woolworths demerger tax implications

Demerger needs to be in accordance with conditions as notified under Section 72A(5) of the Act by the Central Government. It should be noted that the gains sought to be taxed by way of Rule 8AC(3) are not arising due to transfer of any intangible asset, but they are arising due to reduction of standalone WDV of goodwill from the block of intangible assets. From the Woolworths web site: "The basis for cost base apportionment will be formally determined by the ATO and published by the ATO as part of the final demerger tax relief class ruling. . Income earned after the date of succession; Income of the Financial Year in which the succession takes place and the previous year preceding that year, if the predecessor cannot be found or the tax payable cannot be recovered from the predecessor. Yes, for tax purposes your new EDV shares have the same acquisition dates as your WOW shares. Some were via DRP, and some were bought outright via broker. Import your trading history directly from your broker or provider, Import trades via your brokers trade confirmations, Download spreadsheet from Commsec, NAB trade and Westpac, Add a Macquarie Cash Management Account (CMA), Automatically generated dividends and adjustments, How Sharesight can help with completing your tax return, How Sharesight helps you handle Australian AMIT tax components, Changing the tax setting of your portfolio, Recreating a portfolio in a different tax residency, Editing or Deleting trades and adjustments, Confirming multiple and individual unconfirmed transactions, Move a custom investment to a listed or supported investment. The ATO is expected to publish the ruling in early August 2021. 1 Click on Woolworths, WOW on the Portfolio Overview Page, to go to the Individual Holding Page. If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice. There's an ASX announcement posted yesterday about this. PK ! You have the same number of parcels of EDV as you do WOW each with their own acquisition dates and costbases as per 1 & 2 above. Demerger Relief by John Gonsalves, Ernst & Young Released November 2002. $0.0098082 for each SCA Property Management Trust unit. (iii) Cost of acquisitionand period of holding of capital asset. Paul Rickard is a co-founder of the Switzer Report. Elections must be made by 21 June. Section 8 of the Shareholder Circular contains disclosure of the general tax consequences of the demerger for certain shareholders and ADS holders of BHP Billiton Limited that are tax resident in Australia, New Zealand, the UK or the US, and of BHP Billiton Plc . If you had owned your Woolworths shares for more than 12months as at the date you sold your Woolworths shares you can reduce the remaining capital gain (if any) by the 50% CGT discount. The demerger relief rules are intended to allow relevant investors optional Capital Gains Tax (CGT) rollover relief and provide dividend exemptions. You must however reduce the cost base of your Woolworths shares by the capital return amount. A host of income tax issues / questions may need to be considered while dealing with a transaction of demerger. Woolworths by a nose.". The result is the adjusted cost base of each of your Woolworths shares. You may also have been allotted SCA Property Group stapled securities by participating in the Woolworths retail shareholders offer. The Act specifically provides that transfer of a capital asset being shares in an Indian company [59] or shares of a foreign company, which derives directly or indirectly its value substantially from shares of an Indian company [60] by a transferor foreign company to the transferee foreign company pursuant to demerger is not a transfer for the purpose of capital gains tax if the following two conditions are fulfilled: The Act also provides that overseas demergers satisfying the aforementioned conditions should not attract any tax implications under Section 56(2)(x) for the transferee foreign company. The demerger was effective on 1-7-2021. If you do want to vote, the meeting is scheduled for 11.00am on Friday 18 June. Even in this case, a plausible interpretation is that if entirety ofthe business is transferred to the resulting company, such that the demerged company is unable to continue the transferred business and continuity of business is preserved in the hands of the transferee companythere may be succession of business.The issue is however litigative and in absence of clarity on the issue it is important to review judicial developments on the subject when matter is being evaluated. Assume Neville has no other capital gains for the year and no current year or prior year unapplied capital losses. As per the amendments in FA 2021, goodwill is not considered to be a part of block of assets and hence is not eligible for depreciation. Neville purchased another parcel of 200 Woolworths shares in 2010 for $28.750 per share including brokerage. Woolworths shareholders then received one unit in SCA Property Group for every five Woolworths shares held. Sharesight makes it easy for investors to handle corporate actions (even complicated demergers) and track the capital gains tax implications. Will you need the Individual tax return instructions supplement? As per Rule 11UA(1) of the Income-tax Rules, 1962. . Provides updated tax consequences of participation in the 2012 Woolworths Limited restructure including correction of the value split amounts, updated examples and new information about the sale facility. if(MSFPhover) { MSFPnav6n=MSFPpreload("../_derived/home_cmp_Profile110_home.gif"); MSFPnav6h=MSFPpreload("../_derived/home_cmp_Profile110_home_a.gif"); } Assuming 148 is correct: Woolworths are paying a cash dividend of $0.62 per share = $91.76. It takes a while for buyers to recognise the value, and as the management team starts to perform, the share price rises. That is, he did not return the Unit Retention Form. On amalgamation, all assets and liabilities of the transferor company stand vested to the transferee company, which includes credit for prepaid taxes (advance tax and withholding taxes). A summary of the key aspects of the Demerger, including the tax implications of the Demerger for NAB Shareholders and a copy of the Australian Tax Office Class Ruling CR 2016/13 (PDF,122KB), are set out below. The cost base may also be affected by various capital gains tax events. The transfer of the undertaking is on a going concern basis; and. Tax Implications on Demerger. The Supreme Court in case of Smifs Securities Limited [62] ruled that goodwill acquired on amalgamation (that is, excess of consideration paid over value of net assets acquired) is an intangible asset under section 32(1)(ii) of the Act and hence eligible for depreciation claim under the Act. Do not reduce the cost base by the amount of the distribution. The restructure involved a distribution under which you received one stapled unit in Shopping Centres Australasia Property Group (SCA Property Group) for every five Woolworths shares you owned on 30November 2012 (Distribution). 14.19% of the total cost bases of your Woolworths Group shares just before the demerger to your corresponding Endeavour Group shares. The initial cost base of each SCA Property Group stapled security you received under the distribution is $1.4397. Neville decided he wanted the stapled securities sold so he did nothing. Overall, the announcement was positive, with the company expecting to report a $57 million pre-tax net gain . The disadvantages? Another way to value the parts is to consider the whole. D. Insertion of Rule 8AC for computation of STCG and WDV. 1 - Click on Woolworths, WOW on the Portfolio Overview Page, to go to the Individual Holding Page. Another condition is that the assets/properties of the undertaking are transferred to the resulting company at values appearing in the books of demerged company immediately before the demerger. Neville therefore made a total capital gain of $39 on the sale of his stapled securities in the sale facility. The amendment in section 43(6) requires the assessee to exclude the standalone WDV of goodwill (calculated as difference between actual cost of goodwill and depreciation allowable on such goodwill till 31 March 2020) from the block of intangibles. Clause (IX) to proviso to Section 56(2)(x) of the Act. Pouring buckets of cream into ice cream makers, decorating it with chunky handfuls of toppings, and finally rippling in sugary sauces. O_ 1 xl/workbook.xmlUmo8~o4q )D + D}m>$:]q lW'Ccxg&4Tg&hes}zi$YDQi>r YX5"iJs,3.R"a*FJ"TacehS0lBLi&7 &DEAKSR"e%LkP;g\U LoJY(xgo[NCj.++g0Hf%i#]-IU%Iy|E6DJjuLNBXI`K&@7[#-3R&r This is clearly marked. olY I Y@G. As part of the demerger, undertaking of the demerged company (which includes accumulated profits) is transferred to the resulting company entailing a reduction in its reserves. Step 1: Stacey works out the capital gain on the sale of her shares. Then click on the 'Tax consequences' tab at the bottom of the spreadsheet to view the income tax consequences of the demerger. woolworths demerger tax implications. Explanation 2 (b)to Section 43(6) of the Act. Assuming that tax demerger relief is obtained, there shouldn't be any tax implications for Australian resident shareholders from the demerger per se. The ensuing paragraphs discuss relevant key income tax provisions/ implications of a tax neutral demerger of companies. A question that arises is whether the cost of shares held by holding company in the subsidiary company continues or does it reduce on account of above provisions. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. The term accountant is defined as per Explanation to Section 288(2) of the Act. The demerger of a company simply means splitting of company into two or more parts. Property means capital assets in the form of immoveable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings, sculptures, any work of art or bullion and virtual digital asset. Supported Stock Exchanges, Mutual Funds, Managed Funds, ETFs, etc. The rationale for not allowing depreciation onGoodwill was discussed in the Memorandum to the Finance Bill, 2021. As can be seen from the above definitions, the terms merger and amalgamation are quite synonymous and can be interchangeably used. If you owned Woolworths shares on 30 November 2012 but sold them before 11December 2012, follow the instructions under Shares sold before 11December 2012. SKOL Breweries Ltd v. ACIT [2008] 28ITATINDIA998 (Mum). Because Stacey owned Woolworths shares on 30November 2012 she had a right to receive SCA Property Group stapled securities under the distribution. On 29 January 2021, the parties to the Woolworths Class Action announced that they had reached an agreement to settle the class action. Deducting the dividend amount from the capital gain prevents this. CIT v. T Veerabhadra Rao, K Koteswara Rao & Co. (1985) 155 ITR 152 (SC). The main concerns are likely to be: A reason to vote against the demerger are the costs, although many have already been occurred. Having regard to the diverse views it is important to review judicial developments on the subject when matter is being evaluated. The ensuing paragraphs discuss relevant key income tax provisions/ implications of a tax neutral demerger of companies. I started my day making at least ten flavors. The Act provides that deduction of one-fifth of the expenditure incurred wholly and exclusively for the purpose of demerger is allowed to an assessee (being an Indian company) in each of the five successive years, beginning from the year in which the demerger takes place [47] . Once again, the tax consequences of . (e) Cross-border demerger involving transfer of shares of an Indian company. However, the matteris not free from doubt and could be litigative. The resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis, except where the resulting company itself is a shareholder of the demerged company; The shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) becomes shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of property or assets of the demerged company or any undertaking thereof by the resulting company. The firm said that the demerger reflects the companies' vision to "create two simpler, more focused independent businesses that are better equipped for future growth." Under the terms of the deal, eligible Woolworths Group shareholders obtained one Endeavour Group share for each share of Woolworths Group they held during the record date . Generally, the company that merges or amalgamates is known as the amalgamating company or transferor company.The corporate identity of the transferor company ceases to exist post amalgamation.The company into which the amalgamating or transferor company merges or amalgamates is known as the amalgamated company or transferee company. This view has been endorsed by the Mumbai Tribunal [66] .Similarly, the Ahmedabad Tribunal has allowed the resulting entity to utilize MAT credit of demerged entity [ [67] ]. But with Woolworths continuing to win the sales wars, I am sticking with the number one player. Shareholders will be asked to approve the demerger via a resolution at a general meeting on Friday 18 June. Under the current structure, Woolworths holds an 85.4% share of Endeavour Group with the remaining 14.6% interest held by its long-term joint venture partner, Bruce Mathieson Group (BMG). For. Woolworths' $10 billion demerger of its Endeavour drinks, pubs and pokies division will allow the company to focus more on tackling other social issues, CEO Brad Banducci says. Step 2: Neville must reduce the cost base of each of his Woolworths shares by the capital return amount of $0.14598558 for each share for which he received a SCA Property Group stapled security. Unlike Woolworths . release of all or any assets by the company; debentures, debenture stock or deposit certificate (with or without interest) or distribution of bonus to preference shareholders; loan or advance given by closely held company to a shareholder having shareholding 10% or above or to a concern in which such shareholder holds substantial interest (exceeding 20% of shareholding) or any payment by such company on behalf of or for the individual benefit of such shareholder. When the Endeavour Group demerger move was first announced in mid-2019, Woolworths CEO Brad Banducci told ABC's The Business that 7% or "a bit less than" $700 million of Endeavour Group's total revenue was from poker machines, based on 2017-18 figures. This applies whether you acquired the stapled securities under the distribution or the offer. The Act provides for certain tax concessions to companies involved in the scheme of demerger and alsoto their shareholders. 4016 (Delhi) of 2005 and Pampasar Distillery v. ACIT[2007] 15 SOT 331 (Kolkata), Marshall Sons & Company India Ltd v. ITO (1997) 223 ITR 809 (SC). The entities involved in a demerger are companies and that the transfer is pursuant to a scheme of arrangement under Sections 230 to 232 of the Companies Act, 2013; The demerger involves transfer of one or more undertakings (demerged undertaking) by the transferor company (demerged company) to the transferee company (resulting company); All the property of the demerged undertaking, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; All the liabilities of the demerged undertaking, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; The property and the liabilities of the undertaking are transferred at values appearing in its books of account immediately before the demerger. The capital proceeds is your total distribution amount, which is the number of SCA Property Group stapled securities you received multiplied by $1.4397. It may be noted that the Delhi Tribunal in NIIT technologies [48] has taken a view that deduction for expenses incurred on demerger is not allowable to the resulting company but is allowed only to the demerged company. Provides updated tax consequences of participation in the 2012 Woolworths Limited restructure including correction of the value split amounts, updated examples and new information about the sale facility. Create an account to follow your favorite communities and start taking part in conversations. In FY21, Woolworths will incur separation costs of $50m. GAAR provisions grant wide powers to the revenue authorities inter-alia to disregard or even recharacterize the transactions. MAT credit is the difference between the MAT payable on book profit and the tax payable on normal income (normal tax). Coles was $17.93. If subtracting $0.14598558 results in a negative amount, the cost base of each Woolworths share becomes nil and the excess is a capital gain. The demerger provisions in CTA10/PART23/CHAPTER5 aim to . I said at the outset that demerged companies typically do well on the ASX. 04 Woolworths & Endeavour Drinks - what you need to know and do Endeavour demerger by Paul Rickard 08 Five $5 stocks Five $5 stocks . See Cost base of new units. This value is apportioned 99.4% to the SCA Property Retail Trust unit and 0.6% to the SCA Property Management Trust unit, giving their separate cost base of: For tax purposes you acquired the stapled securities on 11December 2012. 5P (LXXVI-63) of 1967, dated 9 October 1967. $1.4310618 for each SCA Property Retail Trust unit, and. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. The fact that there is no solution shown seems to mean that Reckon cannot handle this transaction. Can anyone give any pointers?! . Based on the ATO class ruling, set the: 4 - 'Date of trade': 01 July 2021. Once depreciation has been claimed and allowed in respect of any previous ear, unless there is retrospective amendment, the depreciation already allowed cannot be subject to any change on account of any subsequent amendment. The intention of this clause is to encourage transfers driven by strategic economic considerations and not to encourage transfer of individual assets of an undertaking under the guise of demerger. If you subsequently sell your Endeavour shares, then you may have to pay capital gains tax. Given the amendment vide FA 2021, depreciation on goodwill will not be allowed as a deduction henceforth. The Act [51] provides that in case of a capital asset, being a share or shares in an Indian company (i.e. Woolworths Group also has the largest number of team members participating in a share plan in both Australian and New Zealand markets following the launch of the Better Together Recognition Award in 2020. 7 Comment: Woolworths and Endeavour demerger. For Neville, the distribution has the following components: The franking credit attached to the dividend amount is: Step 1: Neville includes the dividend amount of $141.95 and the franking credit amount of $60.83 at the dividend label of his 201213 tax return (along with any other dividends and franking credits he receives from Woolworths or other companies in which he owns shares). The t rm "standalone" is used to describe Sierra Rutile as it will exist after the Demerger, with a separate board and management team from Iluka (post Demerger). The User ID or Password entered is incorrect. For many people, it only takes one missed shave to result in the appearance of prickles and stubble! The stapled securities were sold for $1.6347 each and the sale proceeds sent to you. You will deemed to have purchased your Endeavour shares on the same date that you acquired your original Woolworths shares. Woolworths shareholders will be entitled to receive one share in Endeavour Group for each Woolworths share held on Friday, 25 June 2021. Each stapled unit in SCA Property Group is made up of: You therefore received units in both of these trusts. The capital return amount was $0.7299279 for every five Woolworths shares you owned on 30November 2012. Key components of the result were: - income from investments, excluding the demerger dividend, down from $7.1 How to handle the Woolworths . Further, Endeavour is a higher margin business than the Woolworths food business in 1H21, Endeavour earned 8.1% of sales, whereas Woolworths operating EBIT margin was 5.2%. The term 'demerger' simply means one company transferring one or more of its business operations into another company (s). You cannot reduce the cost base below nil. 15 Input Quantity: 1 Endeavour share to every 1 Woolworths share. Proviso (IX) to Section 56(2)(x) of the Act, Explanation 1 to Section 2(19AA) of the Act, Premier Automobiles Ltd (PAL) v. ITO 264 ITR 193 (Bom), Shares include equity and preference shares, Explanation 2A to Section 43(6) of the Act. Dividend amount of 1,000 $0.14195442 = $141.95, Capital return amount of 1,000 $0.14598558 = $145.98, Capital proceeds of $1.6248918 ($1.6347 99.4%), Total capital gain $38.766 ($0.19383 200 units), Capital proceeds of $0.0098082 ($1.6347 0.6%), Total capital gain $0.234 ($0.00117 200 units), Less cost base of $23,000.00 + 100.00 = $23,100.00, Dividend amount of 2,000 $0.14195442 = $283.90, Capital return amount of 2,000 $0.14598558 = $291.97, Capital proceeds of 400 $1.4397 = $575.88, Capital gain on the sale of her Woolworths shares of $35,700, Capital gain on the ending of the right to receive stapled securities = $291.98, Less prior year net capital loss of $50.00 = $35,941.98, Stacey now applies the 50% CGT discount $35,941.98 50% = $17,970.99, SCA Property Retail Trust units = $1.4310618, SCA Property Management Trust units = $0.0086382. The condition requires that all the properties of the demerged undertaking tangible or intangible should become the properties of the resulting company. If consideration is received in any form other than shares of the resulting company or received partly in shares and partly in any other form then that shareholder will not be eligible to claim exemption under the provision of the Act [50] . The demerger is in accordance with the conditions, if any, notified under Section 72A(5) of the Act by the Central Government in this behalf. The tax consequences here can be material and significant if a charge to income tax cannot be avoided (as it stands, a charge of up to 38.1% can arise on the value of the assets to be demerged or otherwise carved-out). This equates to $0.14598558 for each of your Woolworths shares for which you received an SCA Property Group stapled security. The Act provides that the cost of goodwill as reduced by the depreciation that would have been allowable would need to be reduced in computing the Written Down Value of the block of assets on which depreciation can be made admissible.Therefore, goodwill which forms part of block of assets as on April 1, 2020 would not be eligible for depreciation from AY 2021-22 and onwards. Prima-facie, it seems that the said amendment should not apply to intangible assets other than Goodwill. With net debt of $1.3bn, this gives a market capitalisation of $13.7bn, equivalent to a share price of $10.80. Applicability of GAAR on a merger / demerger. This article does not reflect the views of WealthHub Securities Limited. The SC in this case affirmed that goodwill acquired pursuant to amalgamation of a business is an intangible asset eligible for depreciation under section 32 of the Income-tax Act, 1961.
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