Capital gains tax: demergers - companies which only own shares in other companies

Can the demerger of a subsidiary company, whose only assets are shares in another company, be a qualifying demerger for the purposes of Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The demerger of a subsidiary company whose only assets are shares in another company can be a qualifying demerger for the purposes of Division 125 of the ITAA 1997.

A company (head entity) demerged its wholly owned subsidiary (demerged entity) to its shareholders.

The only assets of the demerged entity were shares in another company.

The demerger is a demerger that satisfies all of the requirements of subsection 127-70(1) of the ITAA 1997.

Division 125 of the ITAA 1997 does not contain any provision which prevents the demerger conditions being satisfied merely because; the only assets of the demerged entity are ownership interests in another entity. [Note: Subsection 44(5) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that the demerger dividend exemption in subsection 44(4) of the ITAA 1936 is not applicable unless, in addition to the satisfaction of the demerger conditions of Division 125, a business assets test is satisfied.]