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Tax Laws Amendment (2008 Measures No. 6) Bill 2009

Schedule 1 CGT roll-overs for corporate restructures

   

Income Tax Assessment Act 1997

1  Section 112-53 (after table item 2)

Insert:

2A

Interest is acquired by an entity where there is a roll-over under Subdivision 124-M and the arrangement is taken to be a restructure

First element of cost base and reduced cost base

124-784B

2  After section 124-784

Insert:

124-784A   When arrangement is a restructure

             (1)  This section applies in relation to a single * arrangement if:

                     (a)  the replacement entity for the arrangement knows, or could reasonably be expected to know:

                              (i)  that a roll-over under section 124-780 has been, or will be, obtained in relation to the arrangement; and

                             (ii)  that there is a * common stakeholder for the arrangement (disregarding subsections 124-783(4) and (5)); and

                     (b)  subsection (2) is satisfied for the arrangement.

Note:          If this section applies, the first element of the cost base and reduced cost base of interests in the original entity acquired under the arrangement is worked out under section 124-784B.

             (2)  This subsection is satisfied for the * arrangement if the result of step 2 is more than 80% of the result of step 3.

Method statement

Step 1.   Add up the * market value just after the * arrangement was completed (the completion time ) of all of the replacement interests issued by the replacement entity under the arrangement in exchange for the following interests (the qualifying interests ):

               (a)     original interests in the original entity;

              (b)     any interests issued by the original entity to an acquiring entity under the arrangement in respect of other original interests in the original entity cancelled under the arrangement.

Step 2.   Add to the result of step 1 the * market value at the completion time of all of the replacement interests issued by the replacement entity under any earlier arrangement for which this section applied in exchange for qualifying interests in the original entity.

Step 3.   Add up the * market value at the completion time of all of the:

               (a)     * shares * on issue by the replacement entity; and

              (b)     options, rights and similar interests issued by the replacement entity that give the holder an entitlement to acquire a share in the replacement entity at or after the completion time.

Application if an entity is listed

             (3)  For the purposes of:

                     (a)  subsection (2); and

                     (b)  step 5 of the method statement in subsection 124-784B(2);

if interests in an entity are listed for quotation in the official list of an * approved stock exchange at the completion time, then the replacement entity may choose that the * market value at that time of an interest in the first-mentioned entity is taken to be the * officially quoted price of the interest at that time.

Application if more than one original entity

             (4)  If qualifying interests in more than one original entity are * acquired under the * arrangement, then, for the purposes of subsections (1) and (2):

                     (a)  those interests of each of those original entities are taken to have been acquired under separate arrangements; and

                     (b)  those separate arrangements are taken to have happened in the same order as the acquisitions.

             (5)  If qualifying interests in more than one original entity:

                     (a)  would be taken by subsection (4) to have been * acquired under separate * arrangements happening at the same time; or

                     (b)  are acquired under separate arrangements that commence at the same time;

then, for the purposes of subsections (1) and (2), the replacement entity must choose the order in which those separate arrangements are to have happened.

Meaning of officially quoted price

             (6)  An interest in an entity has an officially quoted price at a particular time if, during the one week period starting on the day in which that time occurred, there was at least one transaction on the relevant stock exchange in interests of that class. That price is the weighted average of the prices at which those interests were traded on that stock exchange during that period.

             (7)  For the purposes of subsection (6), if an interest is quoted on 2 or more * approved stock exchanges on that day, the officially quoted price of the interest is determined under subsection (6) in respect of whichever of those the entity chooses.

124-784B   What is the cost base and reduced cost base when arrangement is a restructure?

             (1)  This section applies in relation to each qualifying interest in the original entity:

                     (a)  * acquired by an acquiring entity under an * arrangement to which section 124-784A applies; and

                     (b)  for which the first element of the * cost base of the acquiring entity is not worked out under section 124-782.

Note:          Section 124-782 applies when an original interest holder is a significant stakeholder or a common stakeholder.

First element of cost base—qualifying interests acquired in exchange for replacement interests only

             (2)  The first element of the * cost base of the acquiring entity for the qualifying interest in the original entity is worked out as follows:

Method statement

Step 1.   Add up:

               (a)     the * market value, at the completion time, of the original entity’s * pre-CGT assets (except * trading stock); and

              (b)     the * cost bases, at the completion time, of the original entity’s * post-CGT assets (except trading stock); and

               (c)     for the original entity’s * CGT assets (except trading stock) that had no cost base—the maximum amount of consideration the original entity would need to receive if it were to dispose, at the completion time, of those assets without an amount being assessable income of, or deductible to, the original entity; and

              (d)     the amount worked out under steps 2 and 3.

Step 2.   For the original entity’s * trading stock, add up:

               (a)     the * value of the trading stock at the start of the income year containing the completion time; and

              (b)     for * livestock acquired by natural increase during that income year but before the completion time—the * cost of that livestock; and

               (c)     the amount of any outgoing incurred in connection with acquiring an item of trading stock during that income year but before the completion time (except livestock acquired by natural increase); and

              (d)     the amount of any outgoings forming part of the cost of the trading stock incurred by the entity during its current holding of the trading stock but before the completion time.

Step 3.   For any asset of the original entity not covered by steps 1 and 2, work out the amount that would be the asset’s * cost base at the completion time if it were a * CGT asset.

Step 4.   Subtract from the result of step 1 the original entity’s liabilities (if any) at the completion time in respect of those assets.

Step 5.   If there is one class of * membership interests in the original entity, divide the result of step 4 by the total number of those membership interests at the completion time.

              If there are 2 or more classes of membership interests in the original entity, allocate a portion of the result of step 4 to each class in proportion to the * market value of all the membership interests in that class and divide that result by the total number of membership interests in that class at the completion time.

Note 1:       For the purposes of this subsection, Division 701 (Core rules for consolidated groups) is disregarded for an original entity that becomes a subsidiary member of a consolidated group or MEC group under the arrangement (see paragraph 715-910(1)(a)).

Note 2:       If the original entity is the head company of a consolidated group or MEC group, then subsection 701-1(1) (the single entity rule) and section 701-5 (the entry history rule) apply in relation to that group when working out steps 1 and 2 (see subsection 715-910(2)).

Note 3:       For step 5, the replacement entity may choose to use the officially quoted price of the qualifying interests as their market value (see subsection 124-784A(3)).

First element of cost base—interests acquired in exchange for replacement interests and cash etc.

             (3)  However, if the qualifying interest was acquired under the * arrangement partly in exchange for one or more replacement interests and partly for something else, subsection (2) applies only for working out the first element of that part of the * cost base of the qualifying interest that is attributable to the replacement interests.

Note 1:       This means that the acquiring entity will have to apportion the cost base amount worked out under subsection (2) according to the relative values of the replacement interests and the other component.

Note 2:       The first element of that part of the cost base, and reduced cost base, of the qualifying interest that is attributable to cash etc. is worked out using the general rules about cost base.

Liabilities

             (4)  For the purposes of step 4 of subsection (2), a liability of the original entity that is not a liability in respect of a specific asset or assets of the entity is taken to be a liability in respect of all the assets of the entity.

             (5)  If a liability is in respect of 2 or more assets, the proportion of the liability that is in respect of any one of those assets is equal to:

First element of reduced cost base

             (6)  The first element of the * reduced cost base of the acquiring entity for the qualifying interest in the original entity is worked out similarly.

Rights and options to acquire membership interests

             (7)  For the purposes of step 5 of subsection (2), if at the completion time a person holds an option, right or similar interest (including a contingent option, right or interest), created or issued by the original entity, to acquire a * membership interest in the original entity, that option, right or interest is treated as if it were a membership interest in the original entity.

124-784C   Cost base of equity or debt given by acquiring entity to ultimate holding company

Purpose

             (1)  This section allocates an appropriate * cost base to equity issued, or new debt owed, by an acquiring entity under the * arrangement to the * ultimate holding company of a * wholly-owned group where the cost base of the acquiring entity for a qualifying interest was worked out under section 124-784B.

Allocation of cost base

             (2)  The first element of the * cost base of the equity or debt for the * ultimate holding company is that part of the cost base of the qualifying interest worked out under section 124-784B as:

                     (a)  may be reasonably allocated to the equity or debt; and

                     (b)  is not more than the * market value of the equity or debt at the completion time.

No capital gain on debt repayment

             (3)  Any * capital gain of the * ultimate holding company from the repayment of new debt owed by an acquiring entity under the * arrangement is disregarded to the extent that it relates to the difference between the part of the * cost base worked out under section 124-784B and the * market value of the debt at the completion time.

Note:          If the debt is assigned or exchanged, there may be a capital gain.

3  At the end of section 124-795

Add:

             (4)  You cannot obtain the roll-over for the * CGT event happening in relation to the exchange of your qualifying interest if:

                     (a)  the replacement entity makes a choice to that effect under this subsection; and

                     (b)  that entity or the original entity notifies you in writing of the choice before the exchange.

4  At the end of Division 715

Add:

Subdivision 715-W Effect on arrangements where CGT roll-overs are obtained

Table of sections

715-910    Effect on restructures—original entity becomes a subsidiary member

715-915    Effect on restructures—original entity is a head company

715-920    Effect on restructures—original entity is a head company that becomes a subsidiary member of another group

715-925    Effect on restructures—original entity ceases being a subsidiary member

715-910   Effect on restructures—original entity becomes a subsidiary member

             (1)  This section applies if:

                     (a)  as a result of an * arrangement to which section 124-784A applies, an original entity (within the meaning of that section) becomes a * subsidiary member of a * consolidated group; and

                     (b)  section 715-920 does not apply.

Note 1:       Section 715-920 applies if the original entity was the head company of another consolidated group before the arrangement was completed.

Note 2:       Sections 124-784A and 124-784B apply to arrangements for restructures.

             (2)  For the purposes of section 124-784B:

                     (a)  the completion time (within the meaning of that section) for the * arrangement is taken to be the time the original entity becomes a member of the group; and

                     (b)  disregard Division 701 (Core rules) in relation to the original entity becoming a member of the group.

             (3)  The * head company of the group may choose for:

                     (a)  section 701-10 (cost to head company of assets of joining entity); and

                     (b)  subsection 701-35(4) (setting value of trading stock at tax-neutral amount);

not to apply to the original entity’s assets in respect of the original entity becoming a * subsidiary member of the group.

Note:          This subsection does not affect the application of subsection 701-1(1) (the single entity rule).

715-915   Effect on restructures—original entity is a head company

                   If:

                     (a)  section 124-784A applies in relation to an * arrangement; and

                     (b)  the original entity (within the meaning of that section) for the arrangement is the * head company of a * consolidated group just before the arrangement was completed; and

                     (c)  section 715-920 does not apply;

then, for the purposes of section 124-784B, subsection 701-1(1) (the single entity rule) and section 701-5 (the entry history rule) apply in respect of the group.

Note 1:       This section does not otherwise affect the application of subsection 701-1(1) or section 701-5.

Note 2:       Sections 124-784A and 124-784B apply to arrangements for restructures.

715-920   Effect on restructures—original entity is a head company that becomes a subsidiary member of another group

             (1)  This section applies if:

                     (a)  section 124-784A applies in relation to an * arrangement; and

                     (b)  the original entity (within the meaning of that section) for the arrangement is the * head company of a * consolidated group (the acquired group ) just before the arrangement was completed; and

                     (c)  as a result of the arrangement:

                              (i)  the original entity; and

                             (ii)  the * subsidiary members of the acquired group just before the arrangement was completed;

                            become subsidiary members of another consolidated group.

Note:          Sections 124-784A and 124-784B apply to arrangements for restructures.

             (2)  For the purposes of section 124-784B:

                     (a)  the original entity is taken to be the * head company of the acquired group at the completion time (within the meaning of that section) for the * arrangement; and

                     (b)  the operation of this Part for the head company core purposes (mentioned in subsection 701-1(2)) in relation to:

                              (i)  the original entity; and

                             (ii)  the entities that were * subsidiary members of the acquired group just before the arrangement was completed;

                            continue to have effect at the completion time for the arrangement; and

                     (c)  the completion time for the arrangement is taken to be the time the original entity becomes a member of the other group; and

                     (d)  disregard Division 701 (Core rules) in relation to the original entity becoming a member of the other group.

Note:          Paragraph (b) means that, for the purposes of section 124-784B, the subsidiary members of the acquired group are treated as part of the original entity.

             (3)  The * head company of the other group may choose for:

                     (a)  section 701-10 (cost to head company of assets of joining entity); and

                     (b)  subsection 701-35(4) (setting value of trading stock at tax-neutral amount);

not to apply to the original entity’s assets in respect of the original entity becoming a * subsidiary member of the other group.

Note:          This subsection does not affect the application of subsection 701-1(1) (the single entity rule).

715-925   Effect on restructures—original entity ceases being a subsidiary member

                   If, as a result of an * arrangement to which section 124-784A applies, an original entity (within the meaning of that section):

                     (a)  ceases to be a * subsidiary member of a * consolidated group after the completion time (within the meaning of that section) for the arrangement; and

                     (b)  does not become a member of another consolidated group;

then, for the purposes of section 124-784B, the completion time for the arrangement is taken to happen at the time of the cessation.

Note:          Sections 124-784A and 124-784B apply to arrangements for restructures.

5  Subsection 995-1(1)

Insert:

officially quoted price has the meaning given by subsections 124-784A(6) and (7).

6  Application

(1)       The amendments made by this Schedule apply in relation to an arrangement that is or relates to a takeover bid (within the meaning of the Corporations Act 2001 ) if:

                     (a)  for an off-market bid (within the meaning of that Act)—step 4 of the table in subsection 633(1) of that Act; or

                     (b)  for a market bid (within the meaning of that Act)—step 2 of the table in subsection 635(1) of that Act;

is completed after 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 2008.

(2)       The amendments made by this Schedule apply in relation to an arrangement if:

                     (a)  a court orders, under subsection 411(1) of the Corporations Act 2001 , a meeting or meetings of:

                              (i)  a company’s members; or

                             (ii)  one or more classes of a company’s members;

                            about the arrangement; and

                     (b)  the application for the order was made after 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 2008.

(3)       The amendments made by this Schedule apply in relation to an arrangement if:

                     (a)  the arrangement is not, and does not relate to, a takeover bid (within the meaning of the Corporations Act 2001 ); and

                     (b)  a court does not order, under subsection 411(1) of the Corporations Act 2001 , a meeting or meetings of:

                              (i)  a company’s members; or

                             (ii)  one or more classes of a company’s members;

                            about the arrangement; and

                     (c)  a decision to enter into the arrangement was not made before 7.30 pm, by legal time in the Australian Capital Territory, on 13 May 2008.