6. A trustee who gets a roll‑over under Subdivision 124‑M of the Income Tax Assessment Act 1997 for an original interest consisting of shares issued as part of a demutualisation may be eligible for a further roll‑over under Subdivision 126‑E of that Act when a beneficiary becomes absolutely entitled to the replacement shares.
121AT Other tax consequences of demutualisation
The table below sets out modifications of the application of this Act (except Parts 3‑1 and 3‑3 (about CGT) of the Income Tax Assessment Act 1997) in respect of events that are described in, or relate to events that are described in, particular demutualisation methods.
TABLE 2—MODIFICATIONS OF THIS ACT (EXCEPT CGT RULES)
Item Event Modifications
1 Event described in item 1 of Table 1. No amount is included in, or allowable as a deduction from, assessable income in respect of the extinguishment.
2 Event described in item 3 or 4 of Table 1. 1. If the disposal takes place before the demutualisation listing day (see note 4 to Table 1): (a) no loss is allowable as a deduction from the disposer’s assessable income in respect of the disposal; and (b) any deduction allowable from the disposer’s assessable income in respect of the acquisition of the right or interest does not exceed the amount included in the disposer’s assessable income in respect of the disposal. 2. Paragraphs 2(a) and (b) of the modifications column for item 3 or 4 in Table 1 apply for the purposes of working out: (a) the amount of any profit included in the disposer’s assessable income in respect of the disposal; or (b) the amount of any deduction allowable from the disposer’s assessable income in respect of the acquisition of the right or interest.
3 Event that would be described in item 5 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130‑20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. 1. If the disposal is of a demutualisation share, or interest in such a share, and the disposal takes place before the demutualisation listing day:(a) no loss is allowable as a deduction from the disposer’s assessable income in respect of the disposal; and(b) any deduction allowable from the disposer’s assessable income in respect of the acquisition of the share or interest does not exceed the amount included in the disposer’s assessable income in respect of the disposal.
If the disposal is of a demutualisation share (other than a demutualisation original share), or an interest in such a share, then paragraphs 2(a) to (c) of the modifications column for item 5 in Table 1 apply for the purposes of working out:(a) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or(b) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest
If the disposal is of either: (a) a demutualisation original share, or an interest in such a share; or (b) a non‑demutualisation bonus share, or an interest in such a share; then paragraphs 3(c) and (d) of the modifications column for item 5 in Table 1 apply for the purpose of working out: (c) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or (d) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest. In applying paragraph 3(c) of the modifications column for item 5 in Table 1, the reference to section 130‑20 (about bonus shares) of the Income Tax Assessment Act 1997 is taken instead to be a reference to section 6BA.
4 Event that would be described in item 6 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130‑20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. 1. If the disposal is of a demutualisation share, or interest in such a share, and the disposal takes place before the demutualisation listing day:(a) no loss is allowable as a deduction from the disposer’s assessable income in respect of the disposal; and(b) any deduction allowable from the disposer’s assessable income in respect of the acquisition of the share or interest does not exceed the amount included in the disposer’s assessable income in respect of the disposal.
If the disposal is of a demutualisation share (other than a demutualisation original share), or an interest in such a share, then paragraphs 2(a) to (c) of the modifications column for item 6 in Table 1 apply for the purposes of working out:(a) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or(b) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest.
If the disposal is of either:(a) a demutualisation original share, or interest in such a share; or(b) a non‑demutualisation bonus share, or an interest in such a share;then paragraphs 3(c) and (d) of the modifications column for item 6 in Table 1 apply for the purpose of working out:(c) the amount of any profit included in, or loss (where modification 1 does not apply) allowable as a deduction from, the disposer’s assessable income in respect of the disposal; or(d) the amount of any deduction allowable (where modification 1 does not apply) from the disposer’s assessable income in respect of the acquisition of the share or interest. In applying paragraph 3(c) of the modifications column for item 6 in Table 1, the reference to section 130‑20 (about bonus shares) of the Income Tax Assessment Act 1997 is taken instead to be a reference to section 6BA.
5 Event that would be described in item 7 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130‑20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. The same modifications as for item 3 of this table apply.
6 Event described in item 8 of Table 1. No amount is included in, or allowable as a deduction from, assessable income in respect of the change in the rights.
7 Event that would be described in item 9 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130‑20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. 1. The person in the policyholder/member group, instead of the trustee is taken:(a) to have sold the demutualisation share or non‑demutualisation bonus share; and(b) to have paid, given and received any consideration that was paid, given or received by the trustee in respect of either share; and(c) to have done any other act in relation to either share that was done by the trustee.2. The modifications in item 3 of this table apply to the sale of the demutualisation share or non‑demutualisation bonus share in the same way as they do to the disposal of such shares covered by that item.
8 Event that would be described in item 11 of Table 1 if the references in that item to bonus shares and original shares mentioned in section 130‑20 (about bonus shares) of the Income Tax Assessment Act 1997 were instead references to bonus shares and original shares mentioned in section 6BA. The same modifications as for item 3 of this table apply.
9 Under demutualisation method 6, the whole of the life insurance business of a life insurance company is transferred to another company as mentioned in paragraph 121AK(1)(b). The other company is taken to continue to carry on the transferred life insurance business of the mutual life insurance company.
10 An ordinary share is issued or distributed to a person in the policyholder/member group as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d). No amount is included in, or allowable as a deduction from, assessable income of the person in respect of the issue or distribution of the share, except where the share is issued in consideration for services provided, or to be provided, by the person.
11 Ordinary shares in the company are issued or distributed as mentioned in paragraph 121AF(1)(b), 121AG(1)(c) or (d), 121AH(1)(c), 121AI(1)(e) or (f), 121AJ(1)(c) or (d), 121AK(1)(c) or (d) or 121AL(1)(c) or (d) to a person in the policyholder/member group who is the trustee of a superannuation fund to hold on behalf of a member of the fund. The trustee within 30 days allocates to the member, in the records of the fund, an amount representing the member’s contributions in respect of the shares (the allocation shares). If the trustee pays a superannuation benefit to the member, the tax free component (within the meaning of the Income Tax Assessment Act 1997) of the superannuation interest (within the meaning of that Act) from which the benefit is paid is increased by the amount worked out using the formula:Start formula start fraction Number of allocation shares over Total number of ordinary shares issued or distributed to, or to be sold on behalf of, the policyholder/member group end fraction times Applicable company valuation amount open bracket see note 1 to Table 1 close bracket end formula
12 A resolution is passed to proceed, in accordance with one of the demutualisation methods, with the demutualisation of: (a) a mutual insurance company that is a general insurance company; or (b) both such a mutual insurance company and a mutual affiliate company. The franking surplus is reduced to nil at the beginning of the demutualisation resolution day.
Immediately before the demutualisation resolution day: (a) in the case of any demutualisation method—the general insurance company or any wholly‑owned subsidiary of the general insurance company; or(b) in the case of demutualisation method 7—the mutual affiliate company, a wholly‑owned subsidiary of the mutual affiliate company, or a company all of whose shares are beneficially owned by the general insurance company and the mutual affiliate company; has a franking surplus.
13 A resolution is passed to proceed with the demutualisation of a mutual insurance company or both a mutual insurance company and a mutual affiliate company. A dividend that was declared before the demutualisation resolution day is paid on or after the demutualisation resolution day to:(a) in the case of any demutualisation method—the mutual insurance company or any wholly‑owned subsidiary of the mutual insurance company; or(b) in the case of demutualisation method 7—the mutual affiliate company, a wholly‑owned subsidiary of the mutual affiliate company, or a company all of whose shares are beneficially owned by the general insurance company and the mutual affiliate company. No franking credit arises for the company or the subsidiary in relation to the payment of the dividend on or after the demutualisation resolution day.
121AU This Subdivision does not apply to demutualisation of friendly society health or life insurers
This Subdivision does not apply in relation to the demutualisation of a company in relation to whose demutualisation Division 316 (Demutualisation of friendly society health or life insurers) of the Income Tax Assessment Act 1997 applies.
Note: Section 316‑5 of the Income Tax Assessment Act 1997 explains which demutualisations of entities Division 316 of that Act applies to.
Division 9A—Offshore banking units
Subdivision A—Object and simplified outline
121B Simplified outline
Scope of section
(1) The following is a simplified outline of the Division.
Main concepts
(2) Subdivision B sets out the concepts used in the Division, the most important being:
(a) OB activity (sections 121D, 121EA and 121EAA) together with the related definition of offshore person (section 121E); and
(b) special income and allowable deduction definitions relating to OB activities (sections 121EDA to 121EF).
Operative provisions
(3) Subdivision C contains the operative provisions. Basically, they provide as follows:
(d) income from OB activities is taken to be Australian sourced;
(e) a deemed interest penalty applies to equity provided by an OBU’s resident owner;
(f) income of OBU offshore investment trusts is exempt from tax;
(g) income derived by overseas charitable institutions from OBUs is exempt from tax;
(h) certain adjustments are made to the capital gains and losses that flow from disposals of certain interests in trusts of which an OBU is the trustee.
Subdivision B—Interpretation
121C Interpretation
In this Division:
adjusted assessable OB income has the meaning given by subsection 121EE(4).
adjusted total assessable income has the meaning given by subsection 121EE(5).
allowable OB deduction has the meaning given by subsection 121EF(2).
apportionable OB deduction has the meaning given by subsection 121EF(5).
assessable OB income has the meaning given by subsection 121EE(2).
associate has the meaning given by section 318.
Australian thing has the meaning given by subsection 121DA(5).
average Australian asset percentage has the meaning given by subsection 121DA(2).
borrow includes raise finance by the issue of a security.
eligible contract means:
(a) any of the following:
(i) a futures contract;
(ii) a forward contract;
(iii) an options contract;
(iv) a swap contract;
(v) a cap, collar, floor or similar contract; or
(b) a loan contract; or
(c) a securities lending or repurchase arrangement; or
(d) a non‑deliverable forward foreign currency contract.
exclusive non‑OB deduction has the meaning given by subsection 121EF(6).
exclusive OB deduction has the meaning given by subsection 121EF(3).
general OB deduction has the meaning given by subsection 121EF(4).
lend includes provide finance by the purchase of a security.
loss deduction has the meaning given by subsection 121EF(7).
monthly Australian asset percentage has the meaning given by subsection 121DA(3).
non‑OB accounting records has the meaning given by subsection 121EAA(3).
non‑OB money, in relation to an OBU, means money of the OBU other than:
(a) money received by the OBU in carrying on an OB activity; or
(b) OBU resident‑owner money of the OBU; or
(c) money paid to the OBU by a non‑resident (other than in carrying on business in Australia at or through a permanent establishment of the non‑resident) by way of subscription for, or a call on, shares in the OBU;
(an example of non‑OB money being money borrowed from a resident whose lending of the money does not occur in carrying on business in a country outside Australia at or through a permanent establishment of the resident).
non‑resident trust means a unit trust that is not a resident unit trust within the meaning of section 102Q.
OB activity has the meaning given by section 121D.
OB advisory activity has the meaning given by section 121DC.
OB eligible contract activity has the meaning given by section 121DB.
OB income has the meaning given by section 121EDA.
OB leasing activity has the meaning given by section 121DD.
OBU (offshore banking unit) means an offshore banking unit within the meaning of Division 11A of Part III.
Note: In this Division, the head company of a consolidated group or MEC group may be treated for certain purposes as an OBU at a time when a subsidiary member of the group is an OBU (see Subdivision 717‑O of the Income Tax Assessment Act 1997).
OBU resident‑owner money has the meaning given by section 121EC.
offshore person has the meaning given by section 121E.
offshore property means property that:
(a) cannot be in Australia; or
Example: Land outside Australia.
(b) is used, or will be used:
(i) wholly outside Australia; or
(ii) in Australia to an extent that is not material.
overseas charitable institution means a non‑resident institution the income of which:
(a) would be exempt from tax under item 1.1 of section 50‑5 of the Income Tax Assessment Act 1997 (and not under any other item of that section) if the institution had a physical presence in Australia and incurred its expenditure and pursued its objectives principally in Australia; and
(b) is exempt in the country in which it is resident.
owner, in relation to a company, means a person who, alone or together with an associate or associates, is the beneficial owner of all of the shares in the company.
portfolio investment has the meaning given by subsection 121DA(1).
related person, in relation to an OBU, means:
(a) an associate of the OBU; or
(b) a permanent establishment referred to in paragraph 121EB(1)(b) in relation to the OBU.
security means a bond, debenture, debt interest, bill of exchange, promissory note or other security or similar instrument.
trade with a person has the meaning given by section 121ED.
90‑day bank bill rate, at a particular time, means:
(a) if the Reserve Bank of Australia has published a rate described as the 90‑day bank accepted bill rate in respect of a period in which the particular time occurs—that rate; or
(b) in any other case—the rate declared by regulations for the purposes of this definition to be the 90‑day bank accepted bill rate in respect of a period in which the particular time occurs.