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Capital gains tax relief for shareholders

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M e d ia Relea se

Capital Gains Tax Relief for Shareholders

The Parliamentary Joint Committee on Corporations and Securities has recommended that

roll over relief from Capital Gains Tax be provided where shares are compulsorily acquired,

and when a takeover offer for a publicly listed company is accepted on a scrip for scrip basis.

The Committee said that an amending tax bill should be introduced urgently to accompany

debate on the Corporate Law Economic Reform Program Bill to give effect to this

recommendation. Failing this, the legislation should be amended so that a potential, unwanted

capital gains tax liability provides an absolute defence against compulsory acquisition.

During the Committee’s hearings it heard evidence that self-funded retirees are reluctant to

accept takeover offers because accepting the offer triggers a capital gains tax liability. This

reduces their capital base and their future income stream, limiting their ability to continue to

support themselves.

The Committee concluded that the capital gains tax implications of accepting a takeover offer

will deter many investors from accepting an offer. This will frustrate the economic objectives

of the reforms to takeovers contained in the Bill.

Minority shareholders who are being bought out in a compulsory acquisition will also be

affected by Capital Gains Tax. As one witness noted, not only will shares be taken from

minority shareholders in a compulsory acquisition, but a tax liability will also arise under the

current capital gains tax provisions.

The Committee’s recommendations are contained in its report on the Corporate Law

Economic Reform Program Bill. The Report was tabled this afternoon in the Senate by the

Committee Chairman, Senator Grant Chapman. The Bill is part of the Government’s

Corporate Law Economic Reform Program which is aimed at creating an environment in

which businesses can get on with the job of creating wealth, and jobs, for all Australians.

The Bill is in four parts, dealing with reforms to Directors’ Duties and Corporate

Governance, Fundraising, Takeovers and Accounting Standards. The Bill has undergone an

extensive process of public consultation and discussion involving the release of discussion

papers and public consultations initiated by Treasury and the Business Regulation Advisory

Group. The Bill incorporates many of the comments and suggested amendments from

business groups, professional bodies, practitioners and users of the Law.

“This Bill represents an important step in the Government’s drive to

modernise the legal structures under which Australian businesses operate”

said Senator Chapman. “There was strong support for both the consultation

process and the general thrust of the Bill” he said.

Compulsory Acquisitions

The Committee generally endorsed the Bill’s proposal to expand the circumstances under

which a majority shareholder can compulsorily acquire small minority interests. But it did

recommend some minor changes to place a six month time limit on compulsory acquisitions

and to improve the processes set out in the Bill.

Consideration offered and collateral benefits in takeovers

The Committee examined the issues of the consideration offered in non-cash-only takeover

bids and the receipt of collateral benefits in takeovers. Based on the evidence available to it,

the Committee accepted the recommendations of the Corporations and Securities Advisory

Committee that the operation of section 621(4) be extended to all bids, including non-cash-

only bids; and that sections 623(2) and 623(3) be removed from the Bill. However, the

Committee was reluctant to make a firm recommendation on these issues because it did not

have an opportunity to take evidence on this issue from a wide range of other parties.

Sanctions for licensed dealers

The Committee was concerned about the scope given to licensed dealers to determine who is

a sophisticated investor. The Committee recommended that the legislation should clarify the

sanctions applicable to a licensed dealer who breaches section 708(8)(c) and that such

sanctions should be given further consideration under CLERP 6.

For comment'. Senator Grant Chapman - (02) 6277 3630 or (08) 8231 9611

For information·. Frank Nugent, Committee Secretary - (02) 6277 3583

Internet copy o f Report: or