Class Ruling CR 2008/75
Date of effect: 1 July 2008

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 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 existing members (the Existing Members) and Co-Operative Capital Unit holders (the CCU Holders) of Australian Co-operative Foods Limited (ACF Co-op) who: 4. Where the Existing Member or CCU Holder (not being an entity that is taxed as a corporate tax entity) is a partnership or a trustee of a trust (not being a complying superannuation fund), this Ruling does not apply to the partners or beneficiaries of that partnership or trust respectively. Qualifications 5. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 6. 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 10 to 34 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is the existing members (the Existing Members) and Co-Operative Capital Unit holders (the CCU Holders) of Australian Co-operative Foods Limited (ACF Co-op) who: 4. Where the Existing Member or CCU Holder (not being an entity that is taxed as a corporate tax entity) is a partnership or a trustee of a trust (not being a complying superannuation fund), this Ruling does not apply to the partners or beneficiaries of that partnership or trust respectively. | Qualifications: 5. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling. 6. 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 10 to 34 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 8. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 9. This Ruling applies from 1 July 2008 to 30 June 2009. The Ruling continues to apply after 30 June 2009 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). 10. The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them form part of and are to be read with the description: 11. ACF Co-op is a co-operative incorporated under the Co-operatives Act 1992 (NSW) (the Co-op Act). 12. ACF Co-op is a franking entity and a resident of Australia for income tax purposes in accordance with subsection 6(1) of the ITAA 1936. 13. ACF Co-op is the head company of the ACF Co-op tax consolidated group. The principle activities of the group are the processing, manufacturing, packaging, distribution and marketing of milk and dairy products. 14. ACF Co-op had 85,050,489 ordinary shares on issue at 30 June 2008 to the Existing Members and each share carries the same rights in relation to dividends and capital distributions. Each active Existing Member only has one vote, irrespective of the number of shares held. 15. In addition to the Existing Members, Qualifying Former Members and CCU Holders also hold rights in respect of ACF Co-op, which are also outlined below. | Existing Members: 16. The Existing Members consist of: 17. The Existing Members currently hold all of the ordinary shares in ACF Co-op. 18. The Existing Members to whom this ruling applies are residents of Australia for income tax purposes in accordance with subsection 6(1) of the ITAA 1936. | Qualifying Former Members: 19. Under the Co-op Act and the ACF Co-op Rules, the membership of an inactive member is cancelled and the member's shares are forfeited contemporaneously after one year of continuous inactivity (that is, non-supply of raw milk or ingredients). 20. Division 5 of Part 6 of the Co-op Act attributes certain statutory rights to the Qualifying Former Members on forfeiture of their shares in ACF Co-op. These statutory rights allow the Qualifying Former Member to participate in various trigger events, including conversion of ACF Co-op to a company, for a period of 5 years after forfeiture. Qualifying Former Members who forfeited their shares more than 5 years ago do not retain any rights. | CCU Holders: 21. CCU Holders are former members of ACF Co-op whose shares were forfeited within the 5 years preceding 29 June 2004 and who subscribed for convertible Co-operative Capital Units (CCU) during the 2004-05 financial year that have not yet been repaid. 22. The CCU Holders to whom this Ruling applies are residents of Australia for income tax purposes in accordance with subsection 6(1) of the ITAA 1936. | Conversion of ACF Co-op to a company: 23. On 21 November 2008, ACF Co-op will convert from a co-operative to a public company registered in Victoria under the Corporations Act 2001. 24. The proposed conversion will not cause any change to the tax attributes of the ACF Co-op tax consolidated group. 25. On conversion of ACF Co-op to a company: | Scheme of Arrangement: 26. On 25 August 2008 ACF Co-op entered into an agreement (the Implementation Agreement) with National Foods and Kirin Holdings Limited for National Foods to acquire all of the shares in ACF Company under a Scheme of Arrangement under Part 13 of the Co-op Act. 27. The consideration for the Scheme of Arrangement will be in the form of cash. The total cash consideration paid under the Scheme of Arrangement (the Scheme Consideration) will be calculated as a specified amount less the aggregate amount of any special dividend to be paid as part of the scheme. The Scheme Consideration will be reduced on a 1 cent for 1 cent basis for any special dividend paid. In essence, National Foods will pay approximately $5.06 per share instead of approximately $5.65 per share if a 59 cent per share special dividend is paid. Accordingly, the Existing Members and the CCU Holders will receive approximately $5.06 per share from National Foods from the disposal of their shares if a 59 cents per share special dividend is paid. 28. All of the shares in ACF Company will be transferred to National Foods under the Agreement on the Implementation Date, namely 26 November 2008. 29. ACF Co-op will suspend registration of transfers of ACF Co-op shares from 4 November 2008 to 19 November 2008. From this date, in accordance with the Scheme of Arrangement, ACF Co-op and ACF Company will not register any transfer of ACF Co-op or ACF Company shares other than the transfer to National Foods. | Special dividend: 30. ACF Company will pay to all Existing Members and CCU Holders a special dividend in respect of all ordinary shares of approximately 59 cents per share. The special dividend will be fully franked. 31. Any person registered on the ACF Company share register at 5pm on 22 November 2008 will be entitled to receive the special dividend. 32. The Existing Members and the CCU Holders will participate equally in the special dividend. 33. Other than the B Class shares and A Class shares mentioned above, no other classes of shares will be on issue at the time of the declaration or payment of the special dividend. 34. The special dividend will be paid from borrowed funds. | Special dividend: 35. Those Existing Members and CCU Holders (not being a trustee of a trust or a partnership) who receive the fully franked special dividend directly, will be required to include the dividend in their assessable income under subparagraph 44(1)(a)(i) of the ITAA 1936. 36. Those Existing Members and CCU Holders who receive the fully franked special dividend directly will also: under section 207-20 of the ITAA 1997, provided the Existing Member or CCU Holder is a qualified person. 37. Where the fully franked special dividend is received by an Existing Member or CCU Holder (not being an entity taxed as a corporate tax entity) who is a trustee of a trust (not being a complying superannuation fund) or a partnership, the trustee of the trust or the partnership will include: | Qualified persons: 38. Those Existing Members and CCU Holders who receive the fully franked special dividend directly as part of the scheme will be taken to have made a related payment for the purposes of former section 160APHN of the ITAA 1936. 39. Accordingly, each of the Existing Members and CCU Holders will need to hold their ACF Company shares at risk for a continuous period of at least 45 days in the secondary qualification period in order to be a qualified person. 40. Therefore, those Existing Members who have held their ACF Co-op shares (which convert into ACF Company shares) 'at risk' for a continuous period of at least 45 days from 9 October 2008 to 24 November 2008 will be capable of being qualified persons in accordance with former subsection 160APHO(1) of the ITAA 1936 in respect of the fully franked special dividend. Any taxpayer who acquired their ACF Company shares on or after 9 October 2008 will not be capable of being a qualified person. 41. CCU Holders will not be capable of being qualified persons in respect of the fully franked special dividend as they acquired their ACF Company shares on 21 November 2008. Accordingly, the CCU Holders (not being a trustee of a trust or a partnership) will not include the amount of the franking credit in their assessable income and will not be entitled to a franking offset under section 207-20 of the ITAA 1997. 42. CCU Holders (being either a trustee of a trust or a partnership, as mentioned in paragraph 37 of this Ruling) will not include the amount of the franking credit in their assessable income under subsection 207-35(1) of the ITAA 1997. 43. The Commissioner considers that from, and including, the Scheme Record Date, namely 25 November 2008, ACF Company shareholders will no longer hold their ACF Company shares 'at risk'. | The anti-avoidance provisions: 44. The Commissioner will not make a determination under paragraph 204-30(3)(c) of the ITAA 1997 to deny the whole, or any part, of the imputation benefit received in relation to the special dividend received by the Existing Members and CCU Holders. 45. The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or any part, of the imputation benefit received in relation to the special dividend received by the Existing Members and CCU Holders. Commissioner of Taxation 12 November 2008 | Special dividend: 46. Subparagraph 44(1)(a)(i) of the ITAA 1936 provides that the assessable income of an Australian resident shareholder in a company includes: Therefore, where the special dividend is paid by ACF Company directly to an Existing Member or a CCU Holder, that Existing Member or CCU Holder will include the fully franked special dividend in their assessable income. 47. In addition section 207-20 of the ITAA 1997 provides: 48. Therefore, subject to satisfying the qualified person rule, where the fully franked special dividend is received directly by an Existing Member or a CCU Holder (not being a trustee of a trust or a partnership), that Existing Member or CCU Holder will: 49. Where the fully franked special dividend is received by an Existing Member or CCU Holder (not being an entity taxed as a corporate tax entity) that is a trustee of a trust (not being a complying superannuation fund) or a partnership, subsection 207-35(1) of the ITAA 1997 applies, subject to the trustee or partnership being a qualified person. Subsection 207-35(1) provides: Therefore, subject to the Existing Member or CCU Holder satisfying the qualified person rule, the Existing Member or CCU Holder will include: | Qualified persons: 50. If a franked distribution is made to an entity that is not a qualified person in relation to the distribution for the purposes of Division 1A of former Part IIIAA of the ITAA 1936 then subsection 207-145(1) of the ITAA 1997 provides: 51. The test for what constitutes a 'qualified person' is provided in former subsection 160APHO(1) of the ITAA 1936 as follows: 52. Former subsection 160APHO(2) of the ITAA 1936, referred to in the preceding paragraph, sets out the holding period requirement. Broadly, where the taxpayer is not under an obligation to make a related payment in relation to a dividend, the taxpayer will have to satisfy the holding period requirement within the primary qualification period. If a taxpayer is under an obligation to make a related payment in relation to a dividend, the taxpayer will have to satisfy the holding period requirement within the secondary qualification period. 53. In order to determine which is the relevant qualification period, it is necessary to determine whether, under the present arrangement, the Existing Members and the CCU Holders are considered to be under an obligation to make a related payment. Former section 160APHN of the ITAA 1936 provides non-definitive examples of what constitutes the making of a related payment for the purposes of Division 1A of former Part IIIAA of the ITAA 1936. Former subsection 160APHN(2) provides: 54. Former subsection 160APHN(3) of the ITAA 1936 states: 55. Former subsection 160APHN(4) of the ITAA 1936 states: 56. In the current circumstances, an integral part of the arrangement is the payment of the special dividend in respect of the ordinary shares of approximately 59 cents per share. Further, it is clearly contemplated in the current arrangement that the total consideration to be paid by National Foods is to be reduced by an amount equal to the amount of any special dividend paid. This reduction is specifically calculated by reference to the amount of any special dividend paid. In essence, National Foods would pay approximately $5.06 per share instead of approximately $5.65 per share if a 59 cent per share special dividend is paid. Likewise, the Existing Members and the CCU Holders would receive approximately $5.06 per share from National Foods from the disposal of their shares if a 59 cents per share special dividend is paid as against the total consideration of $5.65 per share to be provided pursuant to the Scheme of Arrangement. 57. As the Scheme of Arrangement clearly contemplates the reduction in the consideration for the disposal of an ACF Company share to be calculated by reference to the value of the special dividend paid pursuant to the Scheme of Arrangement, the reduction in the consideration is considered to constitute a notional crediting passing on the benefit of the proposed special dividend from an Existing Member or CCU Holder to National Foods. As such, it is considered to constitute a related payment for the purposes of former section 160APHN of the ITAA 1936. 58. As the Existing Members and the CCU Holders are taken, for the purposes of Division 1A of former Part IIIAA of the ITAA 1936, to be under an obligation to make a related payment in respect of the special dividend, the relevant holding period is therefore the secondary qualification period pursuant to former paragraph 160APHO(1)(b) of the ITAA 1936. 59. The 'secondary qualification period' is defined in former section 160APHD of the ITAA 1936 as follows: 60. The concept of 'ex-dividend' is defined by former subsection 160APHE(1) of the ITAA 1936 as follows: 61. ACF Company will determine eligibility for the special dividend on 22 November 2008. Therefore, pursuant to the Scheme of Arrangement, the last day on which the acquisition by a person of an ACF Company share will entitle the person to receive the special dividend is 22 November 2008. Accordingly, the ex-dividend date for the purposes of former subsection 160APHE(1) of the ITAA 1936 is 23 November 2008. 62. The secondary qualification period therefore begins on the 45th day before the ex-dividend date of 23 November 2008 and ends on the 45th day after that date. In practical terms, this means that the secondary qualification period begins on 9 October 2008 and ends on 7 January 2009. Each of the Existing Members and CCU Holders will need to hold their ACF Company shares 'at risk' for a continuous period of at least 45 days in this secondary qualification period in order to be a qualified person. 63. In calculating the number of days for which a taxpayer has continuously held the ACF Company shares, the day of acquisition and the day of disposal are to be excluded. In addition, pursuant to former subsection 160APHO(3) of the ITAA 1936, any days on which the taxpayer has materially diminished risks of loss or opportunities for gain in respect of the ACF Company shares are also to be excluded. Having regard to the Scheme of Arrangement, the Commissioner considers that from, and including, the Scheme Record Date, namely 25 November 2008, the Existing Members and CCU Holders will have materially diminished risks of loss or opportunities for gain. Accordingly, the Existing Members and CCU Holders will not hold their shares 'at risk' on any day after the 24 November 2008. 64. Therefore, those Existing Members who have held their ACF Co-op shares (which convert into ACF Company shares) 'at risk' for a continuous period of at least 45 days from 9 October 2008 to 24 November 2008 will be capable of being qualified persons in respect of the fully franked special dividend. 65. As the CCU Holders only acquire their ACF Company shares on 21 November 2008, they will not be capable of being qualified persons in respect of the fully franked special dividend. Therefore, the CCU Holders will not include the amount of the franking credit in their assessable income. Further, a CCU Holder (not being a trustee of a trust or a partnership) will not be entitled to a franking offset under section 207-20 of the ITAA 1997 in respect of the special dividend. | Section 204-30: 66. Section 204-30 of the ITAA 1997 applies where a corporate tax entity streams the payment of dividends, or the payment of dividends and the giving of other benefits, to its members in such a way that: 67. For section 204-30 of the ITAA 1997 to apply, members to whom distributions are streamed must derive a greater benefit from imputation benefits than other members. As the proposed special dividend is to be fully franked and paid to all shareholders, it cannot be said that ACF Company directed the flow of distributions in such a manner so as to ensure that imputation benefits are received by shareholders who derive greater benefits from franking credits, while other shareholders receive lesser or no imputation benefits. 68. Accordingly, the Commissioner will not make a determination pursuant to subsection 204-30(3) of the ITAA 1997 that section 204-30 of the ITAA 1997 applies to the proposed special dividend. | Section 177EA: 69. Section 177EA of the ITAA 1936 is a general anti-avoidance provision that applies to a wide range of schemes to obtain a tax advantage in relation to imputation benefits. In essence, it applies to schemes for the disposition of shares or an interest in shares, where a franked distribution is paid or payable in respect of the shares or an interest in shares. 70. Specifically, subsection 177EA(3) of the ITAA 1936 provides that section 177EA of the ITAA 1936 applies if: 71. If section 177EA of the ITAA 1936 applies the Commissioner may make a determination under subsection 177EA(5) that either a franking debit arises to the company in respect of each dividend paid to the relevant taxpayer or, in the alternative, that no franking credit benefit arises in respect of a dividend paid to the relevant taxpayer. 72. Following the conversion of ACF Co-op to a public company, ACF Company will be a corporate tax entity. The sale of the ordinary shares in ACF Company pursuant to a Scheme of Arrangement is a scheme for the disposition of membership interests. ACF Company intends to pay a fully franked special dividend in relation to the sale of all its ordinary shares pursuant to a Scheme of Arrangement, such that it can reasonably be expected that Existing Members will receive an imputation benefit as a result of the special dividend. 73. In the present case, it is considered that the conditions of paragraphs 177EA(3)(a) to (d) of the ITAA 1936 are satisfied. Accordingly, the issue is whether, having regard to the relevant circumstances of the scheme, it would be concluded that, on the part of ACF Company, its shareholders or any other relevant party, there is a purpose, more than merely an incidental purpose, of conferring an imputation benefit under the scheme: pursuant to paragraph 177EA(3)(e) of the ITAA 1936. 74. In arriving at a conclusion one must have regard to the relevant circumstances of the scheme which include, but are not limited to, the circumstances set out in subsection 177EA(17) of the ITAA 1936. The relevant circumstances listed there encompass a range of diverse matters which taken individually or in conjunction with other matters, listed or not, could indicate the requisite purpose, that is, that the delivery of the imputation benefit is more than an incidental purpose of the scheme. A purpose is an incidental purpose when it occurs fortuitously or in subordinate conjunction with another purpose, or merely follows another purpose as its natural incident. 75. The relevant scheme is a sale transaction involving shares in ACF Company being sold for market value to a third party in an arm's-length transaction. The relevant circumstances are that the disposition of the ordinary shares in ACF Company is made pursuant to a sale transaction to the unrelated third party. The acquisition of ACF Company by way of a Scheme of Arrangement is one of the alternatives available under the Co-op Act to be voted upon by ACF Co-op Existing Active Members. This particular Scheme of Arrangement is an ordinary commercial transaction and the disposal of shares by ACF Company shareholders is for commercial purposes. 76. There is no intention evidenced in the scheme that the payment of the special dividend is to enable a particular shareholder or class of shareholders (current and future) to obtain imputation benefits. Any imputation benefit obtained is merely incidental to the commercial purpose. 77. Having regard to the relevant circumstances of the scheme, it cannot be concluded that ACF Company or the shareholders entered into or carried out the scheme for the purpose of enabling the shareholders to obtain an imputation benefit. 78. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: Special dividend: 35. Those Existing Members and CCU Holders (not being a trustee of a trust or a partnership) who receive the fully franked special dividend directly, will be required to include the dividend in their assessable income under subparagraph 44(1)(a)(i) of the ITAA 1936. 36. Those Existing Members and CCU Holders who receive the fully franked special dividend directly will also: under section 207-20 of the ITAA 1997, provided the Existing Member or CCU Holder is a qualified person. 37. Where the fully franked special dividend is received by an Existing Member or CCU Holder (not being an entity taxed as a corporate tax entity) who is a trustee of a trust (not being a complying superannuation fund) or a partnership, the trustee of the trust or the partnership will include: | Qualified persons: 38. Those Existing Members and CCU Holders who receive the fully franked special dividend directly as part of the scheme will be taken to have made a related payment for the purposes of former section 160APHN of the ITAA 1936. 39. Accordingly, each of the Existing Members and CCU Holders will need to hold their ACF Company shares at risk for a continuous period of at least 45 days in the secondary qualification period in order to be a qualified person. 40. Therefore, those Existing Members who have held their ACF Co-op shares (which convert into ACF Company shares) 'at risk' for a continuous period of at least 45 days from 9 October 2008 to 24 November 2008 will be capable of being qualified persons in accordance with former subsection 160APHO(1) of the ITAA 1936 in respect of the fully franked special dividend. Any taxpayer who acquired their ACF Company shares on or after 9 October 2008 will not be capable of being a qualified person. 41. CCU Holders will not be capable of being qualified persons in respect of the fully franked special dividend as they acquired their ACF Company shares on 21 November 2008. Accordingly, the CCU Holders (not being a trustee of a trust or a partnership) will not include the amount of the franking credit in their assessable income and will not be entitled to a franking offset under section 207-20 of the ITAA 1997. 42. CCU Holders (being either a trustee of a trust or a partnership, as mentioned in paragraph 37 of this Ruling) will not include the amount of the franking credit in their assessable income under subsection 207-35(1) of the ITAA 1997. 43. The Commissioner considers that from, and including, the Scheme Record Date, namely 25 November 2008, ACF Company shareholders will no longer hold their ACF Company shares 'at risk'. | The anti-avoidance provisions: 44. The Commissioner will not make a determination under paragraph 204-30(3)(c) of the ITAA 1997 to deny the whole, or any part, of the imputation benefit received in relation to the special dividend received by the Existing Members and CCU Holders. 45. The Commissioner will not make a determination under paragraph 177EA(5)(b) of the ITAA 1936 to deny the whole, or any part, of the imputation benefit received in relation to the special dividend received by the Existing Members and CCU Holders. Commissioner of Taxation 12 November 2008


Appendix: Special dividend: 46. Subparagraph 44(1)(a)(i) of the ITAA 1936 provides that the assessable income of an Australian resident shareholder in a company includes: Therefore, where the special dividend is paid by ACF Company directly to an Existing Member or a CCU Holder, that Existing Member or CCU Holder will include the fully franked special dividend in their assessable income. 47. In addition section 207-20 of the ITAA 1997 provides: 48. Therefore, subject to satisfying the qualified person rule, where the fully franked special dividend is received directly by an Existing Member or a CCU Holder (not being a trustee of a trust or a partnership), that Existing Member or CCU Holder will: 49. Where the fully franked special dividend is received by an Existing Member or CCU Holder (not being an entity taxed as a corporate tax entity) that is a trustee of a trust (not being a complying superannuation fund) or a partnership, subsection 207-35(1) of the ITAA 1997 applies, subject to the trustee or partnership being a qualified person. Subsection 207-35(1) provides: Therefore, subject to the Existing Member or CCU Holder satisfying the qualified person rule, the Existing Member or CCU Holder will include: | Qualified persons: 50. If a franked distribution is made to an entity that is not a qualified person in relation to the distribution for the purposes of Division 1A of former Part IIIAA of the ITAA 1936 then subsection 207-145(1) of the ITAA 1997 provides: 51. The test for what constitutes a 'qualified person' is provided in former subsection 160APHO(1) of the ITAA 1936 as follows: 52. Former subsection 160APHO(2) of the ITAA 1936, referred to in the preceding paragraph, sets out the holding period requirement. Broadly, where the taxpayer is not under an obligation to make a related payment in relation to a dividend, the taxpayer will have to satisfy the holding period requirement within the primary qualification period. If a taxpayer is under an obligation to make a related payment in relation to a dividend, the taxpayer will have to satisfy the holding period requirement within the secondary qualification period. 53. In order to determine which is the relevant qualification period, it is necessary to determine whether, under the present arrangement, the Existing Members and the CCU Holders are considered to be under an obligation to make a related payment. Former section 160APHN of the ITAA 1936 provides non-definitive examples of what constitutes the making of a related payment for the purposes of Division 1A of former Part IIIAA of the ITAA 1936. Former subsection 160APHN(2) provides: 54. Former subsection 160APHN(3) of the ITAA 1936 states: 55. Former subsection 160APHN(4) of the ITAA 1936 states: 56. In the current circumstances, an integral part of the arrangement is the payment of the special dividend in respect of the ordinary shares of approximately 59 cents per share. Further, it is clearly contemplated in the current arrangement that the total consideration to be paid by National Foods is to be reduced by an amount equal to the amount of any special dividend paid. This reduction is specifically calculated by reference to the amount of any special dividend paid. In essence, National Foods would pay approximately $5.06 per share instead of approximately $5.65 per share if a 59 cent per share special dividend is paid. Likewise, the Existing Members and the CCU Holders would receive approximately $5.06 per share from National Foods from the disposal of their shares if a 59 cents per share special dividend is paid as against the total consideration of $5.65 per share to be provided pursuant to the Scheme of Arrangement. 57. As the Scheme of Arrangement clearly contemplates the reduction in the consideration for the disposal of an ACF Company share to be calculated by reference to the value of the special dividend paid pursuant to the Scheme of Arrangement, the reduction in the consideration is considered to constitute a notional crediting passing on the benefit of the proposed special dividend from an Existing Member or CCU Holder to National Foods. As such, it is considered to constitute a related payment for the purposes of former section 160APHN of the ITAA 1936. 58. As the Existing Members and the CCU Holders are taken, for the purposes of Division 1A of former Part IIIAA of the ITAA 1936, to be under an obligation to make a related payment in respect of the special dividend, the relevant holding period is therefore the secondary qualification period pursuant to former paragraph 160APHO(1)(b) of the ITAA 1936. 59. The 'secondary qualification period' is defined in former section 160APHD of the ITAA 1936 as follows: 60. The concept of 'ex-dividend' is defined by former subsection 160APHE(1) of the ITAA 1936 as follows: 61. ACF Company will determine eligibility for the special dividend on 22 November 2008. Therefore, pursuant to the Scheme of Arrangement, the last day on which the acquisition by a person of an ACF Company share will entitle the person to receive the special dividend is 22 November 2008. Accordingly, the ex-dividend date for the purposes of former subsection 160APHE(1) of the ITAA 1936 is 23 November 2008. 62. The secondary qualification period therefore begins on the 45th day before the ex-dividend date of 23 November 2008 and ends on the 45th day after that date. In practical terms, this means that the secondary qualification period begins on 9 October 2008 and ends on 7 January 2009. Each of the Existing Members and CCU Holders will need to hold their ACF Company shares 'at risk' for a continuous period of at least 45 days in this secondary qualification period in order to be a qualified person. 63. In calculating the number of days for which a taxpayer has continuously held the ACF Company shares, the day of acquisition and the day of disposal are to be excluded. In addition, pursuant to former subsection 160APHO(3) of the ITAA 1936, any days on which the taxpayer has materially diminished risks of loss or opportunities for gain in respect of the ACF Company shares are also to be excluded. Having regard to the Scheme of Arrangement, the Commissioner considers that from, and including, the Scheme Record Date, namely 25 November 2008, the Existing Members and CCU Holders will have materially diminished risks of loss or opportunities for gain. Accordingly, the Existing Members and CCU Holders will not hold their shares 'at risk' on any day after the 24 November 2008. 64. Therefore, those Existing Members who have held their ACF Co-op shares (which convert into ACF Company shares) 'at risk' for a continuous period of at least 45 days from 9 October 2008 to 24 November 2008 will be capable of being qualified persons in respect of the fully franked special dividend. 65. As the CCU Holders only acquire their ACF Company shares on 21 November 2008, they will not be capable of being qualified persons in respect of the fully franked special dividend. Therefore, the CCU Holders will not include the amount of the franking credit in their assessable income. Further, a CCU Holder (not being a trustee of a trust or a partnership) will not be entitled to a franking offset under section 207-20 of the ITAA 1997 in respect of the special dividend. | Section 204-30: 66. Section 204-30 of the ITAA 1997 applies where a corporate tax entity streams the payment of dividends, or the payment of dividends and the giving of other benefits, to its members in such a way that: 67. For section 204-30 of the ITAA 1997 to apply, members to whom distributions are streamed must derive a greater benefit from imputation benefits than other members. As the proposed special dividend is to be fully franked and paid to all shareholders, it cannot be said that ACF Company directed the flow of distributions in such a manner so as to ensure that imputation benefits are received by shareholders who derive greater benefits from franking credits, while other shareholders receive lesser or no imputation benefits. 68. Accordingly, the Commissioner will not make a determination pursuant to subsection 204-30(3) of the ITAA 1997 that section 204-30 of the ITAA 1997 applies to the proposed special dividend. | Section 177EA: 69. Section 177EA of the ITAA 1936 is a general anti-avoidance provision that applies to a wide range of schemes to obtain a tax advantage in relation to imputation benefits. In essence, it applies to schemes for the disposition of shares or an interest in shares, where a franked distribution is paid or payable in respect of the shares or an interest in shares. 70. Specifically, subsection 177EA(3) of the ITAA 1936 provides that section 177EA of the ITAA 1936 applies if: 71. If section 177EA of the ITAA 1936 applies the Commissioner may make a determination under subsection 177EA(5) that either a franking debit arises to the company in respect of each dividend paid to the relevant taxpayer or, in the alternative, that no franking credit benefit arises in respect of a dividend paid to the relevant taxpayer. 72. Following the conversion of ACF Co-op to a public company, ACF Company will be a corporate tax entity. The sale of the ordinary shares in ACF Company pursuant to a Scheme of Arrangement is a scheme for the disposition of membership interests. ACF Company intends to pay a fully franked special dividend in relation to the sale of all its ordinary shares pursuant to a Scheme of Arrangement, such that it can reasonably be expected that Existing Members will receive an imputation benefit as a result of the special dividend. 73. In the present case, it is considered that the conditions of paragraphs 177EA(3)(a) to (d) of the ITAA 1936 are satisfied. Accordingly, the issue is whether, having regard to the relevant circumstances of the scheme, it would be concluded that, on the part of ACF Company, its shareholders or any other relevant party, there is a purpose, more than merely an incidental purpose, of conferring an imputation benefit under the scheme: pursuant to paragraph 177EA(3)(e) of the ITAA 1936. 74. In arriving at a conclusion one must have regard to the relevant circumstances of the scheme which include, but are not limited to, the circumstances set out in subsection 177EA(17) of the ITAA 1936. The relevant circumstances listed there encompass a range of diverse matters which taken individually or in conjunction with other matters, listed or not, could indicate the requisite purpose, that is, that the delivery of the imputation benefit is more than an incidental purpose of the scheme. A purpose is an incidental purpose when it occurs fortuitously or in subordinate conjunction with another purpose, or merely follows another purpose as its natural incident. 75. The relevant scheme is a sale transaction involving shares in ACF Company being sold for market value to a third party in an arm's-length transaction. The relevant circumstances are that the disposition of the ordinary shares in ACF Company is made pursuant to a sale transaction to the unrelated third party. The acquisition of ACF Company by way of a Scheme of Arrangement is one of the alternatives available under the Co-op Act to be voted upon by ACF Co-op Existing Active Members. This particular Scheme of Arrangement is an ordinary commercial transaction and the disposal of shares by ACF Company shareholders is for commercial purposes. 76. There is no intention evidenced in the scheme that the payment of the special dividend is to enable a particular shareholder or class of shareholders (current and future) to obtain imputation benefits. Any imputation benefit obtained is merely incidental to the commercial purpose. 77. Having regard to the relevant circumstances of the scheme, it cannot be concluded that ACF Company or the shareholders entered into or carried out the scheme for the purpose of enabling the shareholders to obtain an imputation benefit.


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. | dividends (other than non-share dividends) that are paid to the shareholder by the company out of profits derived by it from any source. | the assessable income of the partnership or trust for that income year includes the amount of the *franking credit on the distribution. | A taxpayer who has held shares or an interest in shares on which a dividend has been paid is a qualified person in relation to the dividend if: | The taxpayer or associate is taken, for the purposes of this Division, to have made, to be under an obligation to make, or to be likely to make, a related payment in respect of the dividend or distribution if, under an arrangement, the taxpayer or associate has done, is under an obligation to do, or may reasonably be expected to do, as the case may be, anything having the effect of passing the benefit of the dividend or distribution to one or more other persons. | Without limiting subsection (2), the doing of any of the following by the taxpayer or an associate of the taxpayer in the circumstances mentioned in subsection (4) may have the effect of passing the benefit of the dividend or distribution to one or more other persons: | The circumstances referred to in subsection (3), are where: | the amount of the dividend or distribution. | in relation to a taxpayer in relation to shares or an interest in shares, means: | A share in respect of which a dividend is to be paid, or an interest (other than an interest as a beneficiary of a widely held trust) in such a share, becomes ex-dividend on the day after the last day on which the acquisition by a person of the share will entitle the person to receive the dividend. | Appendix 2 - Detailed contents list


Related rulings: TR 2006/10
Legislative references: ITAA 1936 6(1) ITAA 1936 44 ITAA 1936 44(1)(a)(i) ITAA 1936 Pt IIIAA Div 1A ITAA 1936 160APHD ITAA 1936 160APHE(1) ITAA 1936 160APHN ITAA 1936 160APHN(2) ITAA 1936 160APHN(3) ITAA 1936 106APHN(3)(a) ITAA 1936 106APHN(3)(b) ITAA 1936 106APHN(3)(c) ITAA 1936 106APHN(3)(d) ITAA 1936 106APHN(3)(e) ITAA 1936 106APHN(3)(f) ITAA 1936 106APHN(3)(g) ITAA 1936 160APHN(4) ITAA 1936 160APHN(4)(a) ITAA 1936 160APHN(4)(b) ITAA 1936 160APHN(4)(c) ITAA 1936 160APHN(4)(d) ITAA 1936 160APHN(4)(e) ITAA 1936 160APHN(4)(f) ITAA 1936 160APHO(1) ITAA 1936 106APHO(1)(a) ITAA 1936 160APHO(1)(b) ITAA 1936 160APHO(2) ITAA 1936 160APHO(3) ITAA 1936 177EA ITAA 1936 177EA(3) ITAA 1936 177EA(3)(a) ITAA 1936 177EA(3)(b) ITAA 1936 177EA(3)(c) ITAA 1936 177EA(3)(d) ITAA 1936 177EA(5) ITAA 1936 177EA(5)(b) ITAA 1936 177EA(17) ITAA 1997 204-30 ITAA 1997 204-30(1)(a) ITAA 1997 204-30(1)(b) ITAA 1997 204-30(1)(c) ITAA 1997 204-30(3) ITAA 1997 204-30(3)(c) ITAA 1997 207-20 ITAA 1997 207-35 ITAA 1997 207-35(1) ITAA 1997 207-35(3) ITAA 1997 207-45 ITAA 1997 207-145 ITAA 1997 207-145(1) TAA 1953 Copyright Act 1968 Corporations Act 2001 Co-operatives Act 1992 (NSW) Co-operatives Act 1992 (NSW) Pt 6 Div 5 Co-operatives Act 1992 (NSW) Pt 13
Subject references: deemed dividends dividend income dividend streaming arrangements imputation system franking credits qualified persons related payment rule