On Wednesday 6.7.2016, the Commissioner issued the following Class Rulings:
- CR 2016/49: demerger of Graphex Mining Limited by Indiana Resources Limited. It applies from 1 July 2015 to 30 June 2016.
[LTN 128, 6/7/16]
Extract from Ruling
Dividend consequences – all Indiana shareholders
28. No part of the value of a Graphex ordinary share distributed to an Indiana shareholder will be assessable income of an Indiana shareholder under subsection 44(1) of the ITAA 1936.
29. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the capital benefits provided to Indiana shareholders under the demerger of Graphex ordinary shares.
30. The Commissioner will not make a determination under paragraph 45B(3)(a) of the ITAA 1936 that section 45BA of the ITAA 1936 applies to the whole, or any part, of the demerger benefit provided to Indiana shareholders under the demerger of Graphex ordinary shares.
31. The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the capital benefit provided to Indiana shareholders under the demerger of Graphex ordinary shares.
CGT consequences – Australian resident Indiana shareholders
CGT event G1
32. CGT event G1 in section 104-135 happened in respect of each Indiana ordinary share owned by an Australian resident Indiana shareholder at the time Indiana made the payment of the capital reduction amount (satisfied by distributing the Graphex ordinary shares). This is because Indiana made a payment (which can include giving property) to its shareholders in respect of the shares they owned in Indiana, some or all of the payment is not a dividend, and the payment is not included in the assessable income of shareholders (subsection 104-135(1)).
Capital gain
33. An Australian resident Indiana shareholder will make a capital gain from CGT event G1 happening if the capital reduction amount for each Indiana ordinary share (approximately 0.0021 cents) is more than the cost base of the Indiana ordinary share. The capital gain is equal to the amount of the excess. No capital loss can be made from CGT event G1 (subsection 104-135(3)).
Demerger roll-over
34. A demerger, as defined in section 125-70, happened to the Indiana demerger group (which included Indiana and Graphex) under the scheme that is the subject of this Ruling.
35. An Australian resident Indiana shareholder can choose to obtain demerger roll-over under Division 125.
Consequences of choosing demerger roll-over
36. An Australian resident Indiana shareholder who chooses demerger roll-over:
- will disregard a capital gain made when CGT event G1 happened under the demerger to their Indiana ordinary shares (subsection 125-80(1)), and
- must recalculate the first element of the cost base and reduced cost base of their Indiana ordinary shares, and calculate the first element of the cost base and reduced cost base of the Graphex ordinary shares they acquired under the demerger (subsection 125-80(2)).
37. The first element of the cost base and reduced cost base of each Indiana ordinary share and Graphex ordinary share is worked out by:
- taking the total of the cost bases of the Indiana ordinary shares just before the demerger, and
- apportioning that total between the Indiana ordinary shares and the Graphex ordinary shares acquired under the demerger.
38. The apportionment of this total is done on a reasonable basis having regard to the market values (just after the demerger) of the Indiana ordinary shares and Graphex ordinary shares, or a reasonable approximation of those market values (subsections 125-80(2) and 125-80(3)).
39. The Commissioner accepts that a reasonable apportionment is to:
- attribute 67.28% of the total of the cost bases of the Indiana ordinary shares just before the demerger to the Indiana ordinary shares, and
- attribute 32.72% of the total of the cost bases of the Indiana ordinary shares just before the demerger to the Graphex ordinary shares.
Consequences of not choosing demerger roll-over
40. An Australian resident Indiana shareholder who does not choose demerger roll-over:
- cannot disregard a capital gain made when CGT event G1 happened under the demerger to their Indiana ordinary shares, and
- must recalculate the first element of the cost base and reduced cost base of their Indiana ordinary shares, and calculate the first element of the cost base and reduced cost base of the Graphex ordinary shares they acquired under the demerger, in the same way as described in paragraphs 37 to 39 of this Ruling (subsections 125-85(1) and (2)).
Acquisition date of the Graphex ordinary shares for the purpose of making a discount capital gain
41. For the purpose of determining eligibility to make a discount capital gain, a Graphex ordinary share acquired by an Australian resident Indiana shareholder under the demerger will be taken to have been acquired on the date the shareholder acquired, for CGT purposes, the corresponding Indiana ordinary shares (item 2 of the table in subsection 115-30(1)). This will be the case whether or not the Australian resident Indiana shareholder chooses demerger roll-over.
CGT consequences – foreign resident Indiana shareholders
CGT event G1
42. CGT event G1 in section 104-135 happened in respect of each Indiana ordinary share owned by a foreign resident Indiana shareholder at the time Indiana made the payment of the capital reduction amount (satisfied by distributing the Graphex ordinary shares).
Capital gain
43. A foreign resident Indiana shareholder will make a capital gain from CGT event G1 happening if the capital reduction amount for each Indiana ordinary share (approximately 0.0021 cents) is more than the cost base of the Indiana ordinary share. The capital gain is equal to the amount of the excess. No capital loss can be made from CGT event G1 (subsection 104-135(3)).
Demerger roll-over is not available
44. A foreign resident Indiana shareholder cannot choose to obtain demerger roll-over under Division 125 because the Graphex ordinary shares they acquired under the demerger were not taxable Australian property just after they acquired them (subsection 125-55(2)).
Foreign resident Indiana shareholders whose Indiana ordinary shares were not taxable Australian property
45. A foreign resident Indiana shareholder can disregard a capital gain made from CGT event G1 happening under the demerger in respect of an Indiana ordinary share, unless:
- the Indiana ordinary share has been used at any time by them in carrying on a business through a permanent establishment in Australia (item 3 of the table in section 855-15), or
- the Indiana ordinary share is covered by subsection 104-165(3) (item 5 of the table in section 855-15).
Cost base and reduced cost base of Indiana ordinary shares and Graphex ordinary shares
46. A foreign resident Indiana shareholder must recalculate the first element of the cost base and reduced cost base of their Indiana ordinary shares, and calculate the first element of the cost base and reduced cost base of the Graphex ordinary shares they acquired under the demerger, in the same way as described in paragraphs 37 to 39 of this Ruling (subsections 125-85(1) and (2)).
Acquisition date of the Graphex ordinary shares for the purpose of making a discount capital gain
47. For the purpose of determining eligibility to make a discount capital gain, a Graphex ordinary share acquired by a foreign resident Indiana shareholder under the demerger will be taken to have been acquired on the date the shareholder acquired, for CGT purposes, the corresponding Indiana ordinary shares (item 2 of the table in subsection 115-30(1)). The discount percentage applied by foreign resident Indiana shareholders will be affected by sections 115-105 to 115-120.