Tower Limited Spin-off - tax implications for New Zealand shareholders (April 2005)

TOWER Limited ("TOWER") has recently, in February 2005, sold its Australian Wealth Management businesses to a new company called Australian Wealth Management Limited ("AWM") and offered TOWER shareholders a direct interest in AWM under a scheme of arrangement ("the Spin-off"). The arrangement is described in full in TOWER's Scheme Book, "Proposal to Separate Australian Wealth Management Limited from TOWER Limited and Offers of Shares and Entitlements in Australian Wealth Management Limited", dated on 1 December 2004 and forwarded to all shareholders for consideration ("Scheme Book").

The Spin-off involved the cancellation of a number of shares held by existing shareholders in TOWER in consideration for the distribution by TOWER of the shares it holds in AWM. Following the Spin-off, shareholders hold interests in both TOWER and AWM.

This statement is intended to clarify the New Zealand dividend consequences for shareholders of TOWER in relation to the Spin-off and the status of AWM shares issued to the shareholders under the Spin-off as a result of the cancellation of TOWER shares. This statement is not intended to have any application to the subsequent rights issue made by AWM or the shares that may be acquired as a result of the rights issue. 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 TOWER, including the Scheme Book, and on certain specific conditions advised to TOWER, the Commissioner has concluded the following about the Spin-off. Unless otherwise stated, all statutory references are to the Income Tax Act 1994 [references in boxed parenthesis are to the Income Tax Act 2004 where this applies to a particular taxpayer].

Question 1

Did any part of the distribution of the AWM shares to TOWER shareholders by TOWER as a result of the cancellation of TOWER shares upon the Spin-off constitute a dividend for New Zealand tax purposes?

The receipt of the AWM shares which arose out of the cancellation of TOWER shares will be excluded from being dividends under section CF 2 [CD 3] for New Zealand tax purposes, by virtue of section CF 3(1)(b) [CD 14].

Question 2

Were the AWM shares distributed to shareholders of TOWER, as a result of the cancellation of the TOWER shares, acquired on capital account by those shareholders who held their cancelled TOWER shares on capital account at that time?

The Commissioner is satisfied that the AWM shares distributed to TOWER shareholders were acquired on capital account by the shareholders who held their cancelled TOWER shares on capital account at the time of the Spin-off. Conversely, if the TOWER shares were held as revenue account property, e.g. as trading stock, the new AWM shares should be regarded as having the same status.

This statement does not consider the application of sections CD 3 [CB 1], CD 4 [CB 3, CB 4], and CD 5 [CA 1]

This statement is to be distinguished from the item on "Company Restructuring: Demergers and Spin-outs" in the Tax Information Bulletin Vol 15, No 6 (June 2003), which dealt with certain Australian company demergers, where the tax outcome was different.