Subdivision 124-H—Exchange of units in a unit trust for shares in a company

Guide to Subdivision 124-H

124-435 What this Subdivision is about

This Subdivision sets out when you can obtain a roll-over if:

· you own units in a unit trust; and

· there is a reorganisation of its affairs so that you become the owner of new shares in a company.

Table of sections

124-440 Summary of rules

Disposal case

124-445 Disposal of units in a unit trust for shares in a company

124-450 Other requirements to be satisfied

Redemption or cancellation case

124-455 Redemption or cancellation of units in a unit trust for shares in a company

124-460 Other requirements to be satisfied

Rules applying to both cases

124-465 Requirements to be satisfied in both cases

Consequences for the company

124-470 Consequences for the company

124-440 Summary of rules

(1) This Subdivision deals with 2 cases in which you can choose to obtain a roll-over because of the reorganisation of a unit trust’s affairs.

Note: Section 103-25 tells you when you have to make the choice.

(2) The first case is if you dispose of units in a unit trust to a company and the company issues you with shares. You can find the specific rules about this case in sections 124-445 and 124-450.

(3) The second case is if your units in a unit trust are redeemed or cancelled and a company issues you with shares. You can find the specific rules about this case in sections 124-455 and 124-460.

(4) There are some rules that apply in both cases: see section 124-465.

(5) There are also consequences for the company if you can choose to obtain a roll-over: see section 124-470.

[This is the end of the Guide.]

Disposal case

124-445 Disposal of units in a unit trust for shares in a company

You can choose to obtain a roll-over if:

(a) you are a member of a unit trust; and

(b) you and at least one other entity (the exchanging members) own all the units in it; and

(c) under a *scheme for reorganising its affairs, the exchanging members *dispose of their units in it to a company in exchange for *shares in the company (and nothing else);

and the requirements in sections 124-450 and 124-465 are satisfied.

Note: The roll-over consequences are out in Subdivision 124-A. The original assets are your units in the unit trust. The new assets are your new shares in the company.

124-450 Other requirements to be satisfied

(1) The company must own all the units in the unit trust just after all the exchanging members have *disposed of their units in the unit trust (the completion time).

(2) Just after the completion time, each exchanging member must own:

(a) a whole number of *shares in the company; and

(b) a percentage of the *shares in the company that were issued to all the exchanging members that is equal to the percentage of the units in the unit trust (that were *disposed of to the company) that the member owned.

(3) The ratio of:

• the market value of each exchanging member’s *shares in the company to the market value of the shares in the company issued to all the exchanging members (worked out just after the completion time);

must equal the ratio of:

• the market value of that member’s units in the unit trust that were disposed of to the company to the market value of all the units that were disposed of to the company (worked out just before the first disposal).

Example: There are 1,000 units in the A unit trust, all having the same rights. B Pty Ltd acquires all the units in A by issuing each unitholder in A 10 shares in itself for each 100 units they have in A. All shares in B have the same rights. Brian owned 300 units in A and received 30 shares in B in exchange.

(4) Either:

(a) you are an Australian resident at the time you *disposed of your units in the unit trust; or

(b) if you are not an Australian resident at that time—your units have the *necessary connection with Australia.

Redemption or cancellation case

124-455 Redemption or cancellation of units in a unit trust for shares in a company

(1) You can choose to obtain a roll-over if you are a member of a unit trust and under a *scheme for reorganising its affairs:

(a) a company *acquires no more than 5 units in the trust; and

(b) these are the first units that the company acquires in the trust; and

(c) you and at least one other entity (the exchanging members) own all the remaining units in the trust; and

(d) the trustee redeems or cancels those remaining units; and

(e) each exchanging member receives *shares (and nothing else) in the company in return for their units being redeemed or cancelled;

and the requirements in sections 124-460 and 124-465 are satisfied.

Note: The roll-over consequences are set out in Subdivision 124-A. The original assets are your units in the unit trust. The new assets are your new shares in the company.

(2) The trustee of the unit trust can issue other units to the company as part of the scheme.

Note: Some of the company’s units in the unit trust may be taken to be acquired before 20 September 1985: see section 124-470.

124-460 Other requirements to be satisfied

(1) The company must own all the units in the unit trust just after all the exchanging members have had their units in the unit trust redeemed or cancelled (the completion time).

(2) Just after the completion time, each exchanging member must own:

(a) a whole number of *shares in the company; and

(b) a percentage of the *shares in the company that were issued to all the exchanging members that is equal to the percentage of the units in the unit trust (that were redeemed or cancelled) that the member owned.

(3) The ratio of:

• the market value of each exchanging member’s *shares in the company to the market value of the shares in the company issued to all the exchanging members (worked out just after the completion time);

must equal the ratio of:

• the market value of that member’s units in the unit trust that were redeemed or cancelled to the market value of all the units that were redeemed or cancelled (worked out just before the first redemption or cancellation).

Example: There are 1,000 units in the A unit trust, all having the same rights. 2 new units in A are issued to B Pty Ltd, and all other units in A are cancelled. Each unitholder in A is issued 10 shares in B for each 100 units they have in A. All shares in B have the same rights. Alison owned 200 units in A and received 20 shares in B in exchange.

(4) Either:

(a) you are an Australian resident at the time your units in the unit trust are redeemed or cancelled; or

(b) if you are not an Australian resident at that time—your units have the *necessary connection with Australia.

Rules applying to both cases

124-465 Requirements to be satisfied in both cases

(1) The *shares issued in the company must not be *redeemable shares.

(2) Each exchanging member who is issued *shares in the company must own the shares from the time they are issued to the completion time.

(3) Just after the completion time:

(a) the exchanging members must own all the *shares in the company; or

(b) entities other than those members must own no more than 5 *shares in the company and the market value of those shares expressed as a percentage of the market value of all the shares in the company is such that it is reasonable to treat the exchanging members as owning all the shares.

(4) The unit trust must be a *resident trust for CGT purposes for the income year in which the completion time occurs. The company must be an Australian resident at the completion time.

Choice to be made by company

(5) The company must choose that the rules in section 124-470 apply. It must make its choice within 2 months after the completion time, or within such further time as the Commissioner allows.

Note: This is an exception to the general rule about choices in section 103-25.

Consequences for the company

124-470 Consequences for the company

(1) A whole number of the units that the company owns in the unit trust (just after the completion time) are taken to have been *acquired before 20 September 1985 if any of the unit trust’s assets as at the completion time were acquired by it before that day.

Note: Generally, a capital gain or capital loss you make from a CGT asset that you acquired before 20 September 1985 can be disregarded: see Division 104.

(2) The number (worked out as at the completion time) is the greatest possible that (when expressed as a percentage of all the units) does not exceed:

• the market value of the unit trust’s assets that it *acquired before 20 September 1985 less its liabilities (if any) in respect of those assets;

expressed as a percentage of:

• the market value of all the unit trust’s assets less all of its liabilities.

(3) The first element of the *cost base of the company’s units in the unit trust that are not taken to have been *acquired before 20 September 1985 is:

• the total of the cost bases (as at the completion time) of the unit trust’s assets that it acquired on or after that day;

less:

• its liabilities (if any) in respect of those assets.

(4) The first element of the *reduced cost base of the company’s units is worked out similarly.

(5) A liability of the unit trust that is not a liability in respect of a specific asset or assets of the trust is taken to be a liability in respect of all the assets of the trust.

Note: An example is a bank overdraft.

(6) If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to:

Subdivision 124-I—Conversion of a body to an incorporated company

124-520 Conversion of a body to an incorporated company

(1) You can choose to obtain a roll-over if:

(a) you are a member of a body that is incorporated under a law other than *company law; and

(b) the body is converted into a company incorporated under company law (without creating a new legal entity); and

(c) the company issues you with *shares (and you receive nothing else) in substitution for your interest in the body just before the conversion; and

(d) there is no significant difference in:

(i) the ownership of the body just before the conversion and the ownership of the company just after the conversion; or

(ii) the mix of ownership of the body just before the conversion and the mix of ownership of the company just after the conversion; and

(e) this requirement is satisfied:

(i) you are an Australian resident at the time of the conversion; or

(ii) if you are not an Australian resident at that time—your interest in the body has the *necessary connection with Australia.

Note 1: The roll-over consequences are set out in Subdivision 124-A. The original asset is your interest in the body. The new asset is your shares in the company.

Note 2: Section 103-25 tells you when you have to make the choice.

(2) Company law means the Corporations Law of a State or Territory or a similar *State law, *Territory law or *foreign law relating to companies.

 

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