9 June 2009 - 14 September 2010
Reforms to Capital Gains Tax to Make It Easier for Businesses to Restructure
The Assistant Treasurer, Senator Nick Sherry, tonight announced that the Government will introduce legislation to make amendments to the capital gains tax (CGT) provisions to improve the ability for businesses to restructure.
The Government will:
- extend the CGT roll-over for the conversion of a body to an incorporated company;
- broaden the range of CGT roll‑overs where entities can use a share or interest sale facility for foreign residents in a restructure; and
- allow CGT demerger relief for demerger groups that include corporations sole or complying superannuation entities that currently cannot access the relief.
"These changes will allow more businesses to restructure and are in line with the Government's commitment to promoting flexibility for business," the Assistant Treasurer said.
Extension of the CGT Roll-over for Conversion of a Body to an Incorporated Company
The roll-over will now allow Indigenous incorporated bodies to convert to a company incorporated under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) without immediate CGT consequences. Also, Indigenous companies will be able to move between the Corporations Act 2001 and the CATSI Act without CGT consequences.
The roll-over has also been made more flexible to better accommodate business practices. This caters for situations where bodies are wound up and subsequently reincorporated and also allows for taxpayers to receive shares on incorporation to reflect all of the interests and rights they held in the original body.
To make sure that companies reincorporating are not disadvantaged by tax consequences, the roll-over will cover any gains or losses realised by the original entity when it ceases to own its CGT assets, trading stock and depreciating and revenue assets that then become assets of the newly incorporated entity as part of the reincorporation.
"This will provide more flexibility for businesses that are reincorporating," the Assistant Treasurer said.
Broadening access to CGT roll-overs where share or interest sale facilities are used
The Government will allow Australian interest holders access to a broader range of CGT roll‑overs where an entity restructures using a share or interest sale facility for foreign interest holders.
Currently, where a business restructures and it uses a share or interest sale facility for foreign interest holders, Australian resident interest holders are unable to access some CGT roll‑overs.
This change will allow entities undertaking certain restructures to use a share or interest sale facility for dealing with the interests of foreign residents without automatically failing the ownership proportion tests in the applicable roll-over while ensuring that ownership requirements are appropriately maintained.
"This measure will make it more attractive for certain entities with foreign investors to restructure," the Assistant Treasurer said.
"Currently some of these entities can be reluctant to restructure because their Australian investors face immediate CGT consequences and could even have to sell their interest to meet any CGT liability."
Extension of CGT Demerger Relief for Certain Demerger Groups
The Government will amend the CGT demerger relief provisions so that demerger groups which currently include corporations sole or complying superannuation entities can benefit from the CGT demerger roll-over. This will be done by allowing another entity to be the head entity of such demerger groups.
"This will remove a current defect in the CGT legislation that has prevented these groups from accessing CGT demerger relief," the Assistant Treasurer said.
"This measure will make it possible for a wider range of business restructures to result by expanding the scope of entities that can benefit from the roll‑over."
"In certain circumstances they will be able to restructure their underlying ownership interests without adverse tax consequences."
The three measures will apply to CGT events happening after 7.30 pm (AEST) on 11 May 2010.
Initial consultation will be undertaken on the design of these tax amendments with a consultation paper providing further information about these measures available at www.treasury.gov.au.
The Government will also release an exposure draft of the legislation at a later date.
11 May 2010