Income tax: capital gains: scrip for scrip roll-over: can a company (or a wholly-owned group of companies) 'become' the owner of 80% or more of the voting shares in another company (an original entity), in terms of paragraph 124-780(2)(a) of the Income Tax Assessment Act 1997 , as a result of an arrangement even if the company (or group) owned some of those shares before the arrangement?

Yes. A company or wholly owned group of companies can become the owner of 80% or more of the voting shares in another company even if the company or group owned 80% or more of those shares before the arrangement provided that they owned a greater percentage after the arrangement..

Subparagraph 124-780(2)(a)(i) requires that the arrangement result in the company which is the acquiring entity becoming the owner of 80% or more of the voting shares in the original entity. The subparagraph merely requires a view of the percentage ownership of voting shares after the arrangement. Note 1 after paragraph 124-780(2)(c) recognises that shares held before the arrangement started can be taken into account in considering the 80% or more requirement..

If the acquiring entity owns some voting shares in the original entity before the arrangement but as a result of the arrangement owns 80% or more voting shares in the original entity after the arrangement, the acquiring entity will have become the owner of 80% or more of the voting shares in the original entity. This will be so even if the acquiring entity started out owning 80% or more of the voting shares in the original entity provided that it owned a greater percentage after the arrangement. In terms of subparagraph 124-780(2)(a)(i), the arrangement will result in the acquiring entity becoming the owner of 80% or more of the voting shares in the original entity provided that it started out owning fewer voting shares than it did after the arrangement..

Subparagraph 124-780(2)(a)(ii) requires that the arrangement result in either the company (which is the acquiring entity and is a member of a wholly-owned group) or the members of the group becoming the owner of 80% or more of the voting shares in the original entity. It should be construed in a similar manner..

A Co owns 70% of the voting shares in B Co. A Co makes a takeover offer for the remaining shares in B Co. As a result of the takeover A Co acquires a further 15% of the shares in B Co. The takeover has resulted in A Co becoming the owner of 85% of the shares in B Co .

Members of the A Co wholly-owned group of companies own 83% of the voting shares in B Co. A member of the group makes a takeover offer for the remaining shares in B Co. As a result of the takeover, members of the A Co group acquire a further 6% of the shares in B Co. The takeover has resulted in members of the A Co becoming the owners of 89% of the shares in B Co..

We invite you to comment on this Draft Taxation Determination. We are allowing 4 weeks for comments before we finalise the Determination. If you want your comments considered, please provide them to us within this period.. Comments by Date: 22 September 2000 Contact officer details have been removed following publication of the final ruling.