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ED 2: Transfers of certain excepted financial arrangements within wholly-owned groups
or “Rules for transferring certain financial items between related companies”
You could also call this:

“Rules for when Australian companies give shareholders shares in their subsidiaries”

This law is about how to handle shares when an Australian company listed on the ASX gives some of its shares in a subsidiary company to its shareholders.

For this law to apply, the company giving out the shares must be listed on the ASX in Australia and must follow certain Australian tax rules. The company receiving the shares must be part of the same group as the company giving them out. The transfer of shares can’t be counted as income that can be taxed or that is free from tax under Australian law.

If you’re a shareholder and you get these new shares, you need to work out how much they cost you. There’s a special way to calculate this using maths formulas. These formulas look at the value of your old shares and your new shares to figure out the cost.

The law also talks about something called “available subscribed capital”. This is a special term used in tax law. After the share transfer, the amount of available subscribed capital for the new shares you get might be zero, or it might be calculated using another part of the tax law called section CD 43. The available subscribed capital for your old shares will be reduced by the amount given to the new shares.

It’s important to know that when you get these new shares, it’s not counted as a dividend. This means you don’t have to pay tax on it as if it were income.

The law gives a detailed definition of what counts as an “ASX-listed Australian company”. This includes rules about where the company must be based and what kind of tax agreements it needs to follow.

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Next up: ED 3: Part-year tax calculations for transfers: general insurance OCR

or “How to calculate tax when insurance contracts are transferred mid-year”
Next

Part E Timing and quantifying rules
Valuation of excepted financial arrangements

ED 2BTransfers to shareholders by ASX-listed Australian company of shares in subsidiary

  1. This section applies when—

  2. a company (the splitting company) is an ASX-listed Australian company under subsection (8); and
    1. shares in a company (the subsidiary) that is a member of the same group of companies as the splitting company (the group), are issued or transferred (the share transfer) to—
      1. shareholders of the splitting company or of a company that is a member of the group:
        1. a member of the group; and
        2. the subsidiary is a member of the group immediately before the share transfer; and
          1. the share transfer is not a payment of assessable income or exempt income under the Income Tax Assessment Act 1936 (Aust).

            1. Repealed

            2. The cost for a shareholder of the shares in the splitting company that are held by the shareholder after the share transfer is the amount calculated using the formula—

              cost before transfer × value after transfer ÷ (value acquired shares + value after transfer).

              Where:

              • The cost for a shareholder of the shares acquired in the share transfer is the amount calculated using the formula—

                cost before transfer × value acquired shares ÷ (value acquired shares + value after transfer).

                Where:

                • In the formulas in subsections (3) and (4),—

                • cost before transfer is the cost for the shareholder, immediately before the share transfer, of the shares in the splitting company held by the shareholder immediately after the share transfer:
                  1. value after transfer is the market value of the shares in the splitting company held by the shareholder immediately after the share transfer:
                    1. value acquired shares is the market value of the shares in the subsidiary held by the shareholder immediately after the share transfer.

                      1. Immediately after the share transfer, the available subscribed capital,—

                      2. for each share held in the subsidiary, is—
                        1. the amount given by section CD 43 (Available subscribed capital (ASC) amount) for the share; or
                          1. zero, if it is impractical to recognise an amount of available subscribed capital for the shares held in the subsidiary:
                          2. for the shares held in the splitting company, equals the amount of the available subscribed capital for the shares in the splitting company held immediately before the share transfer, reduced by the total amount given by paragraph (a) for the shares held in the subsidiary immediately after the share transfer.

                            1. The transfer of the shares in the subsidiary to the shareholders in the splitting company is not a dividend.

                            2. ASX-listed Australian company means a company that—

                            3. is resident in Australia; and
                              1. is treated as resident in no tax jurisdiction other than Australia under each agreement that—
                                1. is between Australia and another tax jurisdiction; and
                                  1. would be a double tax agreement if negotiated between New Zealand and the other tax jurisdiction; and
                                  2. is included on the official list of ASX Limited, a market licensee under Chapter 7 of the Corporations Act 2001 (Aust); and
                                    1. is not an entity described in schedule 25, part B (Foreign investment funds); and
                                      1. is required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.

                                        Notes
                                        • Section ED 2B: inserted, on (with effect on 1 April 2016 and applying for the 2016–17 and later income years), by section 65(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                        • Section ED 2B(1)(b): replaced (with effect on 1 April 2016), on , by section 163(1) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                        • Section ED 2B(1)(c): replaced (with effect on 1 April 2016), on , by section 163(1) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                        • Section ED 2B(2): repealed (with effect on 1 April 2016), on , by section 163(2) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                        • Section ED 2B(8)(c): replaced, on (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 65(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                                        • Section ED 2B list of defined terms group of companies: inserted (with effect on 1 April 2016), on , by section 163(3) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).