Private ruling: Scrip for scrip roll-over under Subdivision 124-M of the Income Tax Assessment Act 1997 on the merger of two entities
Published: February 2014
Ruling period: Period ending 30 June 2014
Date scheme commenced: Prospective

Ruling: Q1: Can the Trustee choose to obtain scrip for scrip roll-over under Subdivision 124-M of the Income Tax Assessment Act 1997 on the exchange of shares held in one company for shares in another companies under a merger? | A1: Yes.

Relevant facts and circumstances: The Trustee is trustee of a unit trust and it holds shares in Company C. Company C (C) and Company D (D) propose to enter into a merger which will result in C becoming a wholly-owned subsidiary of D. A and B are in the same industry but are not related. A and B propose to undertake the following steps to carry out the merger: · all shareholders in C will be offered to participate in the merger, · participation in the merger will be available to all shareholders in C on the same terms, · shareholders in C will exchange their shares in C for shares in D, · shareholders in D will be issued with additional shares, · there is no cash payment involved. C has one class of shares on issue and they are voting shares with equal rights and obligations. All parties are dealing with each other at arm's length. The Trustee acquired its shares in C after 20 September 1985. Apart from roll-over the Trustee would make a capital gain on the disposal of its shares C. The Trustee is an Australian resident for tax purpose. The Trustee does not hold its shares in C as trading stock. C and D are Australian resident private companies.

Relevant legislative provisions: Subdivision 124-M of the Income Tax Assessment Act 1997

Reasons for decision: Summary: Scrip for scrip roll-over may be available under Subdivision 124-M of the Income Tax Assessment Act 1997 (ITAA 1997) when shares held in one Company are exchanged for replacement shares in another company. If scrip for scrip roll-over is available, the capital gain arising from the exchange of shares is disregarded until a future disposal of the replacement shares (subsection 124-785(1) of the ITAA 1997). Subdivision 124-M of the ITAA 1997 contains a number of conditions for, and exceptions to, the eligibility of a shareholder to choose scrip for scrip roll-over. The main conditions and exceptions that are relevant to the arrangement that is the subject of this ruling are: (a) shares are exchanged for shares in another company, (b) the exchange occurs as part of a single arrangement that satisfies subsection 124-780(2), (c) conditions for roll-over under subsection 124-780(3) are satisfied, (d) further conditions under subsections 124-780(4) and 124-780(5) are not applicable, and (e) exceptions to obtaining scrip for scrip roll-over under section 124-795 are not applicable. Under the merger that is the subject of this ruling, the conditions for roll-over under Subdivision 124-M are satisfied and the Trustee is entitled to choose to obtain roll-over.