What are the taxation implications?Assuming that tax demerger relief is obtained, there shouldn't be any tax implications for Australian resident shareholders from the demerger per se. Press question mark to learn the rest of the keyboard shortcuts. However, another reading of the Memorandum also appears to imply that the depreciation on goodwill arising out of tax neutral business reorganisations in any case was always impermissible. Woolworths announced an update on significant items that would affect its FY21 accounts. of the predecessor company vest into successor company. 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. It is up to you to work out the cost base of your Woolworths shares, just as you would if you were selling your shares and had to work out what they cost you. Liabilities arising from activities or operations of the undertaking; Specific loans or borrowings (including debentures) raised, incurred and utilized solely for the activities or operations of the undertaking; and. Neville purchased a parcel of 800 Woolworths shares in 1999 for $5.380 per share including brokerage. olY I Y@G. Unlike Woolworths . If you subsequently sell your Endeavour shares, then you may have to pay capital gains tax. The cost base of your shares will depend on the way you acquired them. 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). On 2 August 2022, the Federal Court of Australia approved the settlement and Maurice Blackburn was appointed as Administrator of the Settlement . Supporting an argument that Endeavour is worth more than the notional split above is that the impact of Covid-19 was damaging to Endeavour. 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. Everyone loves the silky smooth feeling of a fresh shave, but the actual process of maintaining it can be tedious and time-consuming. A general guide to the Australian tax implications of the demerger is contained within Section 5 of the scheme booklet. This segment operates 176 BIG W stores. As can be seen from the above definitions, the terms merger and amalgamation are quite synonymous and can be interchangeably used. 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 . Stacey keeps record of the cost base of each unit that makes up each stapled security as follows: For help applying this information to your own situation, you may seek advice from a recognised tax adviser or phone us on 132861. you hold your shares as an investment asset. As per the Act [44] , the WDV of the block of assets acquired by resulting company should be the tax WDV of such assets in the hands of demerged company immediately before the demerger. A plausible view is that this provision is applicable only when shares are issued. In absence of clarity on the issue it is important to review judicial developments on the subject when matter is being evaluated. The ensuing paragraphs discuss the relevant key income tax provisions/ implicationsof tax neutral merger of companies. By accepting all cookies, you agree to our use of cookies to deliver and maintain our services and site, improve the quality of Reddit, personalize Reddit content and advertising, and measure the effectiveness of advertising. With effect from such date, all assets, liabilities, profits, etc. This means that your cost base for Woolworths now becomes $22.50 (75% of $30.00), and your cost base for your Endeavour shares is $7.50 each (25% of $30.00). The cost base may also be affected by various capital gains tax events. $0.0098082 for each SCA Property Management Trust unit. Yes, for tax purposes your new EDV shares have the same acquisition dates as your WOW shares. The key tax implications of an indirect demerger are as follows: The distribution is exempt for income tax purposes in the hands of the shareholders. Neville purchased another parcel of 200 Woolworths shares in 2010 for $28.750 per share including brokerage. A question that arises is whether similar treatment would apply in the case of MAT credit. Sharesight makes it easy for investors to handle corporate actions (even complicated demergers) and track the capital gains tax implications. The scheme booklet was previously sent to shareholders and is available on the Wesfarmers website at www.wesfarmers.com.au. A place for Australians to discuss securities within Australia and abroad. 15 Input Quantity: 1 Endeavour share to every 1 Woolworths share. Certain expenses, namely, compliance costs like stamp duty, professional fees etc. 8 Choose a file: to help keep your records in order, you can attach the Endeavour Group Demerger Implemented letter. Wesfarmers has prepared a tax information guide for Australian resident Wesfarmers shareholders. The tax system inhibits the splitting up of businesses in this way as such a split will normally involve a distribution under CTA10/S1000. If you held 318 or less stapled securities on 24 January 2013 you were sent a letter about the sale facility, the Terms and Conditions booklet and a Unit Retention Form. Woolworths by a nose.". Create your myGov account and link it to the ATO, Help and support to lodge your tax return, Occupation and industry specific income and work-related expenses, Residential rental properties and holiday homes, Instalment notices for GST and PAYG instalments, Your obligations to workers and independent contractors, Encouraging NFP participation in the tax system, Australian Charities and Not-for-profits Commission, Departing Australia Superannuation Payment, Small Business Superannuation Clearing House, Annual report and other reporting to Parliament, Complying with procurement policy and legislation. That is, he did not return the Unit Retention Form. Overall, the announcement was positive, with the company expecting to report a $57 million pre-tax net gain . However, it may be noted that GAAR provisions have recently been implemented and there are no judicial precedents or explanatory guidelines to infer meaning of the term explicitly and adequately. An argument can also be put forth that since depreciation on goodwill is not allowable on account of the amendment, it becomes imperative to carve out goodwill from other intangibles which as a matter of practice may have been clubbed in a common basket and termed as goodwill in the financial statements. You have the same number of 'parcels' of EDV as you do WOW each with their own . No, the demerger is a forgone conclusion to be approved. I'm trying to track the performance of my WOW and new EDV shares, partially to help with capital gains tax etc etc. Pendency means the period between the date of filing of application with prescribed authority and receipt of such order by the specified tax authorities. 13 Set Opening balance date as 01 July 2021. By rejecting non-essential cookies, Reddit may still use certain cookies to ensure the proper functionality of our platform. 77 of 2021 has inserted Rule 8AC for computation of STCG and WDV. Over the next few weeks, we will see some valuations from the broker analysts. Pouring buckets of cream into ice cream makers, decorating it with chunky handfuls of toppings, and finally rippling in sugary sauces. 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. If you have owned your Woolworths shares for more than 12months you can reduce the capital gain by the 50% CGT discount (after first applying any net capital losses you have). The definition of the term amalgamation was inserted by Finance (No2) Act, 1967 and correspondingly various related sections of the Act were amended. Click on the 'Portfolio' tab and then click on the appropriate under 'My Portfolio(s)', which includes the WOW shares. The Act also provides that while determining the book value of property, any change in the value of assets consequent to their revaluation needs to be ignored. Please try again. 3 - On the pop-up window, select 'Adjust Cost Base' from the transaction type dropdown. A new provision has been introduced in the Act [55] which provides that difference between the consideration and prescribed fair market value [56] of property [57] received by any person is liable to be taxed as income from other sources in the hands of the recipient if they are acquired without consideration or for a consideration that is lower than the aggregate fair market value (provided aggregate fair market value of such propertiesexceeds consideration paid, if any, by more than INR50,000). When consideration is given in the form of shares to some shareholders and cash is paid to the balance shareholders, benefit of exemption is available only to those shareholders who have received consideration in the form of shares of the transferee company. xIb Given the amendment vide FA 2021, depreciation on goodwill will not be allowed as a deduction henceforth. When there is demerger of a business undertaking by a subsidiary company to its holding company, the holding company cannot issue shares to itself. 36.71.05. Retail drinks and hotels business Endeavour Group (ASX: EDV) will land on the Australian Securities Exchange (ASX: ASX) today following its demerger from Woolworths (ASX: WOW). The shareholders of the demerged company, under the scheme of demerger, would receive shares in the resulting company. Shares include equity shares and preference shares. But with Woolworths continuing to win the sales wars, I am sticking with the number one player. The amendments enacted vide FA 2021 are listed below: These amendmentsare applicable from AY 2021-22 onwards i.e., no depreciation shall be available on Goodwill forming part of the block of assets as on 1 April 2020. In the context of amalgamation, the said amendmentsuggest that where goodwill forms part of block of assets (of the amalgamated company) as on 1 April 2020 and the depreciation thereon has been claimed by the amalgamated company, then the written down value of such block of asset and the short-term capital gains (if any) upon transfer need to be determined in the prescribed manner [64] . Then click on the 'Tax consequences' tab at the bottom of the spreadsheet to view the income tax consequences of the demerger. Although you received units in SCA Property Management Trust and SCA Property Retail Trust and not cash, for tax purposes you received from Woolworths both: The dividend amount was $0.7097721 for every five Woolworths shares you owned on 30November 2012. In particular, the dependence on poker machines means that Endeavour will be off the buy list for some fund managers, while other existing holders will use the demerger to exit Endeavour now that they can. Here's what The shareholders of the transferor company (except when transferee company itself is a shareholder) receive shares of the transferee company in consideration of such transfer; and. A regular commentator in the media, investment advisor and company director, he is also a Non-Executive Director of Tyro Payments Ltd and PEXA Group Limited. She intends to sell them in future on-market. CIT v. Gautam Sarabhai Trust ([1988]173 ITR 216(Gujarat)) read with Supreme Courtruling in CIT v. Grace Collis[2001] 248 ITR 323 (SC). 7 Comment: Woolworths and Endeavour demerger. The result is the adjusted cost base of each of your Woolworths shares. company that is being spun out of Woolworths via a demerger, comprising the number 1 and number 2 retail drink brands in Dan Murphy's and BWS, and the largest hotel network in Australia. One early estimate is an enterprise value for Endeavour of close to $15bn. My bet: four weeks after the listing, Endeavour will be lower in price than where it first trades on the ASX, and 12 months later, higher in price. Some examples are: Incidental costs such as brokerage are included in the cost base. It must be noted that the definition of demerger has been amended by Finance (No. The demerger was effective on 1-7-2021. PDF Cr 2021/50 Woolworths shareholders back demerger as more . The controversy as to whether Goodwill of a business is an intangible asset eligible for depreciation was settled by the Honble Supreme Court (SC) in the case of Smifs Securities Ltd. The rules apply to demergers happening on or after 1 July 2002. As a result of which, the successor company is liable to pay taxes on income earned by predecessor on or after the appointed date. Because the cost base of the right to receive the stapled securities is nil, the capital proceeds (your total distribution amount) is your capital gain. // -->