GARDA Capital Group Stapled Securities - scrip for scrip rollover

This Ruling sets out the tax consequences for holders of GARDA Capital Group (GCM) Stapled Securities (consisting of units in GARDA Capital Trust (GCT) and shares in GARDA Capital Limited (GCL)) in relation to the acquisition of those securities by GARDA Diversified Property Fund (GDF) and GARDA Holdings Limited (GHL) respectively.

Full details of this scheme are set out in paragraphs 34 to 49 of this Ruling.

Legislative references in this Ruling are to provisions of the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 (as detailed in the table in Appendix 2 of this Ruling).

This Ruling applies to you if you are an Australian resident for income tax purposes and you: • were the holder of GCM Stapled Securities • were registered on the GCM share and unitholder registries on 29 November 2019 (the Implementation Date) • held GCM Stapled Securities on capital account (that is, you neither held your shares in GCL and units in GCT as 'revenue assets' nor as 'trading stock' (as defined in section 977-50 and subsection 995-1(1) respectively), and • hold the acquired shares in GHL and units in GDF on capital account (that is, you neither hold your shares in GHL and units in GDF as 'revenue assets' nor as 'trading stock' (as defined in section 977-50 and subsection 995-1(1) respectively).

This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in paragraphs 34 to 49 of this Ruling. Note: Division 230 will not apply to individuals, unless they have made an election for it to apply.

This Ruling applies from 1 July 2019 to 30 June 2020.

CGT event A1 happened when you disposed of your GCL shares to GHL under the scheme described in this Ruling (subsection 104-10(1)).

You will make a capital gain from CGT event A1 happening if the capital proceeds from the disposal of your GCL share exceed its cost base. You will make a capital loss from CGT event A1 happening if the capital proceeds from the disposal of your GCL share are less than its reduced cost base (subsection 104-10(4)).

The capital proceeds from CGT event A1 happening is equal to the market value of the share in GHL received under the scheme (paragraph 116-20(1)(b)).

If you make a capital gain from the disposal of your GCL shares, you may choose to obtain scrip for scrip rollover (section 124-780).

Scrip for scrip rollover cannot be chosen if any capital gain you might subsequently make from the replacement GHL share can be disregarded, except because of a rollover (paragraph 124-795(2)(a)).

If you choose to apply scrip for scrip rollover you will be able to disregard any capital gain arising from CGT event A1 happening in respect of the exchange of GCL shares for replacement GHL shares (subsection 124-785(1)).

You can calculate the first element of the Cost base / reduced cost base of each replacement share in GHL by dividing the aggregate cost bases or reduced cost bases of your respective GCL shares by the number of replacement GHL shares you receive.

The date of acquisition of GHL shares if you choose scrip for scrip rollover under Subdivision 124-M will be the date you acquired your original shares in GCL.

Subsection 115-50(2) will apply if you dispose of your shares in GHL within 12 months of the acquisition, with the result that any capital gain arising from a CGT event happening in relation to a share in GHL can still be a 'discount capital gain'.

Where scrip for scrip rollover is not chosen, or cannot be chosen, you must account for any capital gain or capital loss from CGT event A1 happening on the disposal of your GCL shares in working out the net capital gain or net capital loss for the income year in which CGT event A1 happened (sections 102-5 and 102-10).

If you make a capital gain where rollover is not chosen, or cannot be chosen, you can treat the capital gain as a 'discount capital gain' provided that the conditions of Subdivision 115-A are met. GCL shares must have been acquired, or taken to have been acquired, by you at least 12 months before the Implementation Date.

Where scrip for scrip rollover is not chosen, or cannot be chosen, the first element of the Cost base / reduced cost base of each replacement GHL share received is equal to the market value of each GCL share given in respect of acquiring each GHL share, worked out as at the time of their acquisition (subsections 110-25(2) and 110-55(2)), being the Implementation Date.

The date of acquisition of GHL shares if you do not choose scrip for scrip rollover under Subdivision 124-M is the date you were issued shares in GHL.

CGT event A1 happened when you disposed of your GCT units to GDF (subsection 104-10(1)).

You will make a capital gain from CGT event A1 happening if the capital proceeds from the disposal of your GCT unit exceed its cost base. You will make a capital loss from CGT event A1 happening if the capital proceeds from the disposal of your GCT unit are less than its reduced cost base (subsection 104-10(4)).

The capital proceeds from CGT event A1 happening is equal to the market value of the GDF unit received under the scheme (paragraph 116-20(1)(b)).

If you make a capital gain from the disposal of your GCT units, you may choose to obtain scrip for scrip rollover (section 124-781).

Scrip for scrip rollover cannot be chosen if any capital gain you might subsequently make from the replacement GDF unit can be disregarded, except because of a rollover (paragraph 124-795(2)(a)).

If you choose to apply scrip for scrip rollover you will be able to disregard any capital gain arising from CGT event A1 happening in respect of the exchange of the GCT units for replacement GDF units (subsection 124-785(1)).

You can calculate the first element of the Cost base / reduced cost base of each replacement unit in GDF by dividing the aggregate cost bases or reduced cost bases of your respective GCT units by the number of replacement GDF units you receive.

The date of acquisition of GDF units if you choose scrip for scrip rollover under Subdivision 124-M will be the date you acquired your original GCT units.

Subsection 115-50(2) will apply if you dispose of your GDF units within 12 months of the acquisition, with the result that any capital gain arising from a CGT event happening in relation to a GDF unit can still be a 'discount capital gain'.

Where scrip for scrip rollover is not chosen, or cannot be chosen, you must account for any capital gain or capital loss from CGT event A1 happening on the disposal of your GCT units in working out the net capital gain or net capital loss for the income year in which CGT event A1 happened (sections 102-5 and 102-10).

If you make a capital gain where rollover is not chosen, or cannot be chosen, you can treat the capital gain as a 'discount capital gain' provided that the conditions of Subdivision 115-A are met. GCT units must have been acquired, or taken to have been acquired, by you at least 12 months before the Implementation Date.

Where scrip for scrip rollover is not chosen, or cannot be chosen, the first element of the Cost base / reduced cost base of each replacement GDF unit received is equal to the market value of each GCT unit given in respect of acquiring each GDF unit, worked out as at the time of their acquisition (subsections 110-25(2) and 110-55(2)), being the Implementation Date.

The date of acquisition of GDF units if you do not choose scrip for scrip rollover under Subdivision 124-M is the date you were issued units in GDF.

The Commissioner will not make a determination under section 177F in relation to the scheme.

The following description of the scheme is based on information provided by the applicant. If the scheme is not carried out as described, this Ruling cannot be relied upon.

GCL is an Australian company that was incorporated after 20 September 1985.

GCL is the head entity of a tax consolidated group (the GCL TCG) for the purposes of Part 3-90 which includes GARDA Funds Management Limited (GFML).

GCT is an Australian unit trust which was constituted after 20 September 1985.

GFML is the responsible entity of GCT.

GCT is an attribution managed investment trust (AMIT) which has validly made the deemed managed investment trust (MIT) capital treatment election.

The shares in GCL and units in GCT are stapled on a 1:1 basis and have been listed on the Australian Securities Exchange (ASX) since 14 July 2016.

GDF is an Australian unit trust that was constituted after 20 September 1985.

GDF is an AMIT which validly made the deemed MIT capital treatment election.

GDF has been listed on the ASX since 2 July 2015.

GCL is the responsible entity for GDF and provides management services to GDF.

GDF has more than 300 beneficiaries and the top 20 shareholders own less than 75% of the units on issue in the trust.

GDF is a property fund, which owns 17 property assets.

Following a recent restructure, the units in GDF and the shares in GHL were stapled (collectively, the GDF Stapled Securities) and are quoted on the ASX.

The acquisition involved the following steps: • Both the GDF Stapled Securities and the GCM Stapled Securities were unstapled. • Under a scheme of arrangement, GHL acquired all of the shares in GCL from the GCL shareholders in consideration for newly issued shares in GHL. • Under a trust scheme, GDF acquired all of the units in GCT from the GCT unitholders in consideration for newly issued units in GDF. • Due to regulatory restrictions, certain foreign residents (Designated Foreign Holders) were not entitled to receive shares in GHL and units in GDF under the schemes. The units in GDF and the shares in GHL that Designated Foreign Holders would otherwise have been entitled to receive were issued to a nominee company appointed by GDF and GHL and sold in accordance with a Sale Facility. The cash proceeds received under the Sale Facility were subsequently paid to the Designated Foreign Holders based upon the proportions to which they were entitled. • The units in GDF and the shares in GHL were stapled.

This Ruling is made on the following basis: • holders of GCM Stapled Securities were offered the opportunity to participate in the schemes on substantially the same terms and, in fact, participated in the scheme on substantially the same terms • there was no 'significant stakeholder' or 'common stakeholder' in GCL or GCT within the meaning of those expressions in section 124-783, and • neither GDF nor GHL will make a choice under subsection 124-795(4) for scrip for scrip rollover not to apply.

One tax consequence that is the subject of this Ruling is the availability of scrip for scrip rollover under Subdivision 124-M. Scrip for scrip rollover enables a shareholder or unitholder to disregard a capital gain from the disposal of a share or a unit if the shareholder or unitholder receives a replacement share or unit in exchange. It also provides special rules for calculating the Cost base / reduced cost base of the replacement share or unit.

Subdivision 124-M contains a number of conditions for, and exceptions to, a shareholder being able to choose scrip for scrip rollover. The main requirements that are relevant to the scheme that is the subject of this Ruling are: • an entity exchanges shares in a company for shares in another company or units in a trust for units in another trust • the exchange is in consequence of a single arrangement that satisfies - subsection 124-780(2) or (2A) in respect of shares in companies, or - subsection 124-781(2) or (2A) in respect of units in trusts • conditions for the rollover are satisfied • further conditions, if applicable, are satisfied, and • exceptions to obtaining scrip for scrip rollover are not applicable.

The scheme that is the subject of this Ruling satisfies the requirements for scrip for scrip rollover under Subdivision 124-M.

Based upon the specific facts and circumstances of this scheme, the Commissioner will not make a determination under section 177F in relation to the scheme as it does not constitute a scheme to which Part IVA applies.

This paragraph sets out the details of the provisions ruled upon or referenced in this Ruling. Income Tax Assessment Act 1936 section 177F Income Tax Assessment Act 1936 Part IVA Income Tax Assessment Act 1997 section 102-5 Income Tax Assessment Act 1997 section 102-10 Income Tax Assessment Act 1997 subsection 104-10(1) Income Tax Assessment Act 1997 subsection 104-10(4) Income Tax Assessment Act 1997 subsection 110-25(2) Income Tax Assessment Act 1997 subsection 110-55(2) Income Tax Assessment Act 1997 Subdivision 115-A Income Tax Assessment Act 1997 subsection 115-50(2) Income Tax Assessment Act 1997 paragraph 116-20(1)(b) Income Tax Assessment Act 1997 Subdivision 124-M Income Tax Assessment Act 1997 section 124-780 Income Tax Assessment Act 1997 section 124-781 Income Tax Assessment Act 1997 section 124-783 Income Tax Assessment Act 1997 subsection 124-785(1) Income Tax Assessment Act 1997 paragraph 124-795(2)(a) Income Tax Assessment Act 1997 subsection 124-795(4) Income Tax Assessment Act 1997 Division 230 Income Tax Assessment Act 1997 section 977-50 Income Tax Assessment Act 1997 subsection 995-1(1)