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) if, subsequent to an eligible sub-group break-up as defined in paragraph 160ZZOA(2)(f) of the ITAA 1936, the company that transferred the asset, for which rollover was elected under section 160ZZO of the ITAA 1936, and the company that received the asset prior to the break-up cease to be members of the same wholly-owned group?
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 company that received the asset under the rollover did not cease to be a wholly-owned subsidiary of the ultimate holding company of the group, at the time it ceased to be a member of the same wholly-owned group as the company that transferred the asset under the rollover.
Facts
On 29 and 30 June 1995, the Transferor Company sold assets to the Transferee Company. Rollover 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:
On 18 October 1995, the Transferee Company sold its shares in the Interposed Company to the Ultimate Holding Company. 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 for market value 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 ultimate holding company.
The Transferee Company, being the company which received the assets under the rollover, ceased to be a wholly-owned subsidiary of the Ultimate Holding Company, being the ultimate holding company of the group at the time of the rollover, at the time its shares were acquired by the Unit Trust. However, a deemed disposal and reacquisition does not occur under section 160ZZOA of the ITAA 1936 at that time as the disposal of the shares constitutes 'an eligible sub-group break-up' in accordance with paragraph 160ZZOA(2)(f) of the ITAA 1936.
On disposal by the Transferee Company of shares in the Interposed Company back to the Ultimate Holding Company, the company that transferred the assets and the company that received the assets under the rollovers cease to be members of the same wholly-owned group. However, as the Transferee Company has already ceased to be a wholly-owned subsidiary of the Ultimate Holding Company, no deemed disposal and reacquisition for market value under section 160ZZOA can occur at that time.
Therefore, the break-up of the same wholly-owned group relationship between the Transferor Company and the Transferee Company subsequent to the eligible sub-group break-up will not result in the application of section 160ZZOA in relation to the rollover assets held by the Transferee Company.