Class Ruling CR 2007/78
Date of effect: 1 July 2007

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: All 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 ordinary shareholders of Cumnock Coal Limited (CCL) who In this Ruling a person belonging to this class of entities is referred to as a 'CCL Ordinary Shareholder'. The class of entities does not include any shareholder holding more than 40% of the shares. 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 13 to 15 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 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 ordinary shareholders of Cumnock Coal Limited (CCL) who In this Ruling a person belonging to this class of entities is referred to as a 'CCL Ordinary Shareholder'. The class of entities does not include any shareholder holding more than 40% of the shares. | 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 13 to 15 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 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: 8. This Ruling applies from 1 July 2007 to 30 June 2008. However, the Ruling continues to apply after 30 June 2008 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. 9. The Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling. Furthermore, the Ruling only applies to the extent that: 10. If this Class Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). 11. If this Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Ruling is made, the following two conditions are met: 12. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA). 13. The scheme that is the subject of this Ruling is described below. The description is based on, and includes, reference to the following documents: 14. The scheme that is the subject of this Ruling involves Helios acquiring 100% of the shareholding in CCL, a publicly listed Australian company, in accordance with the Merger Implementation Agreement. The proposed merger will be effected by the following steps: 15. Helios is required under the terms of the Deed Poll to make a payment (Merger Consideration) to each of the CCL Ordinary Shareholders for passing the resolution for the reduction and cancellation of all their existing ordinary shares in CCL. Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under the Freedom of Information legislation. | Cancellation of existing ordinary shares in CCL: 16. The proposed payment of the Merger Consideration will not be a dividend as defined in subsection 6(1) of the ITAA 1936 for the purposes of subsection 44(1) of the ITAA 1936. 17. The Commissioner will not make a determination under subsection 45A(2) or subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the proposed Merger Consideration. 18. CGT event C2, in section 104-25 of the ITAA 1997, will happen upon the cancellation of the CCL ordinary shares. 19. The CCL Ordinary Shareholders will make a capital gain when CGT event C2 happens if the capital proceeds for each CCL ordinary share are more than its cost base. They will make a capital loss if the capital proceeds are less than the share's reduced cost base (subsection 104-25(3)). Commissioner of Taxation 15 August 2007 | Subsection 44(1): 20. Under the arrangement, as described, there is no distribution by CCL, whether in money or property, nor will CCL be crediting an amount to the participants as shareholders in CCL as is required under the definition of 'dividend' in subsection 6(1) of the ITAA 1936. 21. The payment from Helios is the only amount to be received by the shareholders which is made in return for the cancellation of the CCL Ordinary Shareholders' shares as part of a wider arrangement and therefore cannot be considered a dividend under subsection 6(1) of ITAA 1936. 22. Accordingly, the scheme does not give rise to an amount being included in a CCL Ordinary Shareholder's assessable income under subsection 44(1) of the ITAA 1936. | Section 45A: 23. Section 45A of the ITAA 1936 is an anti-avoidance provision that applies in circumstances where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of capital and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 24. There is no provision of a capital benefit, as defined by subsection 45A(3) of the ITAA 1936, nor are there any disadvantaged shareholders by whom it is reasonable to assume that dividends will be received. Thus, section 45A does not apply to give rise to an amount being included in a CCL Ordinary Shareholder's assessable income. | Section 45B: 25. Section 45B of the ITAA 1936 applies where certain capital payments, including a return of capital, are made to shareholders in substitution for dividends. Specifically, the provision applies where: 26. The shareholder 'obtains a tax benefit', as defined in subsection 45B(9) of the ITAA 1936, where the amount of tax payable or any amount payable under the ITAA 1936 or the ITAA 1997 by the shareholder would, apart from the operation of section 45B of the ITAA 1936: if the capital benefit had instead been a dividend. 27. On the basis of the information provided in the documents or parts of the documents that are incorporated into the description of the scheme, section 45B of the ITAA 1936 does not apply to this scheme. 28. Accordingly, the Commissioner will not make a determination pursuant to subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the proposed return of capital. 29. As the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 or subsection 45B(3) of the ITAA 1936 in relation to the scheme as described, section 45C of the ITAA 1936 will not deem the proposed return of capital to be an unfranked dividend for the purposes of the ITAA 1936 or ITAA 1997. | CGT event C2: 30. Under paragraph 104-25(1)(a) CGT event C2 happens if a taxpayer's ownership of an intangible CGT asset ends because it is redeemed or cancelled. CGT event C2 happens upon the cancellation of the CCL shares (subsection 104-25(2)). 31. A taxpayer will make a capital gain when CGT event C2 happens if the capital proceeds received are more than the cost base of the share. A taxpayer will make a capital loss if the capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 32. The capital proceeds from the cancellation of the CCL shares will be determined under Division 116. 33. Subsection 116-20(1) provides that capital proceeds includes the total of the money and the market value of any property received, or entitled to be received, in respect of the event happening. 34. However, section 116-30 provides that in certain circumstances the capital proceeds from a CGT event are replaced with the market value of the CGT asset that is the subject of the event. For example, the market value substitution rule will apply when the capital proceeds from CGT event C2 happening are more or less than the market value of the asset that is the subject of the event (subsection 116-30(2)). In these cases the market value is worked out as if CGT event C2 had not occurred and was never proposed to occur (subsection 116-30(3A)). 35. It is not until the time of the CGT event that it can be determined whether the capital proceeds under section 116-20 should be replaced with the market value of the CGT asset that is the subject of the event, pursuant to section 116-30. 36. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: Cancellation of existing ordinary shares in CCL: 16. The proposed payment of the Merger Consideration will not be a dividend as defined in subsection 6(1) of the ITAA 1936 for the purposes of subsection 44(1) of the ITAA 1936. 17. The Commissioner will not make a determination under subsection 45A(2) or subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the proposed Merger Consideration. 18. CGT event C2, in section 104-25 of the ITAA 1997, will happen upon the cancellation of the CCL ordinary shares. 19. The CCL Ordinary Shareholders will make a capital gain when CGT event C2 happens if the capital proceeds for each CCL ordinary share are more than its cost base. They will make a capital loss if the capital proceeds are less than the share's reduced cost base (subsection 104-25(3)). Commissioner of Taxation 15 August 2007


Appendix: Subsection 44(1): 20. Under the arrangement, as described, there is no distribution by CCL, whether in money or property, nor will CCL be crediting an amount to the participants as shareholders in CCL as is required under the definition of 'dividend' in subsection 6(1) of the ITAA 1936. 21. The payment from Helios is the only amount to be received by the shareholders which is made in return for the cancellation of the CCL Ordinary Shareholders' shares as part of a wider arrangement and therefore cannot be considered a dividend under subsection 6(1) of ITAA 1936. 22. Accordingly, the scheme does not give rise to an amount being included in a CCL Ordinary Shareholder's assessable income under subsection 44(1) of the ITAA 1936. | Section 45A: 23. Section 45A of the ITAA 1936 is an anti-avoidance provision that applies in circumstances where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of capital and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 24. There is no provision of a capital benefit, as defined by subsection 45A(3) of the ITAA 1936, nor are there any disadvantaged shareholders by whom it is reasonable to assume that dividends will be received. Thus, section 45A does not apply to give rise to an amount being included in a CCL Ordinary Shareholder's assessable income. | Section 45B: 25. Section 45B of the ITAA 1936 applies where certain capital payments, including a return of capital, are made to shareholders in substitution for dividends. Specifically, the provision applies where: 26. The shareholder 'obtains a tax benefit', as defined in subsection 45B(9) of the ITAA 1936, where the amount of tax payable or any amount payable under the ITAA 1936 or the ITAA 1997 by the shareholder would, apart from the operation of section 45B of the ITAA 1936: if the capital benefit had instead been a dividend. 27. On the basis of the information provided in the documents or parts of the documents that are incorporated into the description of the scheme, section 45B of the ITAA 1936 does not apply to this scheme. 28. Accordingly, the Commissioner will not make a determination pursuant to subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the proposed return of capital. 29. As the Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 or subsection 45B(3) of the ITAA 1936 in relation to the scheme as described, section 45C of the ITAA 1936 will not deem the proposed return of capital to be an unfranked dividend for the purposes of the ITAA 1936 or ITAA 1997. | CGT event C2: 30. Under paragraph 104-25(1)(a) CGT event C2 happens if a taxpayer's ownership of an intangible CGT asset ends because it is redeemed or cancelled. CGT event C2 happens upon the cancellation of the CCL shares (subsection 104-25(2)). 31. A taxpayer will make a capital gain when CGT event C2 happens if the capital proceeds received are more than the cost base of the share. A taxpayer will make a capital loss if the capital proceeds are less than the asset's reduced cost base (subsection 104-25(3)). 32. The capital proceeds from the cancellation of the CCL shares will be determined under Division 116. 33. Subsection 116-20(1) provides that capital proceeds includes the total of the money and the market value of any property received, or entitled to be received, in respect of the event happening. 34. However, section 116-30 provides that in certain circumstances the capital proceeds from a CGT event are replaced with the market value of the CGT asset that is the subject of the event. For example, the market value substitution rule will apply when the capital proceeds from CGT event C2 happening are more or less than the market value of the asset that is the subject of the event (subsection 116-30(2)). In these cases the market value is worked out as if CGT event C2 had not occurred and was never proposed to occur (subsection 116-30(3A)). 35. It is not until the time of the CGT event that it can be determined whether the capital proceeds under section 116-20 should be replaced with the market value of the CGT asset that is the subject of the event, pursuant to section 116-30.


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, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are 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. | Taxation consequences of the share cancellation | Appendix 2 - Detailed contents list


Legislative references: ITAA 1936 6(1) ITAA 1936 44(1) ITAA 1936 45A ITAA 1936 45A(2) ITAA 1936 45A(3) ITAA 1936 45B ITAA 1936 45B(2)(a) ITAA 1936 45B(2)(b) ITAA 1936 45B(2)(c) ITAA 1936 45B(3) ITAA 1936 45B(9) ITAA 1936 45C ITAA 1997 104-25 ITAA 1997 104-25(1)(a) ITAA 1997 104-25(2) ITAA 1997 104-25(3) ITAA 1997 Div 116 ITAA 1997 116-20 ITAA 1997 116-20(1) ITAA 1997 116-30 ITAA 1997 116-30(2) ITAA 1997 116-30(3A) TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968
Subject references: acquisition of shares cancellation of shares capital reductions CGT cost base ordinary shares takeovers and mergers