The Assistant Treasurer, Senator Rod Kemp, today announced that the Government will be introducing amendments to ensure that participants in insurance company demutualisations obtain capital gains tax (CGT) rollover relief for the shares acquired from the demutualisation that are exchanged for replacement shares in a scrip-for-scrip transaction.
The scrip-for-scrip rollover provisions were introduced as part of the Governments New Business Tax System, and allow capital gains tax (CGT) rollover where original equity interests in one entity are exchanged for replacement equity interests, typically because of a takeover. This rollover defers recognition of any capital gain until the replacement equity interests are disposed of.
The insurance demutualisation provisions in the income tax law at present do not adequately deal with situations where, as part of a demutualisation:
- a trust is established to hold shares on behalf of members who cannot be located at the time of the demutualisation; and
- the demutualisation shares are exchanged for replacement shares before the trustee transfers the shares to members, once they have been identified and verified.
Under the current law, in these circumstances there is a CGT event when the trustee transfers the replacement shares to the member.
The income tax law will be amended to ensure that CGT rollover relief is available in these circumstances, providing the replacement shares otherwise qualify for CGT scrip-for-scrip rollover relief.
The amendments will apply from 10 December 1999, being the date of effect for the CGT scrip-for-scrip rollover relief provisions.
CANBERRA
21 March 2001
Contact:
Media contacts: Paul Edwards Assistant Treasurers Office (02) 6277 7360
John Burge Australian Taxation Office (02) 6216 1177