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Restructuring of a corporate or fixed trust group by splitting into groups is known as demerger. Stockholders in the parent company (or “head entity”) get direct ownership from indirect access in an entity with the help of demerger form of restructuring.
The government announced CGT and dividend tax relief on businesses restructured by the form of demerging from 1 July 2002. To be qualified for this tax relief while you will lodge tax return online in Australia following tests need to be satisfied:

  • 80% test: The head company must demerge at least 80% of the interests in the demerged entity;
  • Nothing else test: To pass this test the head entity must obtain a new interest in the demerged entity and nothing else;
  • Same entity type test: The demerged entity and head entity should be the same type of entity;
  • Maintenance of ownership test: This test requires that after the demerger each owner’s:  
  1. proportion of new interests owned in the demerged entity should be same as previously owned interests in head entity;
  2. total market value of ownership interests in demerged entity should be same as previously owned market value of head entity.

In working out whether the proportional ownership tests have been satisfied, the following types of interests may be ignored: 

  1. certain qualifying partly paid shares or rights acquired under an employee share scheme if they total no more than 3% of the ownership interests in the head entity;
  2. certain adjusting instruments in listed entities (for example, reset preference shares or convertible notes) if the total is no more than 10% of the ownership interests in the head entity
  • Residency test: To pass this test in the head entity more than 50% for the interests need to be owned by Australian residents.

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