Income tax: capital gains tax: Subdivision 126-B roll-over

Will the originating company qualify for roll-over under Subdivision 126-B of the Income Tax Assessment Act 1997 (ITAA 1997) on the transfer of its assets to the proposed new head entity of a wholly owned group of companies (the ultimate holding company) of which the originating company is a member?

Yes. The transfer of the assets of the originating company to the ultimate holding company will qualify for roll-over under Subdivision 126-B of the ITAA 1997.

All of the assets of the originating company are to be transferred to the ultimate holding company for no consideration.

But for any roll-over, the originating company would make a capital gain in respect of the transfer of each asset.

The originating company and the ultimate holding company will be members of the same wholly-owned group when the assets are transferred. The ultimate holding company will not be exempt from income tax.

Both companies are/will be Australian residents at the time the assets are transferred.

None of the assets rolled over will be trading stock of the ultimate holding company just after the transfer.

Both companies will choose for the roll-over to apply.

Subdivision 126-B of the ITAA 1997 provides for roll-over in relation to certain transaction between two companies that are members of the same wholly-owned group of companies. There are a number of conditions that must be met for roll-over to be available.

Subsections 126-45(1) and (2) of the ITAA 1997 require that a CGT event of a specified type happen to the originating company. CGT event A1 is one of the listed CGT events. CGT event A1 will occur on the transfer of each asset of the originating company to the ultimate holding company.

Subsection 126-50(1) of the ITAA 1997 requires that: • both companies must be members of the same wholly-owned group at the time that the CGT event happens to the originating company; • the CGT assets involved in the roll-over are not trading stock of the other company just after the trigger event; • neither the ordinary income nor the statutory income of the other company is exempt from income tax; • both companies are Australian residents at the time of the CGT event. If one company is not resident in Australia at that time, the CGT asset must have the necessary connection with Australia just before that time.

Section 126-55 of the ITAA 1997 requires that: • the originating company must not make a capital loss or be entitled to a deduction from the CGT event • both companies choose for roll-over to apply.

All of these conditions will be satisfied. The originating company can therefore disregard under subsection 126-60(1) of the ITAA 1997 any capital gain that arises from the transfer of its assets to the ultimate holding company.