Class Ruling CR 2015/40
Date of effect: 1 July 2014

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provisions 2. The relevant provisions dealt with in this Ruling are: Class of entities 3. The class of entities to which this Ruling applies is the shareholders of BHP Billiton Ltd (BHP) who: In this Ruling, a person belonging to this class of entities is referred to as a 'BHP shareholder'. Qualifications 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 8 to 33 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is the shareholders of BHP Billiton Ltd (BHP) who: In this Ruling, a person belonging to this class of entities is referred to as a 'BHP shareholder'. | Qualifications: 4. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 5. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 8 to 33 of this Ruling. 6. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 7. This Ruling applies from 1 July 2014 to 30 June 2015. The Ruling continues to apply after 30 June 2015 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 8. The following description of the scheme is based on information provided by the applicant. Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. | Background: 9. On 24 May 2015, BHP carried out a demerger of all the shares in its wholly owned subsidiary, South32 Limited (South32). The demerger, which was announced by the BHP Board on 19 August 2014, gave effect to a proposal to spin-out a portfolio of assets that were considered quality assets but were no longer core assets of the BHP Billiton Group business. These assets comprised the BHP Billiton Group's aluminium and manganese assets, Cannington, Cerro Matoso, the group's South African assets and Illawarra Coal (non-portfolio assets). The shareholders in the BHP Billiton Group approved the demerger of South32 from BHP at the general meetings on 6 May 2015. | BHP: 10. BHP is an Australian resident public company listed on the Australian Securities Exchange (ASX) and the head company of an Australian income tax consolidated group for the purposes of Part 3-90 of the ITAA 1997. 11. BHP is party to a dual listed company arrangement (DLC Arrangement) with BHP Billiton Plc (Plc). Under the DLC Arrangement, BHP and Plc agree to operate as if they were a single economic enterprise, while retaining their separate legal identities, tax residencies and stock exchange listings. 12. Immediately before the demerger, BHP had on issue: | Plc: 13. PIc is a United Kingdom tax resident public company with a primary listing on the London Stock Exchange (LSE) and a secondary listing on the Johannesburg Stock Exchange in South Africa. | South32: 14. Immediately prior to the demerger, South32 was a wholly owned subsidiary of BHP and a member of the BHP income tax consolidated group. At that time, BHP owned all of the 3,211,691,105 fully paid ordinary shares issued by South32. | BHP Billiton Group: 15. The BHP Billiton Group includes BHP, Plc, and subsidiary entities held by BHP and Plc. | Pre-demerger transactions: 16. Prior to the demerger, BHP undertook certain transactions to facilitate the demerger including internal restructuring to transfer to South32, either directly or indirectly, the BHP Billiton Group's non-portfolio assets. | The demerger of South32: 17. The demerger of South32 occurred on 24 May 2015 (the Implementation Date) when BHP transferred all the South32 shares on issue to BHP shareholders. 18. The demerger of South32 was effected by way of BHP making an in specie distribution of the shares in South32 to BHP shareholders (the BHP distribution). 19. BHP shareholders received one South32 share for each BHP share held on 20 May 2015 (the Record Date). | Subsequent transactions: 20. Following the demerger of South32, South32 issued sufficient shares to the Plc group such that the total number of shares held by Plc in South32 equalled the total number of ordinary shares held in Plc. 21. Plc subsequently made an in specie distribution to Plc shareholders of one share in South32 for each ordinary share held in Plc. | Sale facility: 22. A sale facility was made available for 'ineligible overseas shareholders' and 'eligible small shareholders' to enable their South32 shares to be sold by BHP via a sales agent on the ASX. The net proceeds from the sales will be remitted to the ineligible overseas shareholders and eligible small shareholders. 23. Ineligible overseas shareholders were BHP shareholders whose registered address was shown in the BHP share register on the Record Date as being in a jurisdiction outside of Australia, the United Kingdom, South Africa, the United States, Canada, Alderney, Chile, France, Guernsey, Hong Kong, Ireland, Isle of Man, Jersey, Lesotho, Malaysia, Namibia, New Zealand, Singapore and Swaziland. 24. Eligible small shareholders were BHP shareholders whose registered address was shown in the BHP share register on the Record Date as being in Australia, the United Kingdom, South Africa, Canada, Alderney, Chile, Guernsey, Ireland, Isle of Man, Jersey, Lesotho, Malaysia, Namibia, New Zealand and Swaziland, who were not acting for the account or benefit of persons in the United States, who held 10,000 BHP shares or less as at the Record Date and that elected to participate in the sale facility. | The demerger distribution: 25. BHP accounted for the BHP distribution pursuant to which South32 shares were transferred to BHP shareholders by debiting the value of the BHP distribution to BHP's retained earnings. 26. The value of the BHP distribution amount of $7,226,304,986 was worked out by reference to the volume weighted average price of the South32 shares, $2.25, as traded on the ASX over the five trading days from when deferred settlement trading commenced on 18 May 2015. | Reasons for the demerger: 27. BHP believed that a number of advantages accrued to its shareholders as a result of the demerger, including: | Other matters: 28. South32 shares commenced trading on the ASX on 18 May 2015 on a deferred settlement basis. 29. BHP's ESS interests have been issued in accordance with Division 83A of the ITAA 1997 and are interests to which either Subdivision 83A-B and subsections 83A-35(3)-(9) inclusive or Subdivision 83A-C of the ITAA 1997 applies. 30. Subsections 44(3) and 44(4) of the ITAA 1936 will apply to the demerger distribution as BHP did not make an election under subsection 44(2) of the ITAA 1936. 31. Just after the demerger, at least 50% of the market value of capital gains tax (CGT) assets owned by South32 and its subsidiaries were used directly or indirectly in one or more businesses carried on by South32 or its subsidiaries. 32. For the year ended 30 June 2014, BHP disclosed contributed equity of US$898 million and retained earnings of US$45,914 million. 33. BHP has shareholders who are not residents of Australia as defined in subsection 6(1) of the ITAA 1936. | Demerger roll-over relief: 34. A demerger, as described under section 125-70 of the ITAA 1997, happened under the scheme and a CGT event happened in relation to each of the BHP shares owned by BHP shareholders. 35. Therefore, BHP shareholders can choose demerger roll-over relief under subsection 125-55(1) of the ITAA 1997 for their Pre-CGT and Post-CGT BHP shares. | South32 shares received by BHP shareholder that holds Pre-CGT BHP shares: 36. BHP shareholders who choose demerger rollover relief for their shares acquired before 20 September 1985 (Pre-CGT BHP shares) are taken to have acquired the corresponding South32 shares under the demerger before 20 September 1985 (subsections 125-55(1) and 125-80(5) and 125-80(6) of the ITAA 1997). 37. For BHP shareholders who own Pre-CGT BHP shares and do not choose demerger rollover relief: | South32 shares received by BHP shareholder that holds Post-CGT BHP shares: 38. For BHP shareholders who choose demerger rollover relief for their shares acquired after 19 September 1985 (Post-CGT BHP shares): 39. For BHP shareholders who do not choose demerger rollover relief for their Post-CGT BHP shares: | Acquisition date of the South32 shares for the purposes of the CGT discount: 40. For the purpose of determining eligibility for a discount capital gain, the South32 shares received by BHP shareholders in relation to Post-CGT BHP shares are taken to have been acquired on the same date the corresponding BHP shares were acquired (item 2 of the table in subsection 115-30(1) of the ITAA 1997). This will be the case irrespective of whether demerger rollover relief is chosen or not. 41. For South32 shares acquired in relation to Pre-CGT BHP shares under the demerger where demerger roll-over relief is not chosen, the acquisition date of these South32 shares is the Implementation Date (24 May 2015) for the purposes of the CGT discount. | Dividend consequences: 42. The BHP distribution constitutes both a demerger allocation and a dividend (subsection 6(1) of the ITAA 1936). As no part of the demerger allocation was debited to BHP's share capital account, the distribution is entirely a demerger dividend (subsection 6(1) of the ITAA 1936). 43. The demerger dividend is treated as if it had not been paid out of profits (subsections 44(3) of the ITAA 1936). The demerger dividend is not assessable income or exempt income of BHP shareholders (subsections 44(4) of the ITAA 1936). | Dividend withholding tax: 44. The demerger dividend made to non-resident BHP shareholders will not be subject to dividend withholding tax (subsection 128B(3D) of the ITAA 1936). | Section 45 of the ITAA 1936: 45. Section 45 of the ITAA 1936 will not apply to the South32 shares received by BHP shareholders under the demerger. | Section 45A of the ITAA 1936: 46. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in respect of the capital benefit provided to BHP shareholders under the demerger. | Section 45B of the ITAA 1936: 47. The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that either section 45BA of the ITAA 1936 or section 45C of the ITAA 1936 applies to the whole or any part of the demerger benefit provided to BHP shareholders under the demerger. Commissioner of Taxation 10 June 2015 | Demerger roll-over relief: 48. Demerger roll-over relief enables a shareholder to choose to disregard a capital gain made as a result of a CGT event that happens to their shares in the original company when a CGT event happens in relation to a share under a demerger. 49. The demerger roll-over provisions in Division 125 of the ITAA 1997 contain a number of conditions for eligibility to choose demerger roll-over relief. Each of the following conditions must be present for a demerger to qualify for roll-over relief: 50. Under the scheme to which this Ruling relates, the conditions for demerger roll-over relief under Division 125 of the ITAA 1997 are satisfied. | Employee share schemes (ESS): 51. One of the conditions for a demerger happening to a demerger group is the 'proportion' test contained in subsection 125-70(2) of the ITAA 1997. Subsection 125-70(2) requires that each owner of original interests in the head entity must: 52. The ESS interests issued under BHP's various employee incentive plans are ownership interests for the purposes of the proportion test. However, section 125-75 of the ITAA 1997 provides that certain ESS interests may be disregarded when applying the proportion test where those interests (taking into account either or both of their number and value) represents not more than 3% of the total ownership interests in the entity at the relevant time (subsections 125-75(1)-(3) of the ITAA 1997). 53. BHP's ESS interests represent less than 3% of the value of the total ownership interests in BHP. Therefore, BHP's ESS interests are disregarded for the purposes of the proportion test. | Special voting share: 54. BHP is party to the DLC Arrangement with a special voting share on issue. 55. Pursuant to subsection 125-60(2) of the ITAA 1997, the special voting share will not be an ownership interest for the purposes of 'ownership interests' in subsection 125-60(1) of the ITAA 1997, as the special voting share is a 'dual listed company voting share' for the purposes of subsection 125-60(3) of the ITAA 1997 and there are not more than 5 of these shares on issue. 56. Accordingly, the special voting share is disregarded for the purposes of the proportion test. | A demerger happens to a demerger group: 57. A demerger happened (subsections 125-70(1), (2) and (3) of the ITAA 1997) to the BHP demerger group because: | South32 shares received by BHP shareholder that holds Pre-CGT BHP shares: 58. BHP shareholders that acquired their BHP shares before 20 September 1985 (Pre-CGT BHP shares) will continue to hold their BHP shares as Pre-CGT shares. 59. BHP shareholders who choose demerger rollover relief for their Pre-CGT BHP shares are taken to have acquired the corresponding South32 shares under the demerger before 20 September 1985 (subsections 125-55(1) and 125-80(5) of the ITAA 1997). 60. For BHP shareholders who do not choose demerger rollover relief for their Pre-CGT shares: | South32 shares received by BHP shareholder that holds Post-CGT BHP shares: 61. For BHP shareholders who choose demerger rollover relief for Post-CGT BHP shares: 62. For BHP shareholders who do not choose demerger rollover relief for their Post-CGT BHP shares: 63. For the purposes of the cost base and reduced cost base apportionment under subsections 125-80(2) and (3) of the ITAA 1997, the Commissioner accepts the volume weighted average prices of the South32 shares, $2.25, and of the BHP shares, $29.44, as traded on the ASX on a deferred settlement basis over the first five trading days after 18 May 2015, as a reasonable approximation of the relative market value of those shares. 64. Based on the volume weighted average prices calculated in paragraph 63 above, 7.1% of the shareholder's original cost base and reduced cost base for the BHP shares becomes the first element of the cost base and reduced cost base of South32 shares, and 92.9% becomes the first element of the cost base and reduced cost base of the BHP shares; section 125-85 and subsections 125-80(2) and (3) of the ITAA 1997. | Acquisition date of the South32 shares for the purposes of the CGT discount: 65. For the purpose of determining eligibility for a discount capital gain, the South32 shares received by BHP shareholders in relation to Post-CGT BHP shares are taken to have been acquired on the same date the original BHP shares were acquired (Item 2 of the table in subsection 115-30(1) of the ITAA 1997). For Post-CGT BHP shares, this will be the case irrespective of whether demerger rollover relief is chosen or not. 66. For South32 shares acquired in relation to Pre-CGT BHP shares under the demerger where demerger roll-over relief is not chosen, the acquisition date of these South32 shares is the Implementation Date (24 May 2015) for the purposes of the CGT discount. 67. South32 shares received by BHP shareholders which are taken to be Pre-CGT shares (due to choosing demerger rollover relief) will not be subject to capital gains tax. | Demerger dividend: 68. A 'dividend' is defined in subsection 6(1) of the ITAA 1936 to include a distribution made by a company, other than a distribution debited against an amount standing to the credit of the share capital account of that company pursuant to paragraph (d) of the definition. 69. No part of the BHP distribution will be debited to BHP's share capital account. Therefore, the entire value of the BHP distribution will constitute a 'dividend'. 70. The BHP distribution also constitutes a 'demerger allocation' as defined in subsection 6(1) of the ITAA 1936. 71. As the entire BHP distribution constitutes both a 'dividend' and a 'demerger allocation', the entire BHP distribution constitutes a 'demerger dividend' as defined in subsection 6(1) of the ITAA 1936. 72. The requirement of subsection 44(5) of the ITAA 1936 was satisfied as just after the demerger, at least 50% of the market value of CGT assets owned by South32 and its subsidiaries were used directly or indirectly in one or more businesses carried on by South32 and its subsidiaries. 73. The demerger dividend is not assessable income or exempt income pursuant to subsection 44(4) of the ITAA 1936 as: | Section 45 of the ITAA 1936: 74. Section 45 of the ITAA 1936 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that the shares are received by some but not all shareholders and shareholders who do not receive shares instead receive minimally franked dividends. Minimally franked dividends are dividends which are franked to less than 10%. 75. All BHP shareholders received one South32 share for each BHP share owned. A sales agent received South32 shares on behalf of ineligible overseas shareholders and eligible small shareholders. The net proceeds from the sale facility for these shareholders were or will be remitted to these shareholders in consideration for the sale of the South32 shares on their behalf. 76. Therefore, section 45 of the ITAA 1936 will not apply to the South32 shares received by BHP shareholders under the demerger. | Section 45A of the ITAA 1936: 77. Section 45A of the ITAA 1936 applies in circumstances where a company streams capital benefits to certain shareholders who derive a greater benefit from the receipt of capital benefits (the advantaged shareholders) and it is reasonable to assume that the other shareholders have received or will receive dividends (the disadvantaged shareholders). 78. Having regard to the circumstances of the scheme, section 45A of the ITAA 1936 will not apply to any part of a benefit provided to BHP shareholders and the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies. | Section 45B of the ITAA 1936: 79. The purpose of section 45B of the ITAA 1936 as set out in subsection 45B(1) of the ITAA 1936 is to ensure that relevant amounts distributed to shareholders of a company are treated as dividends for tax purposes if: 80. Subsection 45B(2) of the ITAA 1936 provides that the section applies if: 81. In this case, while the conditions of paragraphs 45B(2)(a) and 45B(2)(b) of the ITAA 1936 are met, the requisite conclusion as to purpose for paragraph 45B(2)(c) of enabling BHP shareholders to obtain a tax benefit (by way of a demerger benefit or a capital benefit) is not present. 82. The conclusion as to purpose in relation to the demerger benefit is made with regard to factors set out in subsection 45B(8) of the ITAA 1936 and takes into account a range of matters including the reasons for the demerger which are set out at paragraph 27, BHP's high retained earnings compared to its relatively low share capital and the presence of non-resident shareholders. As the demerger benefit entirely constitutes a demerger dividend, there is no provision of a capital benefit for the purposes of section 45B of the ITAA 1936 (subsection 45B(6) of the ITAA 1936). 83. Accordingly, the Commissioner will not make a determination under paragraphs 45B(3)(a) or 45B(3)(b) of the ITAA 1936 that either section 45BA or section 45C of the ITAA 1936 applies. 84. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: Demerger roll-over relief: 34. A demerger, as described under section 125-70 of the ITAA 1997, happened under the scheme and a CGT event happened in relation to each of the BHP shares owned by BHP shareholders. 35. Therefore, BHP shareholders can choose demerger roll-over relief under subsection 125-55(1) of the ITAA 1997 for their Pre-CGT and Post-CGT BHP shares. | South32 shares received by BHP shareholder that holds Pre-CGT BHP shares: 36. BHP shareholders who choose demerger rollover relief for their shares acquired before 20 September 1985 (Pre-CGT BHP shares) are taken to have acquired the corresponding South32 shares under the demerger before 20 September 1985 (subsections 125-55(1) and 125-80(5) and 125-80(6) of the ITAA 1997). 37. For BHP shareholders who own Pre-CGT BHP shares and do not choose demerger rollover relief: | South32 shares received by BHP shareholder that holds Post-CGT BHP shares: 38. For BHP shareholders who choose demerger rollover relief for their shares acquired after 19 September 1985 (Post-CGT BHP shares): 39. For BHP shareholders who do not choose demerger rollover relief for their Post-CGT BHP shares: | Acquisition date of the South32 shares for the purposes of the CGT discount: 40. For the purpose of determining eligibility for a discount capital gain, the South32 shares received by BHP shareholders in relation to Post-CGT BHP shares are taken to have been acquired on the same date the corresponding BHP shares were acquired (item 2 of the table in subsection 115-30(1) of the ITAA 1997). This will be the case irrespective of whether demerger rollover relief is chosen or not. 41. For South32 shares acquired in relation to Pre-CGT BHP shares under the demerger where demerger roll-over relief is not chosen, the acquisition date of these South32 shares is the Implementation Date (24 May 2015) for the purposes of the CGT discount. | Dividend consequences: 42. The BHP distribution constitutes both a demerger allocation and a dividend (subsection 6(1) of the ITAA 1936). As no part of the demerger allocation was debited to BHP's share capital account, the distribution is entirely a demerger dividend (subsection 6(1) of the ITAA 1936). 43. The demerger dividend is treated as if it had not been paid out of profits (subsections 44(3) of the ITAA 1936). The demerger dividend is not assessable income or exempt income of BHP shareholders (subsections 44(4) of the ITAA 1936). | Dividend withholding tax: 44. The demerger dividend made to non-resident BHP shareholders will not be subject to dividend withholding tax (subsection 128B(3D) of the ITAA 1936). | Section 45 of the ITAA 1936: 45. Section 45 of the ITAA 1936 will not apply to the South32 shares received by BHP shareholders under the demerger. | Section 45A of the ITAA 1936: 46. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in respect of the capital benefit provided to BHP shareholders under the demerger. | Section 45B of the ITAA 1936: 47. The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that either section 45BA of the ITAA 1936 or section 45C of the ITAA 1936 applies to the whole or any part of the demerger benefit provided to BHP shareholders under the demerger. Commissioner of Taxation 10 June 2015


Appendix: Demerger roll-over relief: 48. Demerger roll-over relief enables a shareholder to choose to disregard a capital gain made as a result of a CGT event that happens to their shares in the original company when a CGT event happens in relation to a share under a demerger. 49. The demerger roll-over provisions in Division 125 of the ITAA 1997 contain a number of conditions for eligibility to choose demerger roll-over relief. Each of the following conditions must be present for a demerger to qualify for roll-over relief: 50. Under the scheme to which this Ruling relates, the conditions for demerger roll-over relief under Division 125 of the ITAA 1997 are satisfied. | Employee share schemes (ESS): 51. One of the conditions for a demerger happening to a demerger group is the 'proportion' test contained in subsection 125-70(2) of the ITAA 1997. Subsection 125-70(2) requires that each owner of original interests in the head entity must: 52. The ESS interests issued under BHP's various employee incentive plans are ownership interests for the purposes of the proportion test. However, section 125-75 of the ITAA 1997 provides that certain ESS interests may be disregarded when applying the proportion test where those interests (taking into account either or both of their number and value) represents not more than 3% of the total ownership interests in the entity at the relevant time (subsections 125-75(1)-(3) of the ITAA 1997). 53. BHP's ESS interests represent less than 3% of the value of the total ownership interests in BHP. Therefore, BHP's ESS interests are disregarded for the purposes of the proportion test. | Special voting share: 54. BHP is party to the DLC Arrangement with a special voting share on issue. 55. Pursuant to subsection 125-60(2) of the ITAA 1997, the special voting share will not be an ownership interest for the purposes of 'ownership interests' in subsection 125-60(1) of the ITAA 1997, as the special voting share is a 'dual listed company voting share' for the purposes of subsection 125-60(3) of the ITAA 1997 and there are not more than 5 of these shares on issue. 56. Accordingly, the special voting share is disregarded for the purposes of the proportion test. | A demerger happens to a demerger group: 57. A demerger happened (subsections 125-70(1), (2) and (3) of the ITAA 1997) to the BHP demerger group because: | South32 shares received by BHP shareholder that holds Pre-CGT BHP shares: 58. BHP shareholders that acquired their BHP shares before 20 September 1985 (Pre-CGT BHP shares) will continue to hold their BHP shares as Pre-CGT shares. 59. BHP shareholders who choose demerger rollover relief for their Pre-CGT BHP shares are taken to have acquired the corresponding South32 shares under the demerger before 20 September 1985 (subsections 125-55(1) and 125-80(5) of the ITAA 1997). 60. For BHP shareholders who do not choose demerger rollover relief for their Pre-CGT shares: | South32 shares received by BHP shareholder that holds Post-CGT BHP shares: 61. For BHP shareholders who choose demerger rollover relief for Post-CGT BHP shares: 62. For BHP shareholders who do not choose demerger rollover relief for their Post-CGT BHP shares: 63. For the purposes of the cost base and reduced cost base apportionment under subsections 125-80(2) and (3) of the ITAA 1997, the Commissioner accepts the volume weighted average prices of the South32 shares, $2.25, and of the BHP shares, $29.44, as traded on the ASX on a deferred settlement basis over the first five trading days after 18 May 2015, as a reasonable approximation of the relative market value of those shares. 64. Based on the volume weighted average prices calculated in paragraph 63 above, 7.1% of the shareholder's original cost base and reduced cost base for the BHP shares becomes the first element of the cost base and reduced cost base of South32 shares, and 92.9% becomes the first element of the cost base and reduced cost base of the BHP shares; section 125-85 and subsections 125-80(2) and (3) of the ITAA 1997. | Acquisition date of the South32 shares for the purposes of the CGT discount: 65. For the purpose of determining eligibility for a discount capital gain, the South32 shares received by BHP shareholders in relation to Post-CGT BHP shares are taken to have been acquired on the same date the original BHP shares were acquired (Item 2 of the table in subsection 115-30(1) of the ITAA 1997). For Post-CGT BHP shares, this will be the case irrespective of whether demerger rollover relief is chosen or not. 66. For South32 shares acquired in relation to Pre-CGT BHP shares under the demerger where demerger roll-over relief is not chosen, the acquisition date of these South32 shares is the Implementation Date (24 May 2015) for the purposes of the CGT discount. 67. South32 shares received by BHP shareholders which are taken to be Pre-CGT shares (due to choosing demerger rollover relief) will not be subject to capital gains tax. | Demerger dividend: 68. A 'dividend' is defined in subsection 6(1) of the ITAA 1936 to include a distribution made by a company, other than a distribution debited against an amount standing to the credit of the share capital account of that company pursuant to paragraph (d) of the definition. 69. No part of the BHP distribution will be debited to BHP's share capital account. Therefore, the entire value of the BHP distribution will constitute a 'dividend'. 70. The BHP distribution also constitutes a 'demerger allocation' as defined in subsection 6(1) of the ITAA 1936. 71. As the entire BHP distribution constitutes both a 'dividend' and a 'demerger allocation', the entire BHP distribution constitutes a 'demerger dividend' as defined in subsection 6(1) of the ITAA 1936. 72. The requirement of subsection 44(5) of the ITAA 1936 was satisfied as just after the demerger, at least 50% of the market value of CGT assets owned by South32 and its subsidiaries were used directly or indirectly in one or more businesses carried on by South32 and its subsidiaries. 73. The demerger dividend is not assessable income or exempt income pursuant to subsection 44(4) of the ITAA 1936 as: | Section 45 of the ITAA 1936: 74. Section 45 of the ITAA 1936 applies where a company streams the provision of shares and the payment of minimally franked dividends to its shareholders in such a way that the shares are received by some but not all shareholders and shareholders who do not receive shares instead receive minimally franked dividends. Minimally franked dividends are dividends which are franked to less than 10%. 75. All BHP shareholders received one South32 share for each BHP share owned. A sales agent received South32 shares on behalf of ineligible overseas shareholders and eligible small shareholders. The net proceeds from the sale facility for these shareholders were or will be remitted to these shareholders in consideration for the sale of the South32 shares on their behalf. 76. Therefore, section 45 of the ITAA 1936 will not apply to the South32 shares received by BHP shareholders under the demerger. | Section 45A of the ITAA 1936: 77. Section 45A of the ITAA 1936 applies in circumstances where a company streams capital benefits to certain shareholders who derive a greater benefit from the receipt of capital benefits (the advantaged shareholders) and it is reasonable to assume that the other shareholders have received or will receive dividends (the disadvantaged shareholders). 78. Having regard to the circumstances of the scheme, section 45A of the ITAA 1936 will not apply to any part of a benefit provided to BHP shareholders and the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies. | Section 45B of the ITAA 1936: 79. The purpose of section 45B of the ITAA 1936 as set out in subsection 45B(1) of the ITAA 1936 is to ensure that relevant amounts distributed to shareholders of a company are treated as dividends for tax purposes if: 80. Subsection 45B(2) of the ITAA 1936 provides that the section applies if: 81. In this case, while the conditions of paragraphs 45B(2)(a) and 45B(2)(b) of the ITAA 1936 are met, the requisite conclusion as to purpose for paragraph 45B(2)(c) of enabling BHP shareholders to obtain a tax benefit (by way of a demerger benefit or a capital benefit) is not present. 82. The conclusion as to purpose in relation to the demerger benefit is made with regard to factors set out in subsection 45B(8) of the ITAA 1936 and takes into account a range of matters including the reasons for the demerger which are set out at paragraph 27, BHP's high retained earnings compared to its relatively low share capital and the presence of non-resident shareholders. As the demerger benefit entirely constitutes a demerger dividend, there is no provision of a capital benefit for the purposes of section 45B of the ITAA 1936 (subsection 45B(6) of the ITAA 1936). 83. Accordingly, the Commissioner will not make a determination under paragraphs 45B(3)(a) or 45B(3)(b) of the ITAA 1936 that either section 45BA or section 45C of the ITAA 1936 applies.


What this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | Appendix 2 - Detailed contents list


Related rulings: TR 2003/8 TR 2006/10
Legislative references: ITAA 1936 6(1) ITAA 1936 44 ITAA 1936 44(2) ITAA 1936 44(3) ITAA 1936 44(4) ITAA 1936 45 ITAA 1936 45A ITAA 1936 45A(2) ITAA 1936 45B ITAA 1936 45B(2)(a) ITAA 1936 45B(2)(b) ITAA 1936 45B(3)(a) ITAA 1936 45B(3)(b) ITAA 1936 45BA ITAA 1936 45C ITAA 1936 47 ITAA 1997 104-135 ITAA 1997 104-135(3) ITAA 1997 104-135(5) ITAA 1997 109-5 ITAA 1997 Div 110 ITAA 1997 Subdiv 115-A ITAA 1997 115-25(1) ITAA 1997 115-30 ITAA 1997 115-30(1) ITAA 1997 Div 125 ITAA 1997 125-55(1) ITAA 1997 125-65(1) ITAA 1997 125-70 ITAA 1997 125-70(2) ITAA 1997 125-75 ITAA 1997 125-75(1) ITAA 1997 125-75(2) ITAA 1997 125-75(3) ITAA 1997 125-80(1) ITAA 1997 125-80(2) ITAA 1997 125-80(3) ITAA 1997 125-80(5) ITAA 1997 125-80(6) ITAA 1997 125-85(1) ITAA 1997 125-85(2) ITAA 1997 Div 197 ITAA 1997 975-300 ITAA 1997 975-300(3) ITAA 1997 995-1(1) TAA 1953
Subject references: capital benefit capital gains CGT events cost base adjustments demerger demerger allocation demerger benefit demerger dividend demerger group demerger subsidiary return of capital on shares