A new”ish” CGT rollover

The Government has introduced Tax and Superannuation Laws Amendment (2014 Measures No. 6) Bill 2014 into the Parliament. Most of the amendments in this Bill will be of no consequence for the majority of taxpayers.

However, as a part of making some changes to certain CGT rollovers, the Government has decided to rewrite them into a new Division, Division 615.

This division is a merging of the current subdivision 124-G and subdivision 124-H. Subdivision 124-G allows a CGT rollover where interest holders in a company exchange all of their shares in a company for shares in an interposed company. Subdivision 124-H applies where interest holders in a unit trust either transfer their units in a unit trust to a company or redeem or cancel their units in exchange for shares in the company.

These subdivisions work well when the share and units are held on capital account, but, apart from certain situations in consolidated groups, they provided no relief where the shares or units are held as trading stock or revenue assets.

So the first change is that Division 615 offers a rollover of tax consequences irrespective of whether the unit or the share that is being replaced by a share in the new entity is trading stock, on revenue account or on capital account.

Just like the original rollovers, there are heaps of anti avoidance measures to stop any unintended benefits; including:

  • There must be more than one shareholder in the original entity;
  • You must elect for the rollover to apply; and
  • Market values and percentages of shares held before and after must be the same.

So if you want to interpose a company between the owners and another company or trust, Division 615 is the answer.

PS – It is probably (probably not) worth mentioning another amendment to CGT rollovers in this Bill. Currently, a CGT rollover is available where a trust transfers a CGT asset to a company (Subdivision 124-N) or another trust (Subdivision 126-G). A key condition for both of these roll-overs is that the company or trust receiving the asset must hold no CGT assets other than a small amount of cash or debt. This will be modified ensuring that the rollovers will also be available where the entity receiving the asset holds rights under an arrangement that facilitates the transfer of assets to that entity. These rights, when treated collectively, must only be used to facilitate the transfer of assets from the transferring entity to the receiving entity (probably not worth mentioning…).

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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