Reverse Morris Trust in Australia: 2025 Strategy Guide

The Reverse Morris Trust (RMT) is quickly gaining traction in Australia’s corporate playbook. Long favoured in the US for its tax-efficient approach to mergers, RMT structures are now influencing how Australian companies handle spin-offs and divestitures. With tax policy tightening and dealmaking rebounding in 2025, understanding the Reverse Morris Trust is more critical than ever for CFOs, shareholders, and deal advisors.

What Is a Reverse Morris Trust?

A Reverse Morris Trust is a sophisticated transaction that allows a parent company to divest a subsidiary in a tax-efficient way by merging it with another company. The structure was named after a 1966 US tax case but has become relevant in Australia, especially as local firms look to emulate global best practices amid stricter ATO scrutiny on capital gains and restructuring.

• Step 1: A parent company spins off a subsidiary to its shareholders, creating a separate, independent entity.
• Step 2: That new entity merges with a target company.
• Step 3: The original shareholders of the parent must control more than 50% of the merged company to qualify for tax benefits.

Why the fuss? If structured correctly, the RMT lets companies sidestep capital gains tax (CGT) on the divested business, freeing up capital for growth or debt reduction.

RMT Structures in Australia: 2025 Policy Landscape

The Australian Taxation Office (ATO) has tightened its stance on corporate tax avoidance and cross-border deals in 2025. However, RMTs—if implemented transparently—remain one of the few legitimate ways to unlock tax savings on major divestitures. The ATO’s 2025 guidance on business restructures highlights RMTs as permissible, provided the primary intent is not tax avoidance but genuine business realignment or synergy creation.

Recent examples include:

• Telstra’s InfraCo Spin-Off (2024): While not a textbook RMT, Telstra’s divestment of its infrastructure arm was closely watched by dealmakers as a precursor to more sophisticated tax-efficient structures.
• Mining Sector Consolidation: Several mid-cap miners are exploring RMT-style mergers to streamline portfolios while deferring hefty CGT bills.

These moves are catalysed by the 2025 Budget’s emphasis on encouraging corporate efficiency and innovation, with specific carve-outs for transactions that promote industry consolidation or digital transformation.

Key Benefits and Risks of Reverse Morris Trust Deals

RMT transactions can unlock significant value—but only with meticulous planning. Here’s what Australian executives and investors should consider:

• Tax Deferral: The main attraction is deferring or avoiding CGT on the asset sale, provided the 50%+ ownership test is met.
• Strategic Flexibility: RMTs allow companies to exit non-core assets without flooding the market with shares or triggering a taxable sale.
• Shareholder Value: By keeping deals tax-neutral, more value flows to shareholders instead of the ATO.
• Regulatory Scrutiny: The ATO is monitoring these deals closely. Any hint of artificiality or primary tax avoidance intent could see the transaction challenged.
• Complexity and Costs: Legal, financial, and compliance costs are high. RMTs are not for the faint-hearted or small-scale divestitures.

How to Spot RMT Opportunities in 2025

With deal activity rebounding and boardrooms under pressure to deliver returns, here’s where RMTs are likely to be most relevant in Australia this year:

• Conglomerates Rationalising Portfolios: Diversified groups seeking to focus on core businesses while minimising tax leakage.
• Tech and Infrastructure Spin-Offs: As digital assets become more valuable, separating them through RMTs can unlock latent shareholder value.
• Industry Consolidation: Sectors like mining, healthcare, and energy are hotbeds for mergers, where RMTs can smooth the path for asset swaps or bolt-on acquisitions.

To capitalise on these opportunities, companies need to act early—RMTs take months to structure and require close collaboration between tax, legal, and strategy teams. The 2025 market is rewarding those who move quickly, but also punishing mistakes with hefty tax bills or regulatory pushback.

Conclusion: The RMT Edge in a Competitive Market

The Reverse Morris Trust is no longer just a curiosity from American dealmaking. In 2025, it’s a powerful tool for Australian corporates seeking to re-engineer portfolios, drive growth, and deliver shareholder value in a tax-smart way. But it’s a high-stakes game—success hinges on clear strategic intent, robust compliance, and a deep understanding of the new ATO rules.