Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) A demerger happens to a * demerger group if:
(a) there is a restructuring of the demerger group; and
(b) under the restructuring:
(i) members of the demerger group * dispose of at least 80% of their total * ownership interests in another member of the demerger group to owners of original interests in the * head entity of the demerger group; or
(ii) at least 80% of the total ownership interests of members of the demerger group in another member of the demerger group end and new interests are issued to owners of original interests in the head entity; or
(iii) the demerged entity issues sufficient new ownership interests in itself with the result that owners of original interests in the head entity own at least 80% of the total ownership interests in the demerged entity; or
(iv) some combination of the processes referred to in subparagraphs (i), (ii) and (iii) happens with the effect that members of the demerger group stop owning at least 80% of the total ownership interests owned by members of the demerger group in another member of the group; and
Note: CGT event C2 and CGT event C3 are the only relevant CGT events in a subparagraph (ii) case.
(c) under the restructuring:
(i) a * CGT event happens to an original interest owned by an entity in the head entity of the group and the entity * acquires a new interest and nothing else; or
(ii) no CGT event happens to an original interest owned by an entity in the head entity of the group and the entity acquires a new interest and nothing else; and
(d) the acquisition by entities of new interests happens only because those entities own or owned original interests; and
(e) the new interests acquired are:
(i) if the head entity is a company--ownership interests in a company; or
(ii) if the head entity is a trust--ownership interests in a trust; and
(g) neither the original interests nor the new interests are in a trust that is a * non - complying superannuation fund; and
(h) the requirements of subsection (2) are met.
Example: To continue the example from subsection 125 - 55(1), Peter owns 400 post - CGT shares in Company A. Companies A and B are both members of a demerger group. Company A is the head entity of the demerger group and Company B is a demerger subsidiary.
Company A proceeds to demerge 100% of its shares in Company B to its shareholders.
Company A enters into a proportionate capital reduction, returning 40 cents per share to its ordinary shareholders. Peter is entitled to $160 (40c times 400 shares) under the capital reduction.
For Peter, the capital reduction amount of $160 is compulsorily applied to acquire Company A's shares in Company B, at $6.75 (a discount of 10% to current market value). Company A rounds up the fractional amounts in calculating the number of whole shares to be distributed to each shareholder. This gives Peter 24 shares in Company B (160 divided by 6.75, rounded up to the nearest whole number).
Note: Acquiring new interests by an owner of original interests may include the allocation of the owner's entitlement to new interests to a nominee:
• to sell on the owner's behalf; or
• to hold pending the owner being located.
(2) Each owner (an original owner ) of original interests in the * head entity of the * demerger group must:
(a) * acquire, under the * demerger, the same proportion, or as nearly as practicable the same proportion, of new interests in the * demerged entity as the original owner owned in the head entity just before the demerger; and
(b) just after the demerger, have the same proportionate total * market value of * ownership interests in the head entity and demerged entity as the original owner owned in the head entity just before the demerger.
Note 1: There is an exception: see section 125 - 75.
Note 2: Dual listed company voting shares are not treated as ownership interests: see section 125 - 60.
Note 3: Fractional interests will generally not affect your ability to choose a roll - over.
Example: To continue the example from subsection (1), Company A concludes, given the circumstances of the demerger, that the market values of Peter's and the other shareholders' shares in A and B are expected to be in proportion with their original interests in Company A, and advises the shareholders of this position.
(3) In working out whether an original owner complies with subsection (2):
(a) disregard * ownership interests that are original interests the owner owns in the * demerged entity; and
(b) an anticipated reasonable approximation of the * market value of ownership interests is sufficient.
Example: An anticipated reasonable approximation of market values of ownership interests may include:
• valuations provided to shareholders in scheme documents;
• the price selected for use under a sale facility;
and may be made by reference to long - term value.
Exception: off - market buy - backs
(4) A buy - back of * shares that is an off - market purchase for the purposes of Division 16K of Part III of the Income Tax Assessment Act 1936 is not a * demerger.
Exception: roll - over available under another provision
(5) Circumstances where an owner of original interests can obtain a roll - over under a provision of this Act outside this Division for all of the CGT events that happened to the owner's original interests under the circumstances cannot be a demerger .
Note: An owner might be able to obtain a roll - over for the CGT events under Subdivision 124 - E, or 124 - M or Division 615.
Meaning of demerged entity
(6) An entity that is a former member of a * demerger group is a demerged entity if, under a * demerger that happens to the group, * ownership interests in the entity are acquired by:
(a) shareholders in the * head entity of the group; or
(b) unitholders or holders of interests in the head entity of the group.
Meaning of demerging entity
(7) An entity that is a member of a * demerger group just before the * CGT event referred to in section 125 - 155 happens is a demerging entity if, under a * demerger that happens to the group:
(a) the entity (either alone or together with other members of the demerger group) * dispose of at least 80% of their total * ownership interests in another member of the demerger group to owners of original interests in the * head entity of the demerger group; or
(b) at least 80% of the total ownership interests of that entity and of other members of the demerger group in another member of the demerger group end and new interests are issued to owners of original interests in the head entity; or
Note: CGT event C2 and CGT event C3 are the only relevant CGT events.
(c) the demerged entity issues sufficient new ownership interests in itself with the result that owners of original interests in the head entity own at least 80% of the total ownership interests in the demerged entity; or
(d) some combination of the processes referred to in paragraphs (a), (b) and (c) happens with the effect that members of the demerger group stop owning at least 80% of the total ownership interests owned by members of the demerger group in another member of the group.