Private ruling: CGT - scrip for scrip rollover
Date of advice: 1 February 2021
Published: April 2021
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can Trust C choose roll-over relief under Subdivision 124-M of the Income Tax Assessment Act 1997 (ITAA 1997) for exchanging its ordinary shares in Company C for ordinary shares in Company D? | A1: Yes | Q2: Is Trust C a significant stakeholder as that term is defined in section 124-783 of the ITAA 1997? | A2: No




Company A: Company A operates a business in Australia. | The shareholders of Company A are as follows: | (i) Company B which owns 60% of the shares; and | (ii) Company C which owns 40% of the shares. | Individual B and Individual C are the directors of Company A. | Company B: Company B was incorporated in Australia. The company has ordinary shares on issue that are owned (i.e. 100%) by the trustee for Trust B. These shares were acquired after 20 September 1985. | In addition to the shares which Company B owns in Company A it also owns plant and equipment which is used by Company A in its business operations. | Company C was incorporated in Australia. The company has ordinary shares on issue that are owned (i.e. 100%) by the trustee for Trust C. These shares were acquired after 20 September 1985. | In addition to the shares which Company C owns in Company A it also owns plant and equipment which is used by Company A in its business operations. | Business E: The Trustee for Trust E operates Business E and owns assets used in the business and hires assets owned by Company E to use in the business. | The shareholders of Company E and Trust E are not associates of Company A, B or C or Trust B or Trust C having regard to section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). | Background to the proposed transaction: Company D was incorporated in Australia. Company D is an unlisted public company. | Company D was established to raise capital for the acquisition of the operations of Company A and Business E. The intention is to explore growth opportunities and potentially further expand the group with an IPO in the future. | The directors of Company D are: | (i) Individual D (who Individuals B and C know through their mutual involvement in the industry); | (ii) An external accountant for Company D; and | The current shareholders of Company D (who each hold equal amounts of ordinary fully paid shares) are as follows: | (i) Individual D as trustee; | Each of the individuals associated with the current shareholders of Company D know each other through their mutual involvement in the industry. | Company D owns 100% of the shares in New Subsidiary Company. | Purchase of shares in Company B and Company C: Company D will acquire 100% of the shareholding in: | (i) Company B from Trust B; and | (ii) Company C from Trust C, | under the terms of the Agreement for Sale of Shares (ASS). | The total price to be received by Trust B and Trust C under the ASS will be $X(as adjusted) and comprise cash and shares in Company D: | (i) Trust B will receive 60% of the proceeds: | (ii) Trust C will receive 40% of the proceeds. | The following warranties will be provided under the ASS | (i) Trust B will provide warranties in relation to Trust B, Company B and Company A; and | (ii) Trust C will provide warranties in relation to Trust C, Company C and Company A. | Completion of the ASS is conditional upon the following agreements completing on the same date as the completion of the ASS: | Sale of the business of Business E under the Sale of Business Agreement: New Subsidiary Company will acquire Business E (including the business assets) from Trust E and Company E. The purchase price will be cash and shares in Company D (Purchase Agreement). | Capital raising under the terms of the Subscription Deeds: It is anticipated that the following additional capital will be raised by Company D under Subscription Deeds for the purposes of completing the acquisitions of Company B, Company C and Business E and to continue to develop Company D's businesses: | (i) Trust associated with Individual D; | (ii) Trust associated with Individual F; | (iii) A private equity fund. | Shareholdings in Company D on completion: Following completion of the ASS, Purchase Agreement and the Subscription Deeds (the Transaction Documents), the shareholding of Company D (all fully paid ordinary shares which carry one vote per share and equal rights to receive distributions of dividends and on winding up) will be as follows: | Trust associated with Individual D | Trust associated with Individual F | 100%: *The Shareholders that are trusts are referred to in this Ruling as Shareholder trusts. | The above Shareholders will be required to enter into a Shareholder's Agreement which will govern their relationship as Shareholders incorporating the funding, activities and management of the Company and the Business. The Shareholders Agreement is subject to completion of the Transaction Documents and commences on such completion. | Pursuant to the Shareholders Agreement: | (a) the Shareholders acknowledge and agree that each of them is an independent contracting party; | (b) Except as otherwise specified in the agreement, the Constitution, or the Corporation Act, the Board will have full power to direct the activities, affairs and direction of the Company; | (c) There will be a maximum of three directors unless otherwise agreed by the Shareholders by Super Majority Vote; | (d) A quorum for meetings of the Board will be attendance of three Directors; | (e) At any meeting of the Board, each Director will have one vote; | (f) Except as otherwise specified in the agreement, the Constitution or the Corporations Act, all decisions of the Shareholders and all decisions of the Board, will be made by Majority Vote. | (g) The Board will have a Chairperson but that person will not have a casting vote; | (h) The same rights and obligations as set out for the board of directors of Company D will apply in relation to the board of directors of any subsidiary and the board of each subsidiary is to be the same unless the Board of Directors agree otherwise by majority vote; | (i) Remuneration of directors must be decided by Super Majority Vote of the Shareholders; | (j) A resolution in writing signed by all Directors entitled to vote on the resolution is to be treated as a determination of the Board passed at a meeting of the Board duly convened and held; | (k) Certain critical business matters must be decided by a Super Majority Vote of the Board (Directors who together may cast more than 75% of the votes which may be cast at the relevant Board meeting); | (l) The Board determines when dividend will be paid or profits will be retained; | (m) If the Board determines the Company should raise further capital by Super Majority Vote it must do so by way of additional shares first offered to all Shareholders in their respective proportions and thereafter following the procedure set out and finally to third parties where all additional shares have not been accepted by existing Shareholders and not on more favourable terms; | (n) A Super Majority Vote requires, in the case of a resolution of the Board or Shareholders (as relevant), a vote or resolution passed by Directors or Shareholders (as relevant) who together may cast more than 75% of the votes which may be cast. | Relationships: Individual B, Individual C, Trust B, Trust C, Company B, Company C and Company A are using the same legal and accounting advisers in relation to the proposed transactions (which are not the same advisers that the other parties are using). | The Related Principals identified in the Shareholders Agreement and their respective family members are not relatives as defined in subsection 995-1(1) of the ITAA 1997 of any of the other Related Principals and none of them benefit under the other Related Principals' respective trusts that are Shareholders. | Company X: Individual B, Individual C and Individual F (through their respective entities) each have a 25% interest in another company, Company X which is not part of this transaction. | Company X operates in the same industry. | Company A does transact with Company X. | Individual C (via their associated entity) only holds a 25% share in Company (which gives rights to 25% of the distributions and voting rights). Individual C is not a director of that company and there is nothing to support that Individual C would otherwise sufficiently influence that entity. | Beneficiaries of Trust C: Under the Discretionary Trust Deed for Trust C, Nominated Beneficiaries and Eligible Beneficiaries can benefit under the trust. | The Nominated Beneficiaries (as named in a Schedule) are Individual C and their immediate family members. | The Eligible Beneficiaries includes: | (a) The Nominated Beneficiaries as named in a Schedule; | (b) The spouse for the time being of any of those Nominated Beneficiaries named in the Schedule; | (c) The parents, grandparents, uncles, aunts, cousins, nieces, nephews, children and grandchildren of any of the persons named in the Schedule, together with the spouses of such parents, grandparents, uncles, aunts, cousins, nieces, nephews, children and grandchildren; | (d) A brother or sister or the spouse of a brother or sister of any of the persons named in the Schedule; | (e) Any corporation other than the Settlor in which any one or more of the persons referred to in sub-clauses (a) to (d), inclusive of this definition, individually or collectively are entitled to exercise not less than one vote capable of being cast at General Meetings of that corporation's members; | (f) The Trustee for the time being of a trust in which all or any one of the persons referred to in sub-clauses (a) to (d), inclusive of this definition is entitled to an interest, or is a possible object of the exercise of any discretions other than: | (i) a trust in which the Settlor or an Excluded Beneficiary is entitled to any interest or is a possible object of the exercise of any discretion; or | (ii) a trust the distribution to which of any part of the Trust Fund would in any way infringe the law against perpetuities; and | (g) Such other persons, apart from the Settlor and any Excluded Beneficiary, as may be nominated by the Nominator, either orally or in writing, prior to the Distribution Date (no such nominations have been made). | An Eligible Beneficiary may in writing declare himself to be an Excluded Beneficiary. | Company D, Company X and Company A have disclaimed their interests under the Trust B and Trust C. The