Class Ruling CR 2017/27
Date of effect: 1 July 2016

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: All subsequent legislative references in this Ruling are to the ITAA 1997 unless otherwise indicated. Class of entities 3. The class of entities to which this Ruling applies is the holders of the Class A, Class B and Class E units (together the Class Units) in PRP Investment Trust (PRPIT) who: In this Ruling, this class of entities is referred to as 'participating unitholders'. 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 23 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 holders of the Class A, Class B and Class E units (together the Class Units) in PRP Investment Trust (PRPIT) who: In this Ruling, this class of entities is referred to as 'participating unitholders'. | 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 23 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 2016 to 30 June 2017. The Ruling continues to apply after 30 June 2017 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 on behalf of PRPIT. The following documents, or relevant parts of them, form part of and are to be read with the description: 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. PRPIT is a public trading trust which is taxed under Division 6C of Part III of the ITAA 1936. 10. PRPIT will make a choice, under sections 703-50 and 713-130, to form a tax consolidated group on 1 July 2016 with itself as the head company (PRPIT income tax consolidated group). Upon PRPIT making this choice, PRPIT is generally treated as a company and in turn its units treated as shares for the purposes of applying the ITAA 1997 and ITAA 1936. 11. PRPIT was established in March 2008 and operates multiple radiology practices in New South Wales, Australia. 12. PRP Diagnostic Imaging Pty Ltd is the current trustee of PRPIT (Trustee). 13. PRPIT is governed by the trust deed entitled 'Sixth Deed of Amendment - PRP Investment Trust' dated 5 September 2016 (Trust Deed). 14. PRPIT is owned and operated by radiologists who work in the business as well as by members of the management team. 15. The unitholders are the radiologists, the chief executive officer (CEO), senior management, and their related entities. 16. Immediately prior to that part of the reorganisation considered in this Ruling, PRPIT will have three classes of units on issue: 17. The rights attached to the Class A, Class B and Class E units are identical. 18. The Class Units have rights to capital distributions, income distributions and capital profits distributions and to vote. 19. None of the participating unitholders, currently or as a result of the reorganisation and for 12 months following the reorganisation, will individually, or in aggregate with associates, hold at least 10% of the Class Units in PRPIT or the shares in PDIHL. | The restructure: 20. The arrangement that is the subject of this Ruling involves a simplification of the unitholdings in PRPIT in order to facilitate the interposition of a new holding company, PDIHL, between PRPIT and the participating unitholders for the purpose of corporatising the structure of the Trustee's business. 21. The restructure will broadly involve the following steps: | Other matters: 22. PDIHL will make a choice pursuant to subsection 615-30(2) for the PRPIT income tax consolidated group to continue its existence at and after the 'completion time'. The 'completion time' is defined in section 615-15 to mean the time at which each participating unitholder disposes of their Class Units in PRPIT pursuant to the terms of the reorganisation. 23. The choice made by PDIHL referred to in paragraph 22 will be made within 28 days after the completion time pursuant to paragraph 615-30(3)(b). | CGT event C2: 24. CGT event C2 will not happen to participating unitholders pursuant to subsection 104-25(1) when the income distribution rights attached to the Class Units are varied. | CGT event H2: 25. CGT event H2 will happen to participating unitholders pursuant to subsection 104-155(1) when the income distribution rights attached to the Class Units are varied. However, no participating unitholder will make a capital gain as a result of the event happening as they will not receive capital proceeds. | Value shifting: 26. Neither Division 725 nor Division 727 will apply as a result of the variation of the income distribution rights attached to the Class Units. | CGT event A1: 27. CGT event A1 will happen pursuant to subsection 104-10(1) when the participating unitholders dispose of each of their Class Units in PRPIT in exchange for a PDIHL share. | Division 615 roll-over: 28. A participating unitholder will be taken to have chosen to obtain roll-over under Division 615 in relation to the exchange of their Class Units for PDIHL shares on a one-for-one basis (subsection 615-5(2)). 29. A participating unitholder who obtains roll-over under Division 615 will disregard any capital gain or capital loss made from the disposal of their Class Units in PRPIT under the exchange (section 615-40 with subsection 124-10(2)). 30. The first element of the cost base or reduced cost base of each PDIHL share acquired by a participating unitholder under the exchange will be equal to the cost base of the corresponding Class Unit that was exchanged (section 615-40 with subsection 124-10(3)). | Acquisition date of shares in PDIHL: 31. For the purpose of determining any discount capital gains under Division 115 on a future disposal of their PDIHL shares acquired under the scheme, a participating unitholder who obtains roll-over will be taken to have acquired those PDIHL shares on the same date they had acquired their corresponding Class Units (item 2 of the table in subsection 115-30(1)). | Application of section 115-45: 32. Section 115-45 will not apply to a participating unitholder, who disposes of their PDIHL shares acquired under the scheme within 12 months of the reorganisation, provided that, at the time of the relevant CGT event, the participating unitholder, together with their associates, will not beneficially own at least 10% by value of the shares in PDIHL. Commissioner of Taxation 19 April 2017 | Unit trust considerations: 33. At the time of the implementation of the scheme that is the subject of this Ruling, PRPIT was a public trading trust which was taxed under Division 6C of Part III of the ITAA 1936. PRPIT has made a choice, under sections 703-50 and 713-130, to form an income tax consolidated group on 1 July 2016 with itself as the head company. 34. As a consequence of making this choice, PRPIT will generally be treated as a company for the purposes of applying the ITAA 1997 and ITAA 1936 and in effect the units and unitholders treated as shares and shareholders respectively. | CGT event C2: 35. CGT event C2 happens if the ownership of an intangible CGT asset, such as a share, ends by that share being redeemed or cancelled (paragraph 104-25(1)(a)). 36. Shares are comprised of a bundle of rights, however, those rights are not separate pieces of property capable of being divided out and held separately. Accordingly, for CGT purposes, the rights attaching to shares do not constitute individual assets as defined in section 108-5, but rather combine to make up the ultimate asset, being the share (refer to Taxation Ruling TR 94/30). 37. The variation of the income distribution rights attached to the Class Units will not constitute a redemption or cancellation of the units for CGT purposes and therefore CGT event C2 under paragraph 104-25(1)(a) will not happen. | CGT event H2: 38. CGT event H2 happens if an act, transaction or event occurs in relation to a CGT asset and the act, transaction or event does not result in an adjustment being made to the asset's cost base or reduced cost base (section 104-155). The variation of the income distribution rights attached to the Class Units is an act, transaction or event in relation to those units. Therefore, the variation will result in CGT event H2 happening in respect of them. 39. A capital gain is made if the capital proceeds from the event are more than the incidental costs incurred in relation to it; a capital loss is made if the capital proceeds are less than the incidental costs (subsection 104-155(3)). 40. Capital proceeds are the money or other consideration received, or entitled to be received, because of the act, transaction or event (subsection 116-20(2)). Paragraph 29 of Taxation Ruling TR 95/3 provides that 'consideration' for these purposes can include the benefit of mutual promises flowing to parties even if those promises are not in themselves property. 41. Participating unitholders will not receive or be entitled to receive any capital proceeds in respect of the variation of the income distribution rights attached to the Class Units. Therefore, although CGT event H2 will happen in respect of the Class Units, the participating unitholders will not make a capital gain. | Value shifting: 42. There can be income tax consequences where there is a direct value shift, as defined in section 725-145, or an indirect value shift, as defined in section 727-150. However, there are only consequences where threshold control tests are satisfied. 43. The direct value shifting rules in Division 725 do not apply unless there is any entity that controls the target entity for value shifting purposes at some time during the scheme period (paragraph 725-50(b) and section 725-55). 44. The indirect value shifting rules in Division 727 do not apply unless the entities between which the value is shifted (the losing entity and the gaining entity) satisfy an ultimate controller test and/or a common ownership nexus test (paragraph 727-100(c) and sections 727-105 and 727-110). 45. On the basis of the information provided, there is no entity individually, or combined with their associates, that will control PRPIT for value shifting purposes or that will satisfy the ultimate controller test and/or the common ownership nexus test as described above. 46. Accordingly, there will be no consequences under Division 725 or Division 727 for any direct value shift or indirect value shift that may occur as a result of the variation of the income distribution rights attached to the Class Units. | CGT event A1: 47. CGT event A1 will happen as a result of the disposal by the participating unitholders of each of their Class Units in PRPIT for shares in PDIHL. 48. The time of CGT event A1 will be the date the unit transfer agreement is signed by the participating unitholder and the written instrument is issued by the Trustee (paragraph 104-10(3)(a)). | Division 615 roll-over: 49. The participating unitholders will be taken, under subsection 615-5(2), to have chosen to obtain the roll-over because: 50. Division 615 contains a number of conditions for eligibility to choose roll-over. The main conditions that are relevant to the participating unitholders exchanging their Class Units in PRPIT for shares in PDIHL on a one-for-one basis are: 51. Under the reorganisation, the participating unitholders will receive ordinary shares in PDIHL in exchange for all of their Class Units in PRPIT on a one-for-one basis and nothing else. Following the reorganisation, PDIHL will own all the units in PRPIT, and the participating unitholders will have the same percentage interest and value in PDIHL immediately after as they had in PRPIT immediately before. All shareholders will own a whole number of shares in PDIHL. All other relevant conditions under Division 615 will also be satisfied under the scheme. 52. Accordingly, the capital gains tax consequences of obtaining roll-over under Division 615 for the participating unitholders are set out in paragraphs 28 to 30 of this Ruling. | Application of section 115-45: 53. A capital gain, arising from a CGT event happening in respect of participating unitholders, who dispose of their shares in PDIHL within 12 months of the proposed reorganisation, will not be considered a discount capital gain, if it falls within the scope of section 115-45. 54. Subsection 115-45(2) provides that a capital gain made from a CGT event happening to a share in a company is not a discount capital gain if the following conditions are satisfied: 55. As a result of the reorganisation, participating unitholders in PRPIT will become owners of shares in PDIHL in the same proportion as they owned their Class Units in PRPIT. Accordingly, none of the participating unitholders who become shareholders in PDIHL at the completion time, together with their associates, will beneficially own at least 10% by value of the shares in PDIHL. 56. It is further taken as a fact for the purposes of this Ruling that, for 12 months following the reorganisation, no participating unitholder who will become a shareholder in PDIHL at the completion time, together with their associates, will beneficially own at least 10% by value of the shares in PDIHL. On this basis, the requirements in subsection 115-45(3) will not be met and therefore section 115-45 will not apply to a capital gain that arises from a CGT event happening to a participating unitholder who disposes of their shares in PDIHL within 12 months of the proposed reorganisation. 57. 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: CGT event C2: 24. CGT event C2 will not happen to participating unitholders pursuant to subsection 104-25(1) when the income distribution rights attached to the Class Units are varied. | CGT event H2: 25. CGT event H2 will happen to participating unitholders pursuant to subsection 104-155(1) when the income distribution rights attached to the Class Units are varied. However, no participating unitholder will make a capital gain as a result of the event happening as they will not receive capital proceeds. | Value shifting: 26. Neither Division 725 nor Division 727 will apply as a result of the variation of the income distribution rights attached to the Class Units. | CGT event A1: 27. CGT event A1 will happen pursuant to subsection 104-10(1) when the participating unitholders dispose of each of their Class Units in PRPIT in exchange for a PDIHL share. | Division 615 roll-over: 28. A participating unitholder will be taken to have chosen to obtain roll-over under Division 615 in relation to the exchange of their Class Units for PDIHL shares on a one-for-one basis (subsection 615-5(2)). 29. A participating unitholder who obtains roll-over under Division 615 will disregard any capital gain or capital loss made from the disposal of their Class Units in PRPIT under the exchange (section 615-40 with subsection 124-10(2)). 30. The first element of the cost base or reduced cost base of each PDIHL share acquired by a participating unitholder under the exchange will be equal to the cost base of the corresponding Class Unit that was exchanged (section 615-40 with subsection 124-10(3)). | Acquisition date of shares in PDIHL: 31. For the purpose of determining any discount capital gains under Division 115 on a future disposal of their PDIHL shares acquired under the scheme, a participating unitholder who obtains roll-over will be taken to have acquired those PDIHL shares on the same date they had acquired their corresponding Class Units (item 2 of the table in subsection 115-30(1)). | Application of section 115-45: 32. Section 115-45 will not apply to a participating unitholder, who disposes of their PDIHL shares acquired under the scheme within 12 months of the reorganisation, provided that, at the time of the relevant CGT event, the participating unitholder, together with their associates, will not beneficially own at least 10% by value of the shares in PDIHL. Commissioner of Taxation 19 April 2017


Appendix: Unit trust considerations: 33. At the time of the implementation of the scheme that is the subject of this Ruling, PRPIT was a public trading trust which was taxed under Division 6C of Part III of the ITAA 1936. PRPIT has made a choice, under sections 703-50 and 713-130, to form an income tax consolidated group on 1 July 2016 with itself as the head company. 34. As a consequence of making this choice, PRPIT will generally be treated as a company for the purposes of applying the ITAA 1997 and ITAA 1936 and in effect the units and unitholders treated as shares and shareholders respectively. | CGT event C2: 35. CGT event C2 happens if the ownership of an intangible CGT asset, such as a share, ends by that share being redeemed or cancelled (paragraph 104-25(1)(a)). 36. Shares are comprised of a bundle of rights, however, those rights are not separate pieces of property capable of being divided out and held separately. Accordingly, for CGT purposes, the rights attaching to shares do not constitute individual assets as defined in section 108-5, but rather combine to make up the ultimate asset, being the share (refer to Taxation Ruling TR 94/30). 37. The variation of the income distribution rights attached to the Class Units will not constitute a redemption or cancellation of the units for CGT purposes and therefore CGT event C2 under paragraph 104-25(1)(a) will not happen. | CGT event H2: 38. CGT event H2 happens if an act, transaction or event occurs in relation to a CGT asset and the act, transaction or event does not result in an adjustment being made to the asset's cost base or reduced cost base (section 104-155). The variation of the income distribution rights attached to the Class Units is an act, transaction or event in relation to those units. Therefore, the variation will result in CGT event H2 happening in respect of them. 39. A capital gain is made if the capital proceeds from the event are more than the incidental costs incurred in relation to it; a capital loss is made if the capital proceeds are less than the incidental costs (subsection 104-155(3)). 40. Capital proceeds are the money or other consideration received, or entitled to be received, because of the act, transaction or event (subsection 116-20(2)). Paragraph 29 of Taxation Ruling TR 95/3 provides that 'consideration' for these purposes can include the benefit of mutual promises flowing to parties even if those promises are not in themselves property. 41. Participating unitholders will not receive or be entitled to receive any capital proceeds in respect of the variation of the income distribution rights attached to the Class Units. Therefore, although CGT event H2 will happen in respect of the Class Units, the participating unitholders will not make a capital gain. | Value shifting: 42. There can be income tax consequences where there is a direct value shift, as defined in section 725-145, or an indirect value shift, as defined in section 727-150. However, there are only consequences where threshold control tests are satisfied. 43. The direct value shifting rules in Division 725 do not apply unless there is any entity that controls the target entity for value shifting purposes at some time during the scheme period (paragraph 725-50(b) and section 725-55). 44. The indirect value shifting rules in Division 727 do not apply unless the entities between which the value is shifted (the losing entity and the gaining entity) satisfy an ultimate controller test and/or a common ownership nexus test (paragraph 727-100(c) and sections 727-105 and 727-110). 45. On the basis of the information provided, there is no entity individually, or combined with their associates, that will control PRPIT for value shifting purposes or that will satisfy the ultimate controller test and/or the common ownership nexus test as described above. 46. Accordingly, there will be no consequences under Division 725 or Division 727 for any direct value shift or indirect value shift that may occur as a result of the variation of the income distribution rights attached to the Class Units. | CGT event A1: 47. CGT event A1 will happen as a result of the disposal by the participating unitholders of each of their Class Units in PRPIT for shares in PDIHL. 48. The time of CGT event A1 will be the date the unit transfer agreement is signed by the participating unitholder and the written instrument is issued by the Trustee (paragraph 104-10(3)(a)). | Division 615 roll-over: 49. The participating unitholders will be taken, under subsection 615-5(2), to have chosen to obtain the roll-over because: 50. Division 615 contains a number of conditions for eligibility to choose roll-over. The main conditions that are relevant to the participating unitholders exchanging their Class Units in PRPIT for shares in PDIHL on a one-for-one basis are: 51. Under the reorganisation, the participating unitholders will receive ordinary shares in PDIHL in exchange for all of their Class Units in PRPIT on a one-for-one basis and nothing else. Following the reorganisation, PDIHL will own all the units in PRPIT, and the participating unitholders will have the same percentage interest and value in PDIHL immediately after as they had in PRPIT immediately before. All shareholders will own a whole number of shares in PDIHL. All other relevant conditions under Division 615 will also be satisfied under the scheme. 52. Accordingly, the capital gains tax consequences of obtaining roll-over under Division 615 for the participating unitholders are set out in paragraphs 28 to 30 of this Ruling. | Application of section 115-45: 53. A capital gain, arising from a CGT event happening in respect of participating unitholders, who dispose of their shares in PDIHL within 12 months of the proposed reorganisation, will not be considered a discount capital gain, if it falls within the scope of section 115-45. 54. Subsection 115-45(2) provides that a capital gain made from a CGT event happening to a share in a company is not a discount capital gain if the following conditions are satisfied: 55. As a result of the reorganisation, participating unitholders in PRPIT will become owners of shares in PDIHL in the same proportion as they owned their Class Units in PRPIT. Accordingly, none of the participating unitholders who become shareholders in PDIHL at the completion time, together with their associates, will beneficially own at least 10% by value of the shares in PDIHL. 56. It is further taken as a fact for the purposes of this Ruling that, for 12 months following the reorganisation, no participating unitholder who will become a shareholder in PDIHL at the completion time, together with their associates, will beneficially own at least 10% by value of the shares in PDIHL. On this basis, the requirements in subsection 115-45(3) will not be met and therefore section 115-45 will not apply to a capital gain that arises from a CGT event happening to a participating unitholder who disposes of their shares in PDIHL within 12 months of the proposed reorganisation.


Summary - 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. | Variation of Class Unit rights | Exchange of Class Units for PDIHL shares | Appendix 2 - Detailed contents list


Related rulings: TR 94/30 TR 95/3 TR 2006/10
Legislative references: TAA 1953 ITAA 1936 ITAA 1936 6(1) ITAA 1936 Pt III Div 6C ITAA 1997 ITAA 1997 104-10 ITAA 1997 104-10(1) ITAA 1997 104-10(3)(a) ITAA 1997 104-25 ITAA 1997 104-25(1) ITAA 1997 104-25(1)(a) ITAA 1997 104-155 ITAA 1997 104-155(1) ITAA 1997 104-155(3) ITAA 1997 108-5 ITAA 1997 Div 115 ITAA 1997 Div 115-30 ITAA 1997 115-30(1) ITAA 1997 115-45 ITAA 1997 115-45(2) ITAA 1997 115-45(3) ITAA 1997 115-45(4) ITAA 1997 115-45(5) ITAA 1997 115-45(6) ITAA 1997 115-45(7) ITAA 1997 116-20(2) ITAA 1997 124-10 ITAA 1997 124-10(2) ITAA 1997 124-10(3) ITAA 1997 Div 230 ITAA 1997 Div 615 ITAA 1997 615-5(1) ITAA 1997 615-5(1)(b) ITAA 1997 615-5(1)(c) ITAA 1997 615-5(2) ITAA 1997 Subdiv 615-B ITAA 1997 615-15 ITAA 1997 615-20(1)(a) ITAA 1997 615-20(1)(b) ITAA 1997 615-20(2) ITAA 1997 615-25(1) ITAA 1997 615-25(2) ITAA 1997 615-25(3) ITAA 1997 615-30(2) ITAA 1997 615-30(3)(b) ITAA 1997 615-40 ITAA 1997 703-50 ITAA 1997 713-130 ITAA 1997 Div 725 ITAA 1997 725-50(b) ITAA 1997 725-55 ITAA 1997 725-145 ITAA 1997 Div 727 ITAA 1997 727-100(c) ITAA 1997 727-105 ITAA 1997 727-110 ITAA 1997 727-150