On Wed 20.7.2016, the ATO issued the following Class Ruling:

  • CR 2016/53: APN News & Media Limited – demerger of NZME Limited. It applies from 1 July 2015 to 30 June 2016.

LTN 138, 20/7/16]

[Link to income tax law – Income Tax Assessment Act 1997; Income Tax Assessment Act 1936]

 

Extract from Class Ruling

Class of entities

3. The class of entities to which this Ruling applies is shareholders of APN News & Media Limited (APN) who:

  • are residents of Australia (as that term is defined in subsection 6(1) of the ITAA 1936) at the time of the demerger, and are not subject to the taxation of financial arrangement rules in Division 230 in relation to gains and losses on their APN shares.
  • obtained one ordinary share in NZME Limited (NZME) per APN Share as a result of the demerger
  • held their ordinary shares on capital account at the time of the demerger, that is, the shares were neither held as revenue assets (as defined in section 977-50) nor as trading stock (as defined in subsection 995-1(1))
  • (Note: Division 230 will generally not apply to individuals, unless they have made an election for the Division to apply to them.)

In this Ruling, a person belonging to this class of entities is referred to as an ‘APN Shareholder’.

Reasons for the demerger

36. APN’s primary reason for undertaking the demerger was to separate the business geographically. The commercial rationale includes that the demerger:

  • provides APN Shareholders with flexibility of investment choice and potential incremental demand from New Zealand investors
  • is a natural progression for the ownership of the New Zealand operations and is consistent with APN’s strategic focus of investment in growth assets
  • creates two geographically focused integrated media companies which will be operated through two independent, listed companies, with fundamentally different operating models, strategies and capital requirements
  • enables APN and NZME as listed companies to benefit from separate ownership and separate management and Boards
  • will allow independent focus, strategic decision making and tailored capital structures and allocation frameworks, and
  • will remove competition for capital resources within APN which will enhance access to growth capital as both APN and NZME see fit.

Ruling

Capital gains tax (CGT)
CGT event G1

39. CGT event G1 happened when APN made the payment of the capital reduction amount which was satisfied by the in specie distribution of NZME Shares (section 104-135).

40. An APN Shareholder made a capital gain when CGT event G1 happened if the capital reduction amount of $0.72 for each APN Share exceeds the cost base of that APN Share. The capital gain is equal to the amount of the excess and the cost base and reduced cost base of the APN Share is reduced to nil (subsection 104-135(3)). No capital loss can be made when CGT event G1 happens (Note 1 to subsection 104-135(3)).

Demerger roll over

41. APN Shareholders can choose to obtain demerger roll over (subsection 125-55(1)).

CGT consequences of choosing demerger roll over

42. If an APN Shareholder chooses demerger roll over, any capital gain made when CGT event G1 happens to their APN Shares under the demerger is disregarded (subsection 125-80(1)).

43. An APN Shareholder who chooses demerger roll over must also recalculate the first element of the cost base and reduced cost base of their APN Shares, and calculate the first element of the cost base and reduced cost base of their new NZME Shares acquired under the demerger in the manner described in paragraphs 64 to 65 below (subsection 125-80(2)).

CGT consequences of not choosing demerger roll over

44. An APN Shareholder who does not choose demerger roll over:

  • is not entitled to disregard any capital gain made when CGT event G1 happened under the demerger to their APN Shares, and
  • must make adjustments to the cost bases and reduced cost bases of their APN Shares and NZME Shares in the manner described in paragraphs 64 to 65 below (subsections 125-85(1), 125-85(2) and 125-80(2)).
Acquisition date of NZME Shares

45. For CGT purposes, an APN Shareholder acquired their NZME Shares on the Demerger Date, 29 June 2016 (subsection 109-5(2)).

46. However, for the purpose of determining eligibility to a discount capital gain, the NZME Shares acquired by an APN Shareholder as a result of the demerger are taken to have been acquired on the date the shareholder acquired, for CGT purposes, the corresponding APN Shares (Item 2 in the table in subsection 115-30(1)). This is the case whether or not the APN Shareholder chooses demerger roll over.

Dividend consequences

47. No part of the in specie distribution of NZME Shares to APN Shareholders is a ‘dividend’ as defined in subsection 6(1) of the ITAA 1936.

Section 45 of the ITAA 1936

48. Section 45 of the ITAA 1936 will not apply to treat the value of the NZME Shares received by APN Shareholders under the demerger as a dividend paid by APN which is unfrankable.

Section 45A of the ITAA 1936

49. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies.

Section 45B of the ITAA 1936

50. The Commissioner will not make a determination under paragraph 45B(3)(a) of the ITAA 1936 that section 45BA of the ITAA 1936 applies.

51. The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies.

Commissioner of Taxation
20 July 2016