The Government will make improvements to the capital gains tax (CGT) regime which will benefit investors in shares and other securities and which will complement the new superannuation safety arrangements, the Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, announced today.
Worthless shares and other securities declaration
The first of these improvements will simplify the capital gains tax rules to allow any insolvency practitioner to declare shares and other securities in a company to be worthless for CGT purposes.
Such a declaration will be welcomed by shareholders because it causes a CGT event to occur and permits them to choose to make a capital loss in respect of their shares.
Currently, only a liquidator can declare shares in a company to be worthless for CGT purposes. If the declaration is made by an external administrator other than a liquidator, a CGT event does not occur and, consequently, shareholders cannot choose to make a capital loss while the company continues to exist. Instead, they must create a trust over the shares if they wish to utilise their capital losses and incur any associated costs.
“Shareholders and other security holders will now be able to claim a capital loss once the insolvency practitioner makes the relevant declaration and will not have to incur the cost of establishing a trust. This will assist shareholders to close the book on worthless investments earlier and will remove a disincentive to investing in shares and securities,” Senator Coonan said.
The measure will apply to declarations made by insolvency practitioners after the date of Royal Assent of the enabling legislation.
Rollover on transition to the new superannuation safety arrangements
The second improvement will change the CGT rules to provide an automatic CGT roll-over for mergers of superannuation funds that happen as a result of new licensing requirements for trustees under the Government’s new superannuation safety arrangements.
Currently, CGT taxing points are likely to occur when superannuation funds merge, resulting in capital gains or losses being realised earlier than would have been the case if the funds did not merge. The changes ensure that superannuation entities that merge as a consequence of complying with the new licensing requirements will not have a CGT liability at the time of the merger. Rather, the CGT liability will arise on the subsequent disposal of the assets by the successor entity. The measure will also ensure that no CGT consequences arise for members of the superannuation entities that merge.
“The measure will help to ensure that there is a seamless transition to the new superannuation safety arrangements by making it easier for mergers of funds to occur without detriment to fund members,” Senator Coonan said.
The roll-over will apply to relevant CGT taxing points that happen during the superannuation safety two-year transition period, starting from 1July2004.