The Australian Taxation Office (ATO) has announced the publication of Taxation Determination (TD) 2020/6 - Income tax: what is a 'restructuring' for the purposes of subsection 125-70(1) of the Income Tax Assessment Act 1997? The meaning of 'restructuring' is important in relation to the availability of demerger relief, which requires that there must be a 'demerger' as defined in subsection 125-70(1) of the ITAA 1997, the first element of which is that there is a 'restructuring' of the demerger group. TD 2020/6 provides a ruling that sets out what constitutes a restructuring for this purpose, as well as several examples.
Taxation Determination TD 2020/6
We have now published Taxation Determination 2020/6 What is a ‘restructuring’ for the purposes of subsection 125-70(1) of the Income Tax Assessment Act 1997? This finalises our view on the meaning of a ‘restructuring’ so that a company or fixed trust can test whether demerger tax relief might be available.
The Determination sets out that all the steps which occur under a single plan of reorganisation will usually constitute the ‘restructuring’. This means that where there is a plan for the reorganisation of a demerger group that contains a number of transactions, we will take into account all of those transactions when we test whether demerger tax relief is available.
After carefully considering the submissions we received following the release of the Draft Taxation Determination 2019/1, we have made some changes in the final version. For example:
- We have included a compliance approach setting out that we will not devote extra staffing resources to examine demergers entered into prior to the publication of the draft Determination.
- We have refined Examples 1 and 2, which involve post-separation capital raisings, to better take into account common commercial practice.
- We have added a new Example 7 to confirm that preliminary steps within a business group to prepare for the separation of a subsidiary will not adversely affect the ability to qualify for demerger tax relief.
As part of the usual process of finalising a draft Taxation Determination, formal comments on the draft have been specifically addressed in the compendium accompanying the final Determination.