Issue
Is there a deemed disposal and reacquisition of an asset for market value under section 160ZZOA of the Income Tax Assessment Act 1936 (ITAA 1936) in the structure illustrated in the facts if, following the disposal by the Transferor Company to the Transferee Company of the assets rolled over under section 160ZZO of the ITAA 1936, the shares in the Transferee Company are sold to the Unit Trust?
Decision
No. A deemed disposal and reacquisition of the asset for market value will not occur under section 160ZZOA of the ITAA 1936 as the disposal of the shares in the Transferee Company to the Unit Trust results in an eligible sub-group break-up in accordance with paragraph 160ZZOA(2)(f) of the ITAA 1936.
Facts
On 29 and 30 June 1995, the Transferor Company sold assets to the Transferee Company. Roll-over elections were made under section 160ZZO of the ITAA 1936 in relation to the disposals. The group structure was represented as:
On 30 June 1995, the Ultimate Holding Company sold its shares in the Transferee Company to the Unit Trust. The group structure was then represented as:
Reasons for Decision
Section 160ZZOA of the ITAA 1936 provides, in certain circumstances, for the deemed disposal and reacquisition for market value, of an asset for which rollover relief under section 160ZZO of the ITAA 1936 has been claimed in relation to an earlier disposal of the asset. The deemed disposal and reacquisition will occur if the company that received the asset under the rollover subsequently ceases to be a wholly-owned subsidiary of the company that was the ultimate holding company of the group at the time of the rollover.
An exception to the deemed disposal and reacquisition rule applies if an 'eligible sub-group break-up', as defined in paragraph 160ZZOA(2)(f) of the ITAA 1936, occurs at the time the company that received the asset under the rollover, ceases to be a wholly-owned subsidiary of the company that was the ultimate holding company of the group at the time of the rollover. Included amongst the factors which must be present for an 'eligible sub-group break up' to occur are: • a sub-group, consisting of a holding company and all of its wholly-owned subsidiaries, must have existed within the group at the time of the rollover, and • both the company that transferred the asset and the company that received the asset under the rollover must have been members of that sub-group at the time of the rollover and • if the company that received the asset was the holding company of the sub-group, none of the shares in that company, immediately after it ceased to be a wholly-owned subsidiary of the ultimate holding company of the group, must have been held by that ultimate holding company or by a company related to that ultimate holding company.
The factors required for an 'eligible sub-group break-up' to occur are met in this instance because: • at the time the Transferor Company rolled over its assets to the Transferee Company, the Transferee Company was a member of a sub-group consisting of itself as holding company with Interposed Company and Transferor Company as its wholly-owned subsidiaries, and • immediately after the time the Transferee Company ceased to be a wholly-owned subsidiary of the Ultimate Holding Company, none of the shares in the Transferee Company were held by the Ultimate Holding Company or by a company related to the Ultimate Holding Company.
As an 'eligible sub-group break-up' occurs at the time the Transferee Company ceases to be a wholly-owned subsidiary of the company that was the ultimate holding company of the group at the time of the rollover, section 160ZZOA of the ITAA 1936 will not deem the Transferee Company to have disposed of its rollover assets for their market value and to have reacquired them for that value at the time the shares in the Transferee Company are acquired by the Unit Trust.