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SME demergers and capital returns


The ATO interpretation of the demerger rules has effectively put them beyond the reach of the vast majority of SME companies. This raises the questions: do the new small business roll-over rules (SBRR) provide an alternative means of achieving a similar outcome? Or of undertaking other share capital dealings in a more flexible manner than provided for by Div 16K of the Income Tax Assessment Act 1936? This article examines demerger relief, when SMEs satisfy the ATO tests, whether the SBRR allows an effective tax-free demerger and whether the safe harbour rules apply. The authors’ views are that a change of view from the ATO might be forthcoming to allow SMEs to utilise the SBRR and demerger provisions as freely as they use scrip-for-scrip transactions.

Author profiles

John Middleton CTA
John Middleton, CTA is part of the ATO’s Tax Counsel Network, where he works on complex technical advice, tax reform projects, and strategic litigation. Prior to this, he had over 20 years in the private sector as Special Counsel at Clayton Utz Brisbane specialising in revenue and commercial law. He practised in CGT, stamp duty, GST and general tax. While in private practice he was listed in Doyle’s and Best Lawyers in respect of tax matters. - Current at 16 July 2020
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Christine PALMER
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