Controlled foreign companies: amalgamation of two controlled foreign companies - transfer of assets

Will the transfer of the assets from the amalgamating entity to the amalgamated entity give rise to a 'disposal' of the assets for the purposes of Part X of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. The proposed amalgamation will give rise to a 'disposal' of the assets within the meaning of that term in section 317 of the ITAA 1936.

A resident company wholly owns an overseas subsidiary (Z Co). Z Co wholly owns another subsidiary (Y Co). Z Co and Y Co amalgamate under specific legislation in their jurisdiction of residence. Z Co will continue as the amalgamated company.

Under the terms of the legislation, the amalgamated company will succeed to all the assets, liabilities and obligations of Y Co. The shares in Y Co will then be cancelled without payment or other consideration.

The transfer of the underlying assets as part of the amalgamation process constitutes a change in ownership of those assets. An entity with a separate legal personality to the amalgamating entity is holding the assets after the transfer. Therefore, the assets have been disposed of by the amalgamating entity, Y Co, and acquired by the amalgamated entity, Z Co.