Australia’s Assistant Treasurer, Nick Sherry, has announced that the government will make it easier for shareholders, using scrip-for-scrip rollovers, to defer certain capital gains made during takeovers, or when companies merge.
The scrip-for-scrip rollover provisions are contained in the Income Tax Assessment Act 1997. It allows a taxpayer exchanging shares in one company for shares in another company as part of a takeover or merger of the companies to defer the realisation of any capital gains from this exchange.
A taxpayer who receives cash in addition to their replacement interests may qualify for a partial rollover.
A takeover or merger arrangement must satisfy a number of requirements in the Income Tax Assessment Act 1997 (ITAA) to qualify for the rollover. However, the Corporations Act also regulates takeovers of listed companies and managed investment schemes, as well as companies and managed investment schemes with more than 50 members.
Under the proposed changes, the new laws will better align the ITAA’s CGT scrip-for-scrip rollover requirements with the Corporations Act 2001, to make it easier for takeovers and mergers already regulated by the latter to qualify for CGT rollover.
For example, takeovers and mergers (including via a scheme of arrangement), that satisfy the member participation and other requirements of the Corporations Act, will not have also to satisfy the member participation requirements of the ITAA’s scrip-for-scrip rollover regulations, to qualify for rollover.
However, the takeover will still need to satisfy any other relevant ITAA conditions for the rollover.
"The government intends to introduce legislation to reform the tax law as it relates to the requirements for the scrip-for-scrip rollover in respect of takeovers and mergers approved under the Corporations Act 2001," Nick Sherry stated, continuing:
"The reforms will increase the scope of the scrip-for-scrip rollover and allow a simpler and better financial transition for shareholders by deferring capital gains at the point of the takeover or merger."
"The changes I am announcing will apply to CGT events that happen on or after today (January 6)," he added.
The government has begun a four-week consultation on the legislative design of these reforms, and an exposure draft of the legislation will be released later this year.
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