NO.087

CAPITAL GAINS TAX SCRIP FOR SCRIP ROLL-OVER

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 Bill’s 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

John Anderson

The Treasury

phone (02) 6236 4307

Lyn Freshwater

Australian Taxation Office

phone (07) 321 35554