Private ruling: Exchange of units for shares
Published: October 2013
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: If the units are taxable Australian property (TAP) just before their disposal and the shares acquired are TAP just after the completion time, can capital gains tax (CGT) roll-over relief pursuant to Subdivision 124-H of the Income Tax Assessment Act 1997 (ITAA 1997) be utilised by the non-resident unit holder upon the exchange of its units in Trust A for shares in Company B? | A1: Yes.

Relevant facts and circumstances: Trust A is an Australian resident unit trust. Each unit holder holds their units on capital account. The unit holder that is the subject of the private ruling is not an Australian resident. A restructure is being proposed whereby all the unit holders of Trust A will exchange all of their units in Trust A for ordinary (non-redeemable) shares in Company B. There will be no other consideration for the disposal of the units apart from the shares in Company B. The proposed arrangement will only proceed if all the members of Trust A vote unanimously to proceed. Just after the proposed arrangement, all the former unit holders will hold all the shares in Company B and each will own a percentage of the shares in the company that is equal to the percentage of the units in the unit trust that they formerly owned. Also, the ratio of the market value of each exchanging member's shares in the company to the market value of all the shares in the company will equal the ratio of the market value of that member's units in the unit trust to the market value of all the units in the unit trust that were disposed of to the company The directors of Company B have confirmed that Company B will make the choice that the rules in section 124-470 of the ITAA 1997 will apply if the conditions for roll-over relief are satisfied and confirmed by the Commissioner. Company B will make the choice within two months of all the unit holders disposing of their units in Trust A. Assumption You have asked for the private ruling on the basis that the units are taxable Australian property (TAP) just before their disposal and the shares acquired are TAP just after the completion time.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 124-440. | Income Tax Assessment Act 1997 Section 124-445. | Income Tax Assessment Act 1997 Section 124-450. | Income Tax Assessment Act 1997 Section 124-465. | Income Tax Assessment Act 1997 Section 124-470.

Reasons for decision: Summary: All legislative references that follow are to the Income Tax Assessment Act 1997 . The roll-over relief provided under Subdivision 124-H enables a unit holder of a unit trust to disregard a capital gain or capital loss from a unit that is disposed of as part of a reorganisation of the affairs of the unit trust where the unit holder becomes the owner of new shares in a company. The roll-over provisions in Subdivision 124-H relating to an exchange of units in a unit trust for shares in a company contain a number of conditions for eligibility to choose roll-over relief. The conditions in a disposal case that are relevant to the proposed arrangement are: · there must be more than one entity that owns all the units in the unit trust; · there must be a scheme for reorganising the trust's affairs and consideration on disposal of the units consist of shares in the company and nothing else; · all unit holders must dispose of their units in exchange for shares in the company; · the company must own all the units in the unit trust just after all the exchanging members have disposed of their units in the unit trust (the completion time); · just after the completion time, each unit holder must own a whole number of shares in the company; · just after the completion, each unit holder must own a percentage of the shares in the company that were issued to all unit holders that is equal to the percentage of the units in the unit trust that the unit holder owned; · just after the completion time, the unit holders must own all the shares in the company; · the company must make the choice that the rules in section 124-470 will apply; · the shares issued in the company must not be redeemable shares; and · the ratio test in subsection 124-450(3) is met, that is, the ratio of the market value of each exchanging member's shares in the company to the market value of all the shares in the company must equal the ratio of the market value of that member's units in the unit trust to the market value of all the units in the unit trust that were disposed of to the company. In addition to the above requirements, for a unit holder to be entitled to choose the roll-over, at the time they dispose of the units they must be an Australian resident or if they are a non-resident, their units were taxable Australian property just before that time and their shares are taxable Australian property just after the completion time. You have advised that the non-resident unit holder has not established at this time whether its units in Trust A are TAP and that this private ruling application does not seek an opinion from the Commissioner in relation to whether the units held by the non-resident unit holder are TAP. Rather you have asked for the private ruling to be made on the assumption that the TAP requirement is met. Apart from this TAP requirement, all the other requirements in Subdivision 124-H are met. Therefore, if the units are TAP just before their disposal and the shares acquired are TAP just after the completion time, the non-resident unit holder will be able to choose the roll-over relief provided for under Subdivision 124-H upon the exchange of its units in Trust A for shares in Company B.