Breaking down the recent Premier Investments and Myer transaction

The Premier Investments sale of Just Group to Myer for Myer shares and the subsequent distribution of those shares by Premier Investments is the first corporate carve-out transaction of this type since the introduction of the ‘equity funded dividend’ integrity rules in the tax legislation. In this article, we discuss the key tax considerations in this type of transaction.

In brief

• The Premier Investments sale of Just Group to Myer for Myer shares and the subsequent distribution of those shares by Premier Investments raises a number of tax issues for the company and shareholders.
   
• Early engagement with the ATO is key to successfully completing these types of transactions.

Premier Investments – Transaction Summary

The Australian Taxation Office recently issued Class Ruling (CR 2025/21) addressing the tax implications of Premier Investments Limited's  recent distribution of Myer Holdings Limited  shares to Premier shareholders.

The transaction was implemented through a two-step process completed on 6 February 2025:

• Step 1 - Share Exchange: Premier sold 100% of Just Group Limited  to Myer in exchange for 890,500,000 newly issued Myer shares (Consideration Shares). Just Group was the holding company for Premier's Apparel Brands business (Just Jeans, Jay Jays, Portmans, Jacqui-E, and Dotti).
   
• Step 2 - Distribution: Premier distributed all of its Myer shares (including both the newly acquired Consideration Shares and its pre-existing 31.16% stake) to Premier shareholders on a proportionate basis of approximately 7.2 Myer shares for every Premier share held.

The distribution was structured as:

• A return of capital component ($0.81 per Premier share); and
   
• A fully franked dividend component ($5.65 per Premier share).

The transaction was similar in structure to the BHP/Woodside/BHP Petroleum transaction in 2023 which saw BHP sell BHP Petroleum to Woodside in consideration of Woodside issuing new shares to BHP. BHP then distributed those Woodside shares to its shareholders as a fully franked distribution.

Key issues

There were a couple of key issues that arose in the Premier/Myer transaction.

Demerger relief not available

The ATO ruled that the transaction does not qualify as a "demerger" under subsection 125-70(1) of the Income Tax Assessment Act 1997. This meant:

1. Premier was taxable on the distribution of Myer shares (although it was inevitable that a tax event would occur on either transfer of the Just Group shares or the distribution – the ATO ruling states that Premier did not choose any tax roll-over relief for the initial transfer); and
    
2. for Premier shareholders, the dividend component was not a "demerger dividend" and therefore was fully assessable, but was frankable subject to satisfying various integrity provisions.

There isn’t an explanation as to why demerger relief was not available but most likely the ATO considered that Step 1 (Share Exchange) and Step 2 (Distribution) formed part of a single ‘restructuring’ and therefore Myer did not form part of the same ‘demerger group’ as Premier Investments before the ‘restructuring’ commenced, consistent with its views in Taxation Determination TD 2020/6 and the BHP/Woodside transaction.

Equity funded dividend provisions

Interestingly, the Class Ruling does not directly address whether the "equity funded dividend" integrity provisions apply to the dividend component. Those rules came into effect after the BHP/Woodside transaction.

In summary, these provisions can deem a dividend ‘unfrankable’ where:

1. The dividend is not consistent with an established practice of the entity of making distributions of that kind on a regular basis;
    
2. there has been an issue of equity interests in the entity or another entity at any time; and
    
3. it is reasonable to conclude in the circumstances that:
   1. the principal effect of the issue of any of the equity interests was to directly or indirectly fund a substantial part of the dividend; and
       
   2. any entity that issued or facilitated the issue of any of the equity interests did so for a purpose (other than an incidental purpose) of funding a substantial part of the dividend.

In the Premier/Myer transaction:

• Premier paid a special dividend;
   
• Myer issued new equity (the Consideration Shares); and
   
• Those Myer shares were distributed to Premier shareholders in part as a franked dividend

The ATO ruling that the dividend component was frankable implies that the ATO did not consider the Myer share issuance to have "funded" the Premier distribution, despite the apparent connection between the steps. However, the lack of an explanation leaves uncertainty for future transactions using similar structures.

Accordingly, early engagement with the ATO is a key to ensuring the success of these types of transactions.