Demergers, which do not involve a distribution of income, should not, in principle, give rise to taxation consequences.A “demerger”, or company split, describes the situation when a company (or a group of companies) splits off part of itself and distributes that part to its shareholders.The current tax treatment is a problem if the demerger is, in substance, the division of a corporate group rather than a distribution of income.Following the demerger, the shareholders still have the same proportionate interests in the same underlying assets.
For example: Further, a dividend arising from a demerger will only be taxable if the demerging company is a New Zealand resident, or if the demerging company is a non-resident and the shareholder is not subject to the FIF rules.
In the latter situation, this is the case if: Officials note that Australian companies are less inclined to take into account the tax treatment of their minority New Zealand shareholders to prevent dividend treatment when carrying out a demerger.
Australian shareholders are generally not taxed on these transactions under Australian tax law, subject to specific anti-avoidance rules not applying.
The effect of the demerger is that shareholders, instead of having one shareholding in the company, have two different shareholdings in separate companies and the shares can be traded separately.
A demerger is generally undertaken by a company when its value is less than the sum of its constituent parts.
The Bill addresses, in a timely manner, the problem in practice.