What attracts the ATO's attention - Part 3


Following on from last month's newsletter, we look into the specific behaviours, characteristics and tax issues that attract the ATO's attention.

In this issue, we consider Demergers

A demerger is a restructure of a corporate group, which was previously held by a head entity, to an ungrouped form. This involves a shift in ownership of the subsidiary entities from the head entity to the ultimate shareholders. There is a risk that taxpayers may inappropriately obtain the CGT rollover concession and the dividend exemption that is provided by the demerger legislation.


The demerger provisions offer CGT and income tax relief at both the entity and shareholder level. This tax relief is intended for genuine demergers that offer business benefits through restructuring and are not being pursued merely to achieve a tax benefit.                      

What attracts the ATO's attention:
  • inappropriately obtaining CGT rollover concessions via a corporate restructure that does not satisfy the demerger requirements
  • obtaining the dividend concession in circumstances where the demerger is undertaken for the purpose of obtaining a tax benefit rather than for the purpose of improving business efficiency
  • eliminating or significantly reducing otherwise assessable capital gains and/or dividends.                   
Moreover, the shareholders of the parent of the demerging group should:
  • receive the same proportional interest in the demerged subsidiary
  • acquire as new interests at least 80% of the group's ownership interests in the demerged entity
  • acquire nothing other than their new interests in the demerged entity
  • hold the same proportion of interest pre- and post-demerger
  • ensure the capital and profit elements of the demerger allocation reflect the circumstances of the demerger.
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