Australia Proposes Tax Relief For Demergers

by Mary Swire, Tax-News.com, Hong Kong

09 December 2010

Consolidated groups and multiple entry consolidated groups (MEC groups) should find demerging and restructuring easier under proposed changes to the Australian income tax laws.

Bill Shorten, Assistant Treasurer and Minister for Financial Services and Superannuation, released on December 7 a discussion paper on changes to the income tax law that will alleviate tax consequences that arise when a consolidated group or MEC group restructures by undertaking a demerger.

There are approximately 9,000 consolidated groups and MEC groups in Australia. If a consolidated group or MEC group restructures by undertaking a demerger and the demerged entities form a new group, any capital gain that would otherwise arise because a demerged entity has net liabilities at the time of a demerger will be disregarded; and the tax costs of assets held by subsidiary members of the new group will be retained.

These changes will apply to demergers that take place after November 9, 2010; that is, after the date that the changes were announced in the Mid‑Year Economic and Fiscal Outlook 2010-11.

As a transitional rule, if a demerger took place on or before November 9, 2010, and a capital gain arose because the demerged entity had net liabilities when it left the consolidated group or MEC group, then any liabilities that were extinguished as a result of the demerger will be excluded from the consolidation tax cost setting calculations.

Submissions on the discussion paper are requested by January 28, 2011.

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