Australia: “Rollover” relief applied to “top hatting” reorganization (Full Federal Court decision)

The Full Federal Court on March 7, 2025, held in AusNet Services Limited v Commissioner of Taxation [2025] FCAFC 21 that “rollover” relief under Division 615 of the Income Tax Assessment Act 1997 (Cth) (ITAA97) applied to the taxpayer's “top hatting” reorganization.

Division 615 allows a member of a company or trust to disregard a capital gain or capital loss from a share or unit that is disposed of, redeemed, or cancelled as part of a “top hatting” reorganization in which the member becomes the owner of new shares in an interposed company, which subsequently becomes the owner of the relevant securities in the original entity, in exchange.

In particular, the court found:

• It is not necessary that the interposed company in a qualifying “top hatting” reorganization be a “shelf company” (i.e., a company of nominal value).
• The ratio requirement in subsection 615-20(2) of ITAA97 is tested based on reference only to shares in the interposed company issued under the reorganization (and not taking into account shares in the interposed company that may have already been held prior to the reorganization).
• Any boost in the value of existing shares in the interposed company as a result of the reorganization is not taken into account in determining whether the ratio requirement is met.

For more information, contact a KPMG tax professional in Australia:

Kristie Schubert | kschubert3@kpmg.com.au

Matt Ervin | mattervin@kpmg.com.au

Shirley Lam | slam1@kpmg.com.au

James Macky | jmacky@kpmg.com.au