Andromeda Metals : ATO Class Ruling

For personal use only

Class Ruling

CR 2022/61

Status: legally binding

Class Ruling

Minotaur Exploration Ltd - reduction of share capital and scrip for scrip roll-over

Relying on this Ruling

This publication is a public ruling for the purposes of the Taxation Administration Act 1953.

If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling.

What this Ruling is about

1. This Ruling sets out the income tax consequences for the holders of ordinary shares in Minotaur Exploration Ltd (Minotaur) who received:
2. • a reduction of share capital from Minotaur by way of a transfer of shares in Demetallica Limited (Demetallica) on 3 February 2022 (Implementation Date), and/or
   • shares in Andromeda Metals Limited (Andromeda) in exchange for their shares in Minotaur.
3. Full details of the scheme are set out in paragraphs 43 to 74 of this Ruling.
4. All legislative references in this Ruling are to the Income Tax Assessment

Act 1997, unless otherwise indicated.

Note: By issuing this Ruling, the ATO is not endorsing this scheme. Participants must form their own view about the scheme.

Who this Ruling applies to

4. This Ruling applies to you if you:

• either
• • held shares in Minotaur at 5:00 pm Australian Central Standard Time on 27 January 2022 (the Record Date for the reduction of share capital), and/or
  • acquired Andromeda shares as consideration for the disposal of your Minotaur shares to Andromeda,

For personal use only

Class Ruling

CR 2022/61

Status: legally binding

• were either
• • a resident of Australia as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), or
  • a non-resident (other than a non-resident who carried on a business at or through a permanent establishment in Australia), and
• held your shares on capital account - that is, you did not hold your shares in Minotaur as revenue assets (as defined in section 977-50) or as trading stock (as defined in subsection 995-1(1)).

5. This Ruling does not apply to anyone who is subject to the taxation of financial arrangements rules in Division 230 in relation to the scheme outlined in paragraphs 43 to 74 of this Ruling.

Note: Division 230 will not apply to individuals unless they have made an election for it to apply.

When this Ruling applies

6. This Ruling applies from 1 July 2021 to 30 June 2022.

Ruling

Reduction of share capital by Minotaur Exploration Ltd

Demerger relief is not available

7. Demerger relief (being demerger roll-over pursuant to Division 125 and demerger dividend treatment under subsections 44(3) and (4) of the ITAA 1936) is not available as the scheme does not satisfy the requirements of a 'demerger' as defined in section 125-70. This is because the restructuring of the demerger group (of which Minotaur was the head entity) included both the reduction of share capital by Minotaur (under which you acquired shares in Demetallica) and the acquisition of Minotaur shares by Andromeda (under which you acquired shares in Andromeda). This resulted in the failure of the 'nothing else' condition in paragraph 125-70(1)(c).

Reduction of share capital is not a dividend

1. The reduction of share capital you received (which was satisfied by the transfer of shares in Demetallica to you) is not a dividend as defined in subsection 6(1) of the ITAA 1936.
2. The reduction of share capital you received (which was satisfied by the transfer of shares in Demetallica to you) is not included in your assessable income as ordinary income under section 6-5.

Specific anti-avoidance provisions do not apply to deem an assessable dividend

10. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in relation to the whole, or a part, of the capital benefits provided to you under the reduction of share capital. This is because

For personal use only

Class Ruling

CR 2022/61

Status: legally binding

there was no streaming of the provision of capital benefits and the payment of dividends to the shareholders of Minotaur (subsection 45A(1) of the ITAA 1936).

11. The Commissioner will not make a determination under paragraph 45B(3)(b) of the ITAA 1936 that section 45C of the ITAA 1936 applies to the whole, or any part, of the capital benefit provided to you under the reduction of share capital. This is because the purpose condition in paragraph 45B(2)(c) of the ITAA 1936 was not satisfied.

CGT event G1

1. CGT event G1 happened when you were paid an amount by Minotaur in respect of each Minotaur share you owned on the Record Date and continued to own on the Implementation Date, by way of the transfer to you of Demetallica shares
   (section 104-135).
2. You made a capital gain from CGT event G1 happening if the amount of the reduction of share capital for a Minotaur share (2.06 cents) is more than the cost base of the Minotaur share. If so, the capital gain is equal to the excess, and the cost base and reduced cost base of your Minotaur shares will be reduced to zero
   (subsection 104-135(3)).
3. You cannot make a capital loss from CGT event G1 happening (Note 1 to subsection 104-135(3)).
4. If the amount of the reduction of share capital for a Minotaur share (2.06 cents) is not more than the cost base of the Minotaur share, the cost base and reduced cost base of the Minotaur share is reduced by the amount of the reduction of share capital (but not below nil) (subsection 104-135(4)).

CGT event C2

1. CGT event C2 happened if you owned Minotaur shares on the Record Date but ceased to own them prior to the Implementation Date (section 104-25).
2. CGT event C2 happened because, by ceasing to own a Minotaur share after the Record Date but before the Implementation Date, you retained the right to receive the reduction of share capital (which is a separate CGT asset from the share in Minotaur). When the reduction of share capital was satisfied by the transfer of shares in Demetallica to you, the right to receive the reduction of share capital (being an intangible CGT asset) ended by the right being discharged or satisfied (paragraph 104-25(1)(b)).
3. You received capital proceeds of 2.06 cents for each Minotaur share under CGT event C2 (paragraph 116-20(1)(a)).
4. You made a capital gain when CGT event C2 happened equal to the amount of the capital proceeds as you did not pay, and were not required to pay, for the right to receive the reduction of share capital (subsection 104-25(3)).

Discount capital gain

20. You can treat a capital gain made when CGT event G1 or CGT event C2 happened as a discount capital gain if you acquired your Minotaur share at least 12 months before the Implementation Date (subsection 115-25(1)), provided the other conditions in Subdivision 115-A are satisfied.

For personal use only

Class Ruling

CR 2022/61

Status: legally binding

Cost base and reduced cost base of your Demetallica Limited shares

21. The first element of the cost base and reduced cost base of each Demetallica share you acquired is the amount of the reduction of share capital (2.06 cents) which was applied on your behalf by Minotaur for you to acquire the Demetallica share (subsections 110-25(2) and 110-55(2)).

Foreign-resident shareholders

22. If you were a foreign resident or the trustee of a foreign trust for CGT purposes as defined in subsection 995-1(1) on the Implementation Date, you can disregard any capital gain made from CGT event G1 in relation to your Minotaur shares, or any capital gain made from CGT event C2 in relation to your right to receive the reduction of share capital, pursuant to section 855-10, unless:

• you have used your Minotaur share, or right to receive the reduction of share capital, at any time in carrying on a business through a permanent establishment in Australia (table item 3 of section 855-15), or
• you are an individual and your Minotaur share, or right to receive the reduction of share capital, was covered by subsection 104-165(3) (table item 5 of section 855-15).

Disposal of Minotaur Exploration Ltd shares

CGT event A1

1. CGT event A1 happened when you disposed of your Minotaur shares to Andromeda (section 104-10).
2. If you accepted Andromeda's offer to acquire all of your Minotaur shares (the Offer) before the Offer became unconditional, CGT event A1 happened when the Offer became unconditional on 7 February 2022 (paragraph 104-10(3)(a)).
3. If you accepted the Offer on or after the date when the Offer became unconditional, CGT event A1 happened when you accepted the Offer (paragraph 104-10(3)(a)).
4. If your Minotaur shares were compulsorily acquired, CGT event A1 happened when those shares were compulsorily acquired by Andromeda (subsection 104-10(6)).
5. The time of CGT event A1 is relevant in determining your capital proceeds for each Minotaur share. The capital proceeds from a CGT event are the total of the money, and the market value of any property, you received or are entitled to receive. The market value of property is worked out as at the time the CGT event happens (subsection 116-20(1)).
6. You must determine the market value of an Andromeda share at the time CGT event A1 happened to you.
7. The Commissioner will accept as the market value of an Andromeda share the closing price of an Andromeda share on the Australian Securities Exchange (ASX) on the day that you accepted the Offer (as long as it is on or after 7 February 2022, when the Offer became unconditional) or the day on which your shares in Minotaur were compulsorily acquired by Andromeda.
8. You made a capital gain from CGT event A1 happening if the capital proceeds from the disposal of your Minotaur shares exceed their cost base (subsection 104-10(4)). The capital gain is the amount of the excess.