The capital gains tax (CGT) scrip for scrip roll-over provisions became law today when the New Business Tax System (Capital Gains Tax) Bill 1999 received Royal Assent. The roll-over ensures, with effect from today, that an equity holder who exchanges shares or other equity for new equity in a takeover or merger can defer a capital gain arising from the exchange.
The Bills explanatory memorandum indicated that the Government was examining options for dealing with the cost base of assets acquired by an interposed entity as part of the takeover or merger.
Legislation to give effect to the cost base rules for assets acquired by the interposed entity from the exchanging taxpayer will be introduced as soon as possible following consultation. They will recognise, as do the scrip for scrip rollover rules in other countries, that a market value cost base is generally not appropriate given that a capital gain is not recognised in a full scrip for scrip exchange.
The Government recognises that a cost base transfer between original equity holders and the acquiring entity can give rise to compliance costs, especially where the target company is widely held. The cost base rules will strike an appropriate balance between the need to maintain the integrity of the scrip for scrip measures and the need to avoid unnecessary compliance costs.
The Government is also considering submissions on other aspects of the scrip for scrip roll-over provisions (for example, in relation to schemes of arrangement, and in relation to the structure of the offer). A further announcement will be made following that review.
10 December 1999