AMP Group Demerger - tax implications for New Zealand shareholders (May 2004)
QB (May 2004) clarifies the NZ dividend consequences for NZ resident AMP shareholders in relation to the proposed demerger and the status of their HHG shares.
AMP Limited ("AMP") has announced a proposal to separate its businesses and spin off its current holding in HHG plc ("HHG") (previously called AMP (UK) plc) to its shareholders under a scheme of arrangement to be approved by the Australian Courts ("proposed Demerger"). HHG will hold the UK asset management and various UK life and pension businesses. The proposed Demerger is set out in detail in an Explanatory Memorandum dated on 16 October 2003 and forwarded to all shareholders for consideration ("Explanatory Memorandum").
The proposed Demerger involves the cancellation of a number of shares held by existing shareholders in AMP in consideration for amounts becoming payable to them by AMP ("Cancellation Entitlements"), which will in turn be used to acquire new shares in HHG. The shareholders may then retain or sell the shares in one or both companies.
This statement is intended to clarify the New Zealand dividend consequences for New Zealand resident shareholders of AMP in relation to the proposed Demerger and the status of HHG shares issued to the shareholders under the proposed Demerger. Inland Revenue officers, taxpayers, and practitioners may not rely on this statement to determine the tax treatment of other transactions involving share restructuring or demergers.
On the basis of the information provided by AMP, including the Explanatory Memorandum, and on certain specific conditions advised to AMP, the Commissioner has concluded the following about the proposed Demerger. Unless otherwise stated, all statutory references are to the Income Tax Act 1994.
Will any part of the Cancellation Entitlements payable to AMP shareholders by AMP as a result of the cancellation of AMP shares upon the proposed Demerger constitute a dividend for New Zealand tax purposes?
The Cancellation Entitlements arising out of the cancellation of AMP shares will be excluded from being dividends under section CF 2 for New Zealand tax purposes, by virtue of section CF 3(1)(b).
Do the new HHG shares issued to AMP shareholders constitute dividends for New Zealand tax purposes?
The Commissioner has concluded that the allotment of the HHG shares is not itself a dividend derived by AMP shareholders under section CF 2.
Are the HHG shares issued to shareholders of AMP, as a result of the proposed Demerger, acquired on capital account by those shareholders who held their cancelled AMP shares on capital account at that time?
The Commissioner is satisfied that the HHG shares issued to AMP shareholders will be acquired on capital account by the shareholders who held their cancelled AMP shares on capital account at the time of the proposed Demerger. Conversely, if held as revenue account property, e.g. as with trading stock, the new HHG shares should be regarded as having the same status.
These conclusions are contingent on:
- the proposed Demerger being undertaken on the terms set out in the Explanatory Memorandum and other information provided to Inland Revenue; and
- compliance by AMP with certain conditions and obligations, which have been advised by Inland Revenue to AMP.
As these technical requirements cannot be confirmed until the proposed Demerger proceeds, Inland Revenue expects to publish a follow up item in the Tax Information Bulletin to confirm the conclusions stated above, after that time.
This statement does not consider the tax implications of the Reset Preferred Securities Preference Share Cancellations, or the subsequent AMP Rights Offer referred to in the Explanatory Memorandum. The application of sections CD 3, CD 4, and CD 5 to particular taxpayers are also outside the scope of this item.
This statement is to be distinguished from the item on "Company Restructuring: Demergers and Spin-outs" in the Tax Information Bulletin Volume 15, No 6 (June 2003), which dealt with certain other Australian company demergers, where the tax outcome was different.