The ideal M&A tax outcome - where shareholders can defer gains (or obtain franked dividends), and companies can avoid gains and increase deductions - was made possible by the various interactions between scrip-for-scrip roll-over, demerger relief, the tax consolidation regime and the imputation system. But has the Assistant Treasurer's press releases of 12 and 16 October 2007 irreparably changed things?
This presentation considers what has been possible where the right tax reliefs are used in the right order. It also considers some of the tender spots for such M&A transactions - old and new - like those raised by the Assistant Treasurer’s recent announcements, and like those associated with the different dividend strategies of the parties.
The presentation pays particular attention to the approaches the ATO has taken to such M&A transactions in its Class Rulings, with issues discussed including:
- the challenges of successfully employing scrip-for-scrip roll-over
- the use of back-to-back demerger and transfer schemes
- the possibility of pre-disposal dividends reducing capital losses under Dick Smith
- the denial of franking credits on pre-disposal dividends under related payment rules
- the possibility of assessable conversions to ordinary shares under McNeil
- the challenges of getting the capital–profit split correct for demerger distributions.