New Australian Tax Law Expected To Increase Demerger Activity

by Mary Swire, Tax-News.com, Hong Kong

02 July 2002

A new tax law designed to remove the negative tax consequences of demergers in Australia is expected to have a beneficial effect on the country's stockmarket.

Previously, companies were obliged to pay capital gains taxes when demerging, even if businesses were being spun off to existing shareholders. However, under new legislation which came into effect yesterday, companies will not be taxed on the gains from the sale of at least 80% of a subsidiary where the underlying ownership remains unchanged.

Speaking this week to New Zealand-based news service, stuff.co.nz, Andrew Binns, Tax Partner with Ernst & Young Australia praised the new measures, predicted that: 'As companies get to understand it more, they will come to see it as allowing them to restructure in a way that makes them more valuable to shareholders.'

Mr Binns also argued that the move towards tax-free demergers is likely to provide a boost to the country's investment climate:

'The government is trying to encourage people to invest and take long-term views in the market,' he explained to the NZ news service.'To have a tax cost, just because a company restructures to make it more efficient, is an impediment to that sort of activity.'

Recommended