On Wed 2.11.2016, the ATO issued Class Ruling: CR 2016/84, relating to an in-specie distribution by Centuria Capital Limited of units in a newly created trust, to be stapled to its shares.
It was a fairly ‘plain vanilla’ restructure and the ruling confirms that all the difficult provisions don’t apply and a fairly ‘plain vanilla’ tax result happens.
It applies from 1 July 2016 to 30 June 2017 (during which time the restructure will occur).
[LTN 12, 2/11//16]
Extract from ruling
Internal restructure and stapling
- At an extraordinary general meeting of the company on 10 October 2016, Centuria shareholders voted in favour of a proposal to restructure the company and create a new stapled group.
- The new stapled group consists of Centuria and a new unit trust, Centuria Capital Fund.
- As part of the restructure, Centuria transferred to Centuria Capital Fund, its Co-investments (strategic minority equity stakes) and cash of $40,489,000 for the Fund’s future activities (Transferred Assets).
- The restructure involved the following steps:
(i) Centuria Capital Fund was settled with Centuria as the sole unitholder
(ii) Centuria subscribed for $52,535,795 worth of units in Centuria Capital Fund at a price of $0.680562 per unit. Post subscription, Centuria held 77,194,733 units in Centuria Capital Fund
(iii) Centuria made an in specie distribution of the units in Centuria Capital Fund to existing Centuria shareholders on a 1:1 basis (the Distribution) on 17 October 2016 (Payment Date)
(iv) Centuria shares and units in Centuria Capital Fund were stapled on a 1:1 basis
(v) The Transferred Assets were transferred at market value from Centuria to Centuria Capital Fund. The consideration for the Transferred Assets was offset against amounts owing by Centuria for its unit subscriptions in Centuria Capital Fund, and
(vi) The stapled securities were listed for quotation on the ASX.
- The market value of the Transferred Assets at the time of transfer (Payment Date) was $52,535,795. The market value of each unit in Centuria Capital Fund at the Payment Date was $0.680562.
- As at 30 June 2016, the equity of Centuria comprised of 77,194,733 ordinary shares on issue, share capital of $88,057,000, retained earnings of $28,452,000 and a share based payment reserve of $1,459,000.
- The approximate net assets attributable to the security holders of the stapled structure after implementation of the restructure were:
| Centuria Capital Limited ($m) | Centuria Capital Fund ($m) | Centuria Capital Group ($m) | |
| Net assets | 65.5 | 52.5 | 118.0 |
- The [in-specie distribution of units to shareholders] was made partly as a return of capital and partly as a fully franked dividend. $39,204,614 of the Distribution, equating to $0.507866 per Centuria share was made as a return of capital (Capital Component). $13,331,181 of the Distribution, equating to $0.172696 per Centuria share was made as a fully franked dividend (Dividend Component).
- The Centuria share capital account is not tainted within the meaning of Division 197.
Ruling
Capital Component of Distribution is not a dividend
- The Capital Component of the Distribution ($0.507866 per Centuria share) is not a dividend as defined in subsection 6(1) of the ITAA 1936.
The application of sections 45A 45B and 45C of the ITAA 1936
- The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C applies to any part of the Capital Component of the Distribution.
- The Commissioner will not make a determination under subsection 45B(3) of the ITAA 1936 that section 45C applies to any part of the Capital Component of the Distribution.
Capital gains tax (CGT) consequences
- CGT event G1 happened to a Centuria shareholder to the extent of the Capital Component ($0.507866 per Centuria share) when Centuria made the Distribution to the Centuria shareholder in respect of a share that they owned at the Record Date and continued to own at the Payment Date.
- The first element of the cost base or reduced cost base of a unit in the Centuria Capital Fund is equal to the market value of the unit, worked out at the time of their acquisition.
Foreign resident shareholders
- A Centuria shareholder disregards a capital gain or loss from a CGT event under subsection 855-10(1) if they are a foreign resident just before the Distribution happens in relation to a Centuria share that is not ‘taxable Australian property’.
Stapling of securities
- No CGT event in Division 104 will happen as a result of the stapling of shares in Centuria and the units in Centuria Capital Fund.
- Centuria shares and units in Centuria Capital Fund are separate CGT assets as defined in section 108-5.