On Wed 16.8.2017, the Commissioner issued the following Class Ruling.

  • CR 2017/53 – Batlow Fruit Company Pty Ltd: converted to a company registered under the Corporations Act 2001. It provides that members of Batlow Fruit Company Pty Ltd can choose the conversion roll-over under s124-520 of the ITAA 1997 (which is about a change of incorporation without a change in entity) for the ending of their shares in the company. Further, the ATO accepted that the value shifting provisions and the dividend anti-avoidance rules (in ss 45A, 45B and 45C of the ITAA 1936) do not apply to the conversion.

[Batlow is a rural region in central New South Wales, near Gundagai and in the foothills of the Great Dividing Range]

[ATO legal database: CR 2017/53; FJM; LTN 155, 16/8/17; TM August]

Extract from the Class Ruling



8. The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them form part of and are to be read with the description:

 Rules of the Batlow Fruit Co-operative Ltd (BFC)
 BFC 2016 Annual Report
 Implementation and Subscription Deed between BFC and Ausfarm Fresh I Pty Ltd (AFF) dated 15 December 2016
 Constitution of Batlow Fruit Company Pty Ltd (BFCPL)
 schedule of members/shareholders as at 27 June 2017
 Disclosure Statement provided to members
 other information from the applicant.

Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation.


9. BFC was established as a co-operative in 1923 and taken to be registered as a co-operative under the Co-Operatives (Adoption of National Law) Act 2012 and subject to the Co-operatives National Law (CNL). The CNL is an appendix to Co-Operatives (Adoption of National Law) Act 2012.

10. BFC was a trading co-operative and represented 23 agricultural enterprises and 43 members as at 27 June 2017.

11. Each member held shares in BFC and all shares in BFC were held by members. All members are Australian residents.

12. The major activities of the BFC were storage, packaging and marketing of the members’ and its own fruit, supply of netting structures and marketing of external growers’ fruit.

13. The BFC group consisted of the following entities with their respective ownership percentage:

 Batlow Brewing Company Pty Ltd (incorporated 7 September 2010) – 38.9%
 ToughNet Pty Ltd (incorporated 7 May 2007) – 100%
 Australian Produce Group Pty Ltd (incorporated 28 September 2006) – 100%
 Batlow Apples Juice Pty Ltd (incorporated 12 February 2015) – 100%
 Batlow Apples Orchards Pty Ltd (incorporated 8 September 2015) – 100%, and
 Batlow Apples Packing Pty Ltd (incorporated 8 September 2015) – 100%.

14. BFC and its wholly owned subsidiaries were not consolidated for income tax purposes.

15. BFC had a financial and tax year ending on 31 January.

16. The capital of BFC consisted of Class 1 and Class 2 shares of nominal value of $1 each. As at 27 June 2017, there were 43 members holding a total number of shares of 1,206,587 comprising:

 Class 1 shares – 1,149,787, and
 Class 2 shares – 56,800.

Both classes of shares ranked equally.

17. If on the winding up or dissolution of BFC, there remained after the satisfaction of all its debts and liabilities, any property, this would be converted into cash and distributed pro rata amongst the members holding Class 1 shares and Class 2 shares on the basis of their respective shareholdings.

18. Membership of BFC was distinct from shareholding in BFC and, subject to the active membership requirements, there was only one class of membership. An active member of BFC had one vote only in respect of any question or motion arising at a general meeting. A member’s right to vote was not attached to, or conferred by, any share held by the member in BFC.

19. BFC was seeking a capital injection to provide growth and sustainability of the business into the future and had been in the market to raise up to $10 million to invest in the following:

 grow the supply of apples through further capital expenditure on orchards which could include new land, replant new varieties and to increase the hail and bird net coverage
 complete an upgrade of grading technology and cool store systems, and
 repayment of debt and the provision of working capital.

Conversion of BFC to BFCPL

20. The conversion of BFC to BFCPL was implemented in accordance with the Implementation and Subscription Deed between BFC and AFF, an Australian registered proprietary company.

21. The conversion of BFC to BFCPL involved the following steps:

 BFC converting from a co-operative registered under the Co-Operatives (Adoption of National Law) Act 2012 to a proprietary limited company, BFCPL, under Part 5B.1 of the Corporations Act 2001 (Corporations Act) (‘Transfer of Incorporation’)
 on completion of the Transfer of Incorporation, each member of BFC received one fully paid share in BFCPL for each fully paid BFC share held, and
 after the ordinary share issue to members of BFC, AFF subscribed for a number of fully paid ordinary shares in the capital of BFCPL which represents 63.3% of the ordinary shares in the capital of BFCPL. AFF paid $10 million as the aggregate subscription price for these BFCPL shares.

22. The Transfer of Incorporation required a special resolution to be passed.

23. Under the CNL and the Co-operatives (Adoption of National Law) Act 2012, members who forfeited their shares within a defined period, could be entitled to be treated as if they were shareholders of BFC. Qualifying former members who wanted to participate in the conversion and who repaid the amount previously received on forfeiture were issued with the number of BFC shares previously held for the purpose of receiving shares in BFCPL.

24. The conversion of BFC to BFCPL occurred on 27 June 2017.


25. BFCPL is registered as a proprietary company under the Corporations Act with 50 shareholders or less.

26. Shares in BFCPL are a single class of ordinary shares. They differ from the Class 1 and Class 2 BFC shares as they do not have any storage rights attached. Instead each grower will deal with BFCPL on a commercial basis with annual contracts in place securing rights to storage.

27. Subject to the BFCPL Constitution and to any rights or restrictions attached to a share or a class of shares, each member has one vote for each share the member holds.

28. Dividends must be paid to members in proportion to their shares, except in relation to shares that have special rights relating to dividends attached to them.

29. If BFCPL is wound up, the members may, subject to any express provision of the Constitution, pass a special resolution allowing the liquidator to do one of the following:

 specify a value for the company’s assets, determine how to divide them between different classes of members, and carry out the division, or
 transfer the whole or any part of the company’s assets to trustees for the benefit of members and those liable to contribute to the winding up.


Capital Gains Tax

30. CGT event C2 (section 104-25) happened when a member’s share in BFC ended on the conversion of BFC to BFCPL.

31. Members of BFC can choose roll-over under section 124-520 for the ending of their shares in BFC.

Value shifting provisions

32. The scheme involving the conversion of BFC to BFCPL is not one to which any of the consequences of Divisions 725 or Division 727 will apply.

Assessable Dividend

33. The issue of BFCPL shares to members upon conversion will not constitute a dividend, as defined in subsection 6(1) of the ITAA 1936.

Anti-avoidance provisions

34. Section 45 of the ITAA 1936 will not apply to treat any amount as a dividend as a consequence of the conversion.

35. Sections 45A and 45B of the ITAA 1936 will not apply to the issue of shares in BFCPL. The Commissioner will not, therefore, make a determination that section 45C of the ITAA 1936 applies to deem the issue of shares to be an unfranked dividend.

Commissioner of Taxation

16 August 2017

[Explanation – see balance of the ruling]

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