the cost base of the relevant ownership interest is substantially less than the value of the demerger benefit. The purpose of the paragraph is to direct attention to whether the demerger is influenced by the opportunity to obtain a distribution that is subject to the CGT roll-over which, but for the concession, would result in a capital gain. The value of the Subsidiary Company shares is $XX million. The cost base of the shares owned by the Trust in the Holding Company is $XX. It is noted however, the amount subject to the roll-over ($X) is small. Nature of interest after demerger Paragraph 45B(8)(h) turns to whether the interest held by the owners of the head entity after the distribution is the same as the interest would have been if an equivalent dividend had been paid instead of the distribution of share capital. The Trust's ownership interests in the Holding Company will not be altered as a result of the demerger. Scheme involving the later disposal of ownership interests Paragraph 45B(8)(i) addresses whether the scheme involves the provision or increase of ownership interests, and the later disposal of those interests. There is no plan for the later disposal of the Subsidiary Company by the Trust, nor any intention on the part of the Trust to deal with its interest in the Subsidiary Company following the demerger. Transactions between the entity and an associate Paragraph 45B(8)(j) considers whether the profits or assets of the demerging entity are attributable to transactions with associated entities. The provision is intended to prevent the demerger from being used to deliver assets or profits tax free to the head entity's owners in the form of an ownership interest. The facts in this case do not indicate that the profits of the Holding Company are attributable to transactions with associated entities, or that the aim of the proposal was to enable the Trust to obtain a tax benefit by way of non-assessable dividend. Rather, the stated objective of the proposed transaction is for the Holding Company (the demerging entity) to be a viable, stand-alone entity. Part IVA matters Paragraph 45B(8)(k) requires that regard be had to any of the matters referred to in paragraphs 177D(2)(a) to (h). In the context of section 45B, these matters facilitate the 'more than incidental purpose test' rather than the 'dominant purpose' test in Part IVA. The circumstances that the Commissioner considers relevant to the assessment of the scheme in this case, and the corresponding paragraphs in subsection 177D(2) to which they relate, are as follows: • Paragraph 177D(2)(a) refers to the manner in which the scheme was entered into. It takes into consideration the decision, steps and events that combine to make up the scheme. In effect, it is an objective enquiry into the reasons the taxpayer had for entering into it.The proposed transaction involves the declaration of a dividend and the in-specie transfer of shares. The reason given for the dismantling of the current ownership structure between the Subsidiary Company and the Holding Company is that this will provide each entity (and the business it undertakes) with increased operational and financial autonomy. • Paragraph 177D(2)(b) directs attention to the form and substance of the scheme. It considers whether the scheme has the commercial and economic effect of a demerger. The demerger in this case achieves the economic effect of its stated objective to separate the entities and their respective businesses for operational, financial and risk independence. The Trust is also afforded a capital and demerger benefit, but whether these are sufficiently outweighed by other considerations is determine by taking into account all other factors. • Paragraph 177D(2)(c) considers the time at which the scheme was entered into and the length of the period during which the scheme was carried out. There is no particular time at which the proposed demerger must occur, although it is anticipated that it will occur in this or the next financial year. That is, there are no factors in this case that dictate the time within which the demerger must occur - the proposal is governed merely by the desire to achieve the stated objective of entity and business separation. • Paragraph 177D(2)(d) directs attention to the result tax results of the scheme if section 45B were not to apply (PS LA 2005/21, paragraph [93]). As outlined above, the proposed scheme will result in the Trust benefitting from the roll-over relief in under section 125-55 of the ITAA 1997 and the non-assessable status of the demerger dividend due to subsection 44(4) of the ITAA 1936. • Paragraphs 177D(2)(e) to (h) require a consideration of the change in the financial position of, or other consequences to, the relevant taxpayer or any person who has a connection with that taxpayer, as a result of the scheme. They also require a consideration of the nature of the relationship between the taxpayer and such a person. The proposed demerger will result in the Trust having direct ownership of the Subsidiary Company. Paragraph [95] of PS LA 2005/21 acknowledges that this is the expected outcome of a demerger. However, again it is noted that there is no proposal to dispose of the Subsidiary Company after the demerger. The economic substance of the relationship between the Trust and the entities in the group will be preserved upon the demerger. Upon considering the circumstances above, the Commissioner is of the view that scheme will not be carried out for a more than incidental purpose of enabling a taxpayer to obtain a tax benefit under paragraph 45B(2)(c). The matters which the Commissioner considers persuasive in reaching this conclusion are as follows: • It is accepted that the primary objective of the demerger is to dismantle the current ownership structure between the Holding Company and the Subsidiary Company; thereby severing the connection between the respective businesses undertaken by each, which will in turn provide each business with increased operational and financial autonomy, and reduced risk exposure. • Transactions within the group indicate that the Trust has been working to separate these businesses from each other. For example, the Subsidiary Company transferred the residential properties it owned to Property Y for $XX million on DD MM YYYY. • Significantly, there is no proposal to dispose of the Subsidiary Company after the demerger, nor any intention on the part of the Trust to deal with its interest in the Subsidiary Company following the demerger. Person X is actively involved in running and driving the business along with the potential property developments and will continue to do so after the demerger. • After the demerger, the Subsidiary Company will continue to carry on its engineering and commercial construction business which utilises at least 50% by market value of its CGT assets. • It is also considered relevant that: - The Trust has no capital losses that it will be able to utilise as a result of the demerger. - The Trust will not be receiving any pre-CGT assets. - The Trust is an Australian resident taxpayer. - The profits of the Subsidiary Company are not attributable to transactions with the Holding Company. - The demerger will be undertaken in a straight-forward manner. These factors indicate that the proposed demerger is driven by the commercial objectives outlined in the Trust's submissions and contained in the facts above. For these reasons, the Commissioner will not make a determination under subsection 45B(3) in respect of this scheme.