The Government will modify the scrip for scrip capital gains tax (CGT) roll-over provisions for corporate restructures, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, announced today.
"The modifications, which will apply to arrangements entered into after today, will ensure that tax outcomes reflect the substance of the transaction and prevent companies from gaining significant unintended tax benefits by restructuring", Mr Bowen said.
"This measure will replace the former Government's announced changes to the consolidation rules following certain CGT roll-overs, which caused significant disruption to the operation of Australia's capital markets."
"The private sector has been consulted in the development of this measure. The measure will ensure that genuine commercial transactions which have been on hold since the former Government's announcement will now to able to proceed with certainty."
Further consultation with the private sector will be conducted during the development of legislation to implement this proposal.
Media Contact: James Cullen - 0409 719 879
Scrip for Scrip Roll-over Provisions and Corporate Restructures
The operation of the scrip for scrip CGT roll-over provisions will be modified if:
an entity (the acquiring entity) acquires membership interests of another entity (the target entity);
one or more shareholders dispose of their membership interests in the target entity and receive similar interests, or an entitlement to similar interests, in the acquiring entity (or its holding company);
the existing integrity rules in the scrip for scrip CGT roll-over provisions do not apply in respect of these membership interests; and
the arrangement is taken to be a restructure.
An arrangement will be taken to be a restructure if, under the arrangement, the market value of the net assets of the acquiring entity immediately before the arrangement is less than 20 per cent of the market value of its net assets immediately after the completion of the arrangement.
If the net assets of the acquiring entity immediately before the arrangement include membership interests in the acquiring entity that were subject to a previous application of this rule, the market value of the net assets of the acquiring entity immediately before the arrangement must be reduced by the market value of those membership interests.
To reduce compliance costs, consideration will be given to proxies that may be used to determine the market value of a company for these circumstances. For example, for listed companies, the quoted price of shares on a stock exchange may be a suitable proxy for market value in some circumstances.
If the acquiring entity acquires the membership interests of two or more target entities simultaneously under an arrangement, then the target entities will be taken to be acquired sequentially, in the order elected by the acquiring entity.
If an arrangement is taken to be, in substance, a restructure, the first element of the cost base and reduced cost base of the shares that the acquiring entity acquires in the target entity under the arrangement, other than shares acquired for cash, will be worked out having regard to the total of the cost bases of the target entity’s assets less its liabilities in respect of those assets rather than the market value of the shares.
Alternatively, the acquiring entity can make an election to prevent a scrip for scrip CGT roll-over from being available to original shareholders of the target entity who exchange their shares for shares in the acquiring entity (or its holding company). The election can be made without the acquiring entity determining whether an arrangement would otherwise be taken to be a restructure.
If the acquiring entity makes an election, the first element of the cost base and reduced cost base of the shares that it acquires in the target entity under the arrangement will be determined by applying the normal cost base rules.
If an arrangement involves a listed company, the measure will apply where an intention to undertake a corporate action by takeover bid or scheme of arrangement is announced by either party to an approved stock exchange after 7.30 pm (AEST) on 13 May 2008.
If an arrangement involves an unlisted company, the measure will apply to a corporate action by takeover bid or scheme of arrangement that is made to shareholders of the target company after 7.30 pm (AEST) on 13 May 2008.