Binding Private Ruling 362

Summary of the corporate structure:

The shareholders of ABC Limited were, inter alia:

(i) Discretionary trust 1 and discretionary trust 2, collectively “the old trusts”; and

(ii) Discretionary trust 3 and discretionary trust 4, collectively “the new trusts”.

The shares held by the old and new trusts consisted of:

(i) allocated shares - those shares allocated to employees from 1 March 2016 onwards, but held by the trusts on their behalf; and

(ii) unallocated shares - those shares held in the names of the trusts, not yet allotted to employees.

The old trusts also hold cash from dividends received in respect of unallocated shares and interest earned.

Proposed transaction:

The old trusts will transfer all the shares as well as any remaining cash to the new trusts which will assume the obligations of the old trusts.

Ruling:

In respect of the allocated shares and unallocated shares –

i) The transfer of the shares by the old trusts to the new trusts will result in disposals for purposes of CGT for the old trusts.

ii) Paragraph 38 will apply to the disposals by the old trusts to the new trusts and the -

• proceeds for the old trusts; and
• base costs for the new trusts

will be the market values of the shares on their respective dates of disposal.

iii) The transfers of the shares by the new trusts to participating employees, upon the vesting of those shares for purposes of section 8C, will result in disposals under paragraph 13(1)(a)(iiB) by the new trusts.

In respect of the transfer of the cash reserves by the old trusts to the new trusts  –

iv) The amounts received by the new trusts will be of a capital nature and will therefore not constitute “gross income” as defined in section 1(1).

Neither the transfer of the cash reserves nor shares would constitute donations as defined in section 55(1).

Find a copy of BPR 362 here.

​12/06/2021