Class Ruling CR 2023/37

What this ruling is about: 1. This Ruling sets out the income tax consequences of the demerger of NGX Limited (NGX) by Sovereign Metals Limited (SVM) which was implemented on 24 March 2023 (Implementation Date). 2. Details of this scheme are set out in paragraphs 20 to 42 of this Ruling. 3. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Who this Ruling applies to 4. This Ruling applies to you if you held shares in SVM and you: 5. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in paragraphs 20 to 42 of this Ruling. Note: Division 230 will not apply to individuals unless they have made an election for it to apply. When this Ruling applies 6. This Ruling applies from 1 July 2022 to 30 June 2023. Demerger 7. A demerger, as defined in section 125-70, happened to the SVM demerger group, which included SVM and NGX under the scheme described in paragraphs 20 to 42 of this Ruling. Capital gains tax consequences CGT event G1 8. CGT event G1 happened when you received or were taken to have received NGX shares (section 104-135). 9. You will make a capital gain from CGT event G1 happening if the cost base of your SVM share is less than the amount you received for your NGX share of 0.89 cents. If so, the capital gain is equal to the amount of the difference (subsection 104-135(3)). 10. No capital loss can be made from CGT event G1 (Note 1 to subsection 104-135(3)). Demerger roll-over is available 11. You can choose demerger roll-over for your SVM shares. Consequences of choosing demerger roll-over 12. If you choose demerger roll-over for your SVM shares: Consequences of not choosing demerger roll-over 13. If you did not choose demerger roll-over for your SVM shares: Apportioning the cost base of your Sovereign Metals Limited and NGX Limited shares 14. The first element of the cost base and reduced cost base of each SVM share and corresponding NGX share is worked out by: 15. The apportionment is done on a reasonable basis having regard to the market values of your SVM shares and NGX shares just after the demerger, or an anticipated reasonable approximation of those market values (subsections 125-80(2) and (3)). 16. The Commissioner accepts that a reasonable apportionment is to attribute: Acquisition date of Sovereign Metals Limited shares for discount capital gain purposes 17. For the purpose of determining whether you can make a discount capital gain from a future CGT event that happens to an NGX share you acquired under the demerger, you will be taken to have acquired the NGX share on the date you acquired, for capital gains tax (CGT) purposes, the corresponding SVM share (table item 2 in subsection 115-30(1)). This will be the case whether or not you choose demerger roll-over. NGX Limited shares not included in assessable income 18. The value of the NGX shares you received, or were taken to have received, under the demerger is not included in your assessable income under subsection 44(1) of the ITAA 1936. Although the part of the value of the NGX share that is not debited to the share capital account of SVM is a dividend under subsection 6(1) of the ITAA 1936, it will be a demerger dividend under subsections 44(3) to (5) of the ITAA 1936. A demerger dividend is non-assessable non-exempt income for you. Anti-avoidance provisions do not apply 19. As the purpose test in paragraph 45B(2)(c) of the ITAA 1936 is not satisfied, the Commissioner will not make a determination under either: 20. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. Sovereign Metals Limited 21. SVM is a company incorporated in Australia on 20 July 2006, and is listed on the Australian Securities Exchange. SVM and its subsidiaries (SVM group) holds various exploration and prospecting licences in Malawi relating to the SVM group's rutile and graphite projects. 22. Immediately before the demerger, SVM had on issue: 23. There were no other ownership interests (as defined in subsection 125-60(1)) in SVM. 24. Immediately before the demerger, SVM's share capital account had a credit balance of $75,317,380. 25. As at 30 June 2022, SVM had accumulated losses of $55,695,820. 26. SVM does not have a dividend policy and since incorporation has not paid any dividends. NGX Limited 27. NGX is a company incorporated in Australia on 19 April 2021. 28. Immediately before the demerger, NGX held the SVM group's licences and mineral rights to mine graphite in Malawi (Graphite Projects). The demerger of NGX Limited 29. On 7 December 2022, SVM announced the proposed demerger of NGX, a wholly-owned subsidiary, that will immediately before the demerger hold the SVM group's Graphite Projects. Following the demerger, SVM will focus on its Kasiya Rutile Project. 30. On 17 March 2023, SVM shareholders voted at the General Meeting to approve a resolution to reduce the share capital of SVM under sections 256B and 256C of the Corporations Act 2001. The date for determining the entitlement of SVM shareholders to receive NGX shares was the Record Date. 31. On the Implementation Date, SVM satisfied the capital reduction by transferring all the ordinary shares in NGX to SVM shareholders in proportion to their shareholdings in SVM. SVM shareholders received one NGX share for approximately every 11 ordinary shares they held in SVM at the Record Date for the demerger, and nothing else. 32. After the demerger, SVM shareholders owned shares in both SVM and NGX. Accounting treatment 33. SVM accounted for the demerger by: 34. The demerger dividend was calculated as the difference between the market value of the NGX shares and the capital reduction amount. Reasons for the demerger 35. The Board of SVM determined that the demerger would achieve the following objectives: Sale facility for some foreign shareholders 36. Under a sale facility for shares held by certain ineligible overseas shareholders of SVM, the NGX shares they would have otherwise received were sold on-market by a nominee with the net sale proceeds remitted to those shareholders. Other matters 37. SVM's share capital account was not tainted (within the meaning of Division 197). 38. SVM did not elect under subsection 44(2) of the ITAA 1936 that subsections 44(3) and (4) of the ITAA 1936 will not apply to the demerger dividend for all SVM shareholders. 39. Just after the demerger, CGT assets owned by NGX and its demerger subsidiaries representing at least 50% by market value of all the CGT assets owned by those entities were used in carrying on a business by those entities (subsection 44(5) of the ITAA 1936). 40. The performance rights in SVM were issued in accordance with Division 83A and are interests to which Subdivision 83A-C applies. 41. The share options in SVM were adjusting instruments as defined in subsection 125-75(5). 42. NGX was listed on the Australian Securities Exchange on 16 June 2023 and raised share capital of $8.56 million (before costs) through a Priority Offer at an issue price of 0.20 cents per NGX share and share capital of $1 million through a General Offer at an issue price of 0.20 cents per share. Commissioner of Taxation 19 July 2023 © 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).

Class of entities or scheme: 20. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. | Sovereign Metals Limited: 21. SVM is a company incorporated in Australia on 20 July 2006, and is listed on the Australian Securities Exchange. SVM and its subsidiaries (SVM group) holds various exploration and prospecting licences in Malawi relating to the SVM group's rutile and graphite projects. 22. Immediately before the demerger, SVM had on issue: 23. There were no other ownership interests (as defined in subsection 125-60(1)) in SVM. 24. Immediately before the demerger, SVM's share capital account had a credit balance of $75,317,380. 25. As at 30 June 2022, SVM had accumulated losses of $55,695,820. 26. SVM does not have a dividend policy and since incorporation has not paid any dividends. | NGX Limited: 27. NGX is a company incorporated in Australia on 19 April 2021. 28. Immediately before the demerger, NGX held the SVM group's licences and mineral rights to mine graphite in Malawi (Graphite Projects). | The demerger of NGX Limited: 29. On 7 December 2022, SVM announced the proposed demerger of NGX, a wholly-owned subsidiary, that will immediately before the demerger hold the SVM group's Graphite Projects. Following the demerger, SVM will focus on its Kasiya Rutile Project. 30. On 17 March 2023, SVM shareholders voted at the General Meeting to approve a resolution to reduce the share capital of SVM under sections 256B and 256C of the Corporations Act 2001. The date for determining the entitlement of SVM shareholders to receive NGX shares was the Record Date. 31. On the Implementation Date, SVM satisfied the capital reduction by transferring all the ordinary shares in NGX to SVM shareholders in proportion to their shareholdings in SVM. SVM shareholders received one NGX share for approximately every 11 ordinary shares they held in SVM at the Record Date for the demerger, and nothing else. 32. After the demerger, SVM shareholders owned shares in both SVM and NGX. | Accounting treatment: 33. SVM accounted for the demerger by: 34. The demerger dividend was calculated as the difference between the market value of the NGX shares and the capital reduction amount. | Reasons for the demerger: 35. The Board of SVM determined that the demerger would achieve the following objectives: | Sale facility for some foreign shareholders: 36. Under a sale facility for shares held by certain ineligible overseas shareholders of SVM, the NGX shares they would have otherwise received were sold on-market by a nominee with the net sale proceeds remitted to those shareholders. | Other matters: 37. SVM's share capital account was not tainted (within the meaning of Division 197). 38. SVM did not elect under subsection 44(2) of the ITAA 1936 that subsections 44(3) and (4) of the ITAA 1936 will not apply to the demerger dividend for all SVM shareholders. 39. Just after the demerger, CGT assets owned by NGX and its demerger subsidiaries representing at least 50% by market value of all the CGT assets owned by those entities were used in carrying on a business by those entities (subsection 44(5) of the ITAA 1936). 40. The performance rights in SVM were issued in accordance with Division 83A and are interests to which Subdivision 83A-C applies. 41. The share options in SVM were adjusting instruments as defined in subsection 125-75(5). 42. NGX was listed on the Australian Securities Exchange on 16 June 2023 and raised share capital of $8.56 million (before costs) through a Priority Offer at an issue price of 0.20 cents per NGX share and share capital of $1 million through a General Offer at an issue price of 0.20 cents per share. Commissioner of Taxation 19 July 2023 © 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).

Ruling: 1. This Ruling sets out the income tax consequences of the demerger of NGX Limited (NGX) by Sovereign Metals Limited (SVM) which was implemented on 24 March 2023 (Implementation Date). 2. Details of this scheme are set out in paragraphs 20 to 42 of this Ruling. 3. All legislative references in this Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. | Who this Ruling applies to: 4. This Ruling applies to you if you held shares in SVM and you: 5. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in paragraphs 20 to 42 of this Ruling. Note: Division 230 will not apply to individuals unless they have made an election for it to apply. | When this Ruling applies: 6. This Ruling applies from 1 July 2022 to 30 June 2023. | Demerger: 7. A demerger, as defined in section 125-70, happened to the SVM demerger group, which included SVM and NGX under the scheme described in paragraphs 20 to 42 of this Ruling. | CGT event G1: 8. CGT event G1 happened when you received or were taken to have received NGX shares (section 104-135). 9. You will make a capital gain from CGT event G1 happening if the cost base of your SVM share is less than the amount you received for your NGX share of 0.89 cents. If so, the capital gain is equal to the amount of the difference (subsection 104-135(3)). 10. No capital loss can be made from CGT event G1 (Note 1 to subsection 104-135(3)). | Demerger roll-over is available: 11. You can choose demerger roll-over for your SVM shares. Consequences of choosing demerger roll-over 12. If you choose demerger roll-over for your SVM shares: Consequences of not choosing demerger roll-over 13. If you did not choose demerger roll-over for your SVM shares: | Apportioning the cost base of your Sovereign Metals Limited and NGX Limited shares: 14. The first element of the cost base and reduced cost base of each SVM share and corresponding NGX share is worked out by: 15. The apportionment is done on a reasonable basis having regard to the market values of your SVM shares and NGX shares just after the demerger, or an anticipated reasonable approximation of those market values (subsections 125-80(2) and (3)). 16. The Commissioner accepts that a reasonable apportionment is to attribute: | Acquisition date of Sovereign Metals Limited shares for discount capital gain purposes: 17. For the purpose of determining whether you can make a discount capital gain from a future CGT event that happens to an NGX share you acquired under the demerger, you will be taken to have acquired the NGX share on the date you acquired, for capital gains tax (CGT) purposes, the corresponding SVM share (table item 2 in subsection 115-30(1)). This will be the case whether or not you choose demerger roll-over. | NGX Limited shares not included in assessable income: 18. The value of the NGX shares you received, or were taken to have received, under the demerger is not included in your assessable income under subsection 44(1) of the ITAA 1936. Although the part of the value of the NGX share that is not debited to the share capital account of SVM is a dividend under subsection 6(1) of the ITAA 1936, it will be a demerger dividend under subsections 44(3) to (5) of the ITAA 1936. A demerger dividend is non-assessable non-exempt income for you. | Anti-avoidance provisions do not apply: 19. As the purpose test in paragraph 45B(2)(c) of the ITAA 1936 is not satisfied, the Commissioner will not make a determination under either: 20. The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon. | Sovereign Metals Limited: 21. SVM is a company incorporated in Australia on 20 July 2006, and is listed on the Australian Securities Exchange. SVM and its subsidiaries (SVM group) holds various exploration and prospecting licences in Malawi relating to the SVM group's rutile and graphite projects. 22. Immediately before the demerger, SVM had on issue: 23. There were no other ownership interests (as defined in subsection 125-60(1)) in SVM. 24. Immediately before the demerger, SVM's share capital account had a credit balance of $75,317,380. 25. As at 30 June 2022, SVM had accumulated losses of $55,695,820. 26. SVM does not have a dividend policy and since incorporation has not paid any dividends. | NGX Limited: 27. NGX is a company incorporated in Australia on 19 April 2021. 28. Immediately before the demerger, NGX held the SVM group's licences and mineral rights to mine graphite in Malawi (Graphite Projects). | The demerger of NGX Limited: 29. On 7 December 2022, SVM announced the proposed demerger of NGX, a wholly-owned subsidiary, that will immediately before the demerger hold the SVM group's Graphite Projects. Following the demerger, SVM will focus on its Kasiya Rutile Project. 30. On 17 March 2023, SVM shareholders voted at the General Meeting to approve a resolution to reduce the share capital of SVM under sections 256B and 256C of the Corporations Act 2001. The date for determining the entitlement of SVM shareholders to receive NGX shares was the Record Date. 31. On the Implementation Date, SVM satisfied the capital reduction by transferring all the ordinary shares in NGX to SVM shareholders in proportion to their shareholdings in SVM. SVM shareholders received one NGX share for approximately every 11 ordinary shares they held in SVM at the Record Date for the demerger, and nothing else. 32. After the demerger, SVM shareholders owned shares in both SVM and NGX. | Accounting treatment: 33. SVM accounted for the demerger by: 34. The demerger dividend was calculated as the difference between the market value of the NGX shares and the capital reduction amount. | Reasons for the demerger: 35. The Board of SVM determined that the demerger would achieve the following objectives: | Sale facility for some foreign shareholders: 36. Under a sale facility for shares held by certain ineligible overseas shareholders of SVM, the NGX shares they would have otherwise received were sold on-market by a nominee with the net sale proceeds remitted to those shareholders. | Other matters: 37. SVM's share capital account was not tainted (within the meaning of Division 197). 38. SVM did not elect under subsection 44(2) of the ITAA 1936 that subsections 44(3) and (4) of the ITAA 1936 will not apply to the demerger dividend for all SVM shareholders. 39. Just after the demerger, CGT assets owned by NGX and its demerger subsidiaries representing at least 50% by market value of all the CGT assets owned by those entities were used in carrying on a business by those entities (subsection 44(5) of the ITAA 1936). 40. The performance rights in SVM were issued in accordance with Division 83A and are interests to which Subdivision 83A-C applies. 41. The share options in SVM were adjusting instruments as defined in subsection 125-75(5). 42. NGX was listed on the Australian Securities Exchange on 16 June 2023 and raised share capital of $8.56 million (before costs) through a Priority Offer at an issue price of 0.20 cents per NGX share and share capital of $1 million through a General Offer at an issue price of 0.20 cents per share. Commissioner of Taxation 19 July 2023 © 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).




What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.


Legislative references: ITAA 1936 6(1) ITAA 1936 44(1) ITAA 1936 44(2) ITAA 1936 44(3) ITAA 1936 44(4) ITAA 1936 44(5) ITAA 1936 45B(2)(c) ITAA 1936 45B(3)(a) ITAA 1936 45B(3)(b) ITAA 1936 45BA ITAA 1936 45C ITAA 1997 Div 83A ITAA 1997 Div 83A-C ITAA 1997 104-135 ITAA 1997 104-135(3) ITAA 1997 115-30(1) ITAA 1997 125-60(1) ITAA 1997 125-70 ITAA 1997 125-80(1) ITAA 1997 125-80(2) ITAA 1997 125-80(3) ITAA 1997 125-85 ITAA 1997 Div 197 ITAA 1997 Div 230 ITAA 1997 977-50 ITAA 1997 995-1(1) Corporations Act 2001 256B Corporations Act 2001 256C